Beyond managerial opportunism: Supplier power and managerial compliance in a franchised marketing channel

Beyond Managerial Opportunism: Supplier Power and Managerial Compliance in a Franchised Marketing Channel Jonathan E. Brill TEMPLE UNIVERSITY

A groundbreaking contribution to transaction cost analysis was advanced

Like any theoretical perspective, transaction

cost analysis in

byJohn (1984) who recognized that managerial opportunism is a behavioral

not without weakness. Robins (1987). for one, has discussed

variable requiring theoretical explanation, not an exogenous constraint to

several assumptions incorporated by this perspective that do not appear to deserve the axiomatic status they are given. That managers are inherently opportunistic should also be added to such a discussion. Indeed, in a groundbreaking study, John (1984) noted that the transaction cost research program has adopted this view in the face of a large body of research which suggests that opportunism is not inherently characteristic of human behavioral interactions, especially when relationships continue over time. Beginning from this basis, John (1984) proposed and tested a theoretical model based upon arguments that power and organizational structure are important antecedents of managerial opportunism. By recognizing the need to understand opportunism’s antecedents and by offering a plausible explanation for when and to what extent opportunistic behavior can be expected in marketing channel relationships involving franchised systems of retail distribution, John (1984) has made an important contribution to the transaction cost an!ysis theory. Nevertheless, several aspects of John’s (1984) modei seem worthy of further examination and raise important questions. Two of the paths between the latent variables included in the structural equation predicting opportunism, the path between coercive influence attributions and opportunism and that between bureaucratic structure and opportunism, are not significant. Another structural pathway - that between coercive influence attributions and attitudinal orientation-is also not statistically significant. (Refer to Figure 2 in John, 1984, p.285, for details). The presence of these multiple non-significant paths between latent constructs certainly challenges one’s confidence in the structure of John’s model. A second, and perhaps even more important, issue is the models treatment of supplier power. John’s (1984) model posits that French and Raven’s (1959) five bases of social power are distinct despite wide recognition that these categories of influence are overlapping. not murudy exclusive (e.g., see Kipnis. richmtdt, and Wilkinson, 1980; Raven, 1974). Also disconcerting is that the model posits that some of these bases affect managerial attitudes whereas others affect managerial behaviors, a hypothesis first suggested by Raven and Krugkmski (197@). when convincing empirical evidence supporting this typothe-

be assumed and imposed upon the marketing channel network. However, it is argued that severalfeatures ofJohn’sfina1 modeipredictingopportunism seem problematic. An alternative model, one that explains supplier power and managerial opportunism-the

latter being viewed as an aspect of the

broader and more common social psychological construct o/compliance-is proposed and operatlonulrzed using]ohn’s (1984) indicator measures. Then, usingJohn’s (1984) published data, this model is subjected to stathtical testing and modt$cation through analysis ojcovariance structures. Results suggest that the proposed model is superior tojohn’s with respect to goodness-of+ and other important modeling criteria.

Conclusions, manage& implications,

study limitations, and directionsjorficture RES

research are discussed.

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ncluded among the central constructs posited by the theory of economics of organization structure known as transaction cost analysis (Williamson, 1975, 1981) is managerial-opportunism. Opportunism in the context of transaction cost theory is to be distinguished from strategic opportunism. Whereas the latter describes a manager’s “ability to remain focused on longterm objectives while staying flexible enough to solve day-to-day problems and recognize new c?portunities” (Isenberg, 1987, p.92) managerial opportunism refers to the behavior whereby managers distort or conceal information, or refrain from acting as promised, expected, or obliged in hope or anticipation of re:tizing a benefit for themselves or their firm at the expense of another. Not all managerial efforts to realize advantage constitute opportunistic behavior, however. Consistent with Williamson’s (1975, p. 6) definition of “self-interest seeking with guile,” duplicity must play a central role in shaping the behavior. Managerial opportunism is undesirable, then, because it involves the consumption of sidck resources that might have been used to further the objecnves of the channel network or a particular dyadic relationship within it. Addresscorrespondence roJonathan E Br~ll. Ph D ,303OlWedgewood Drwe. Solon. Ohw 44 139 Journal of Busmess Research 30, 21 I-223 (1994) 0 Elsewer Science Inc , 655Avenue of the Americas, New York, NY 10010

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sis has yet to be reported. Indeed, John’s (1984) model tests this hypothesis, and it is found to exhibit a relatively poor fi: with the data, In the absence of stronger evidence, then, it seems rp?sonable to consider other plausible models where the Raven and Kruglanski (1970) hypothesis is not incorporated in the explanation of opportunism. Finally, John’s (1984) model predicts opportunism in a behavioral vacuum, failing to link it conceptually to other behavioral constructs that have been established in social psychology. This seems odd in view of the fact that John (1984) himself has not only cited lack of cooperation, such as the non-performance of promises or obligations, as an example of opportunism (p.E’R), but also has argued that aggressive retaliarnry actions in workplace tend to manifest themselves in opportunistic behaviors Because cooperation and aggressiveness are familiar concepts in social research, these observations suggest that a more general model, one in which opporrunism is viewed as an aspect of a broader class of behavior, may be possible. Consistent with these issues, the initial motivation for the present study was to use John’s (l’J84) data set to develop and test an alternative model that would explain managerial opportunism and supplier power while viewing opportunism as an outcome or aspect of a more familiar social psychological construct, compliance. Recognizing that John (1984) collected data from managers of oil company gasoline service station franchises, this study seeks to understand the antecedents of these variables in the context of a franchised marketing channel system. Though this study is limited in this way, other studies concerned with supplier power have provided evidence that marketing theories may hold across both franchise and nonfranchise channel systems (Hunt and Nevin, 1974; cf. Lusch, 1977). By featuring a model in which compliance predicts supplier power and managerial opportunism, the latter being an element of transaction cost analysis ontology, this study contributes to marketing knowledge by providing a connection between transaction cost analysis and theories of social power, a traditional construct in marketing channels research.

Theoretical Development Compliance refers simply to the overt behavioral adherence to rules or norms (Festinger, 1953; Freedman, Wallington, and Bless, 1967; Froming and Carver, 1981; Gray and Robl>rtsGray, 1979; Kiesler and Kiesler. 1969). It is to be distinguished from conformity, which may be defined as compliance eciompanied by attitudinal acceptance of these norms (Allen, 1965; Festinger, 1953; Kiesler and Kiesler, 1969; Zajonc, 1968). Certainly, behavioral adherence to norms may be observed with varying degrees. so a useful way of conceptualizing the compliance construct is to think of it as a contirlllous variable, one that ranges from adherence without any apparent resistance or objection whatsoever to the extreme opposite of this, aggressive or combative resistance. Included at more modcratc positions alongthis contmuum would be acts of foot-dragging.

J.E. Brill

avoidance or evasion, and misrepresentation or deceit. In the context of the business manager, this conceptualization makes it &ar that cc,uperation and oanortunism may be considered 1 exarr& or aspects of compiiant behavior, with cooperation representing a position located along the high compliance half of the continuum and opportunism lying nearer the opposite end. The application of a general systems approach to theory construction suggests that managerial compliance may be seen to have its antecedents in the environmentai variables that confront the manager. General systems theory (Bo*llding, 1956; Miller, 1955; von Bertalanffy, 1950) posits that the environment has profound influences on the behavior of all systems existing within it. This is necessarily so because the environment defines the range of all possible inputs (either information or matter-energy) that might enter and interact with its systems and the systems within them, and places limits on what activities constitute acceptable system outputs (Berrien, 1968; Miller, 1978; von Bertalanffy, 1968). In short, the environment represents a set of restrictions, and the chailenge to the researcher wishing to explain managerial behaviors such as compliance is to identify those dimensions of the manager’s world that place limitations on him or her. In the context of interfirm relationships in a marketing channel, this idea leads to the concept of relational restrictiveness, the constraints faced by managers that define and limit: (1) the information they receive in making decisions, (2) the roles they are expected to perform, and (3) the behavioral responses to these inputs they exhibit or are permitted to exhibit in these roles. To be sure, much research attention has focused on associating variables representing dimensions of relational restrictiveness with various aspects of managerial compliance. In these studies, relational restrictiveness most often has been represented by one or more variables measuring aspects of tureaucratic structure present within the manager’s organization. Typical operationalizations rely upon the three dimensions of bureaucracy inferred from the Weberian model: centralization, the loci of authority in operations and participation in deasionmaking; formalization, the degree of specification in operational procedures; and control, the extent of surveillance and rule enforcement imposed. These measures are believed to be intercorrelated positively (Dewar and Werbel, 1979; Hage and Aiken, 1967) and are widely used and advocated for organizational research (Aldrich, 1976; Child, 1972; Marrett, 1971). In this tradition, the association between compliance and relational restrictiveness is evidenced by studies associating high levels of centralization with increased incidences of aggressive behavior (Berkowitz, 1965) and lower levels of communication and information sharing (Simpson and Galley, 1962). A more obvious connection has been reported by Julian (1966) who found hospital patients to be less compliant when restrictive cont;,Jl:, at A cuerclve tacncs are used in the administration of hospttal rules and procedures. Such observations may be Interpreted to sugcst that the presence oflunltat~ons on hchavior serves as a source of frustration, lostcring resentment and

Beyond Managerial Opportunism

provoking a disposition toward rebellious behaviors. In the context of the franchise manager, then, the following hypothesis may be seen to follow: i4: increased levels of relational restrictiveness imposed by suppliers on franchisees are associated with reduced compliance among franchise managers. The construct known as morale represents a class of attitudinal variables that also has been assoctated with relational restrictiveness. Though morale has been a somewhat elusive concept to define, Lawton (1972) has suggested that morale consistently is represented by three attributes in people. These include a general sense of satisfaction or self-worth, a feeling that one’s personal needs and sense of identity are in congruence with his or her environment, and an acceptance of one’s circumstances that are not subject to one’s control or influence. Hence, high morale reflects successful organizational socialization whereby the franchise manager accepts and is assimilated into the culture of the franchise network. As with measures of comp!ianre: several variables tapping morale typically have been linked to relational restrictiveness in studies concerned with bureaucratic structure. For example, high centralization has been linked to decreased feelings of work involvement and organizational fit (Simpson and Gulley, 1962). Likewise, Aiken and Hage (1966) found high levels of centralization and formalization to be associated with alienation from work (i.e., the feelings of dissatisfaction with career and professional development and of disappointment in one’s ability to fulfill professional expectations) and with alienation from others in the workplace. Such findings are consistent with the idea that restrictions placed upon the franchise manager have a tendency to reduce his or her morale: by removing opportunities for the manager to exercise judgment, relational restrictiveness reduces the manager’s feelings of authority and responsibility for business outcomes which, in turn, may be seen to become manifest in feelings of reduced self-worth and sense of individual identity. In view of this evidence and the accompanying rationale, then, the following hypothesis is suggested: HZ: Increased !eveis of relational restrictiveness imposed by suppliers on franchisees are associated with reduced morale among franchise managers. Managerial morale may also be seen to be related to managerial compliance. Theories of organizational socialization (e.g., see Caplow, 1964; Feldman, 1976,198l; Schein, 1968; Van Maanen. 1975) suggest a link whereby an organization’s members adopt organizational norms increasingly as their job-related attitudes become increasmgly congruent with those prescribed by the organizational culture. Support for this proposition is found in empirical studies as well. In jlt observational study comparing two organizations, Dutton and Walton (1966) concluded that attitudinal congruence in objectives among interdepartmental personnel leads to increased cconeration and compliance, whereas incongruent attitudes promote the wlthholdmg of mlormarlon, a form of (non)compliant and specifically op-

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portunistic behavior. In addition, Smith (1977) found a positive relationship between compiiance to attendance rules and levels of job sa:isfaction and company identification. The lmderlying nature of the linkages among managerial compliance, relational restrictiveness, and morale may be understood through a model whereby morale is seen to mediate the influences of relational restrictiveness on compliance. Support for this idea comes from severai writers concerned with understanding managerial behavior within organizations. Etzioni ( 1961) has proposed a general theory of managerial behavior which posits that environmental influences on behavior are mediated by attitudes. In more specific and directly related discussions, it has been suggested that higher degrees of formahzation and centralization lead to frustration and dissatisfaction which, in turn. create an aanosphere of suspicion, distrust, and low morale that results in reduced cooperation (Dewar and Werbel, 1979) and reduced compliance manifest by an increase in aggressive behaviors that are typically opportunistic (John, 1984). Consistent with this thinking, and placed in the context of a contractual franchise agreement where the manger must surrender some degree of business autonomy and operational control, lower levels of morale may be seen to result in reduced compliance. Noncompliant behaviors, such as cooperation pro__-vided begrudgingly or managerial .+portunism, may‘ be seen as a behavioral response whereby managers compensate for their feelings of identity loss and reduced self-worth. That is, noncomp!isnce provides the manager ways of demonstrating his or her ability-however limited or benign it may be-to affect business outcome, and these are used by the manager to help restore his or her sense of self-worth and idennty. Thus, managerial morale may be seen as the agent that first diagnoses the relevant environmental influences and then prescribes the appropriate level of compliance to be exhibited given the peculiarities of the work situation. Hence, H3: The relationship between relational restrictiveness imposed by the suppher and managerial compliance among franchisees is mediated by mora!e experienced by the franchise managers.

Supplier Power Another construct traditionally of interest in the study of marketing channel relationships is social power, particularly the power of suppliers. Much of this work has been reviewed and synthesized by Gaski (1984). and several studies have investigated the role of power as it specifically pertains to franchise channel relationships. For example, using French and Raven’s (1959) typology, Hunt and Nevin (1974) first examined the question of which power bases are used by franchisers to

achieve cooperation from franchisees, and then empirically tested the differential effects of the use ot’each power base upon franchisee satisfaction In addition, Frazier and Summers (1986) have studied the use of various power-based influence strategies m the automotive sales industry. This stream of research has stimulated efforts aimed at construcring more general the-

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ories of sources of power in channel systems (Gaski, 19%; cf. Howell. 19871. AS n~red by others (e.g.. Frazier, 1983). as salient feature

of the marketing channels literature is the rather consistent manner in which power has been conceptualized. Interorganizational and channel researchers (e.g., El-Ansary and Stun, 1972; Etgr, 1977; Hunt and Nevin, 1974) have adopted the view that power is an objective resource or inherent characteristtc of a social actor, This perspective-one in which power typically is defined as a potential force with definite magnitude that is not only peculiar to a social actor, but also may be applied at will by that actor for the purpose of directing behavior of another-appears to be borne from the writings of theorists such as Dahl(1957) and French and Raven (1959). This aspect of the marketing literature seems most curious, however, inasmuch as this conceptualization of power is but one of two that are dominant in the broader social science literature. Indeed, several scholars (e.g., Cartwright, 1959; Pahng, 1989) have lamented that the concept of power has been the subject of rather heated debate. In opposition to the power as a resource conceptualization stands the alternative that power is a subjective phenomenon (Bacharach and Bawler, 1976,198l; Pruitt, i981). !n this view, power is the consequence of attributions made by involved socia! actors. It is therefore an aspect of a relationship and peculiar to it, not a characteristic of the actor. This alternative view, power as a perception, is adopted it-1 the present study. While detailed discussion jastifying this departure from the objective resource conceptualization is beyond the scope of this manuscript, many of the arguments supportive of power as an attribution have been covered elsewhere (e.g., see BrZl, 1992; Cross, 1969; Pahng, ;989>. For now, it may suffice to make two points. First, in channels research, power has been measured using attributions of influence rather consistently (e.g., El-Ansary and Stern, 1972; Etgar, 1977, 1978; Hunt and Nevin, 1974; John, 1984; Lusch and Brown, 1982; Wilkinson, 1974); and, second, unlike the power as a chcracteristic resource perspective, the power as an attribution perspective is not burdened with the problem of justifying why it is appropriate to measure an objective resource with attributions. Though El-Ansary and Stern (i972) have discussed this question and provide arguments to support the use of subjective measures, adopting the view that power is a perceptual phenomenon certainly has the advantage of being theoretically more parsimonious simply because this conceptual challenge is avoided completely. Hence, power may be conceptualized and defined as “the perceived ability or potential of a social actor to influentc or control the behavior of another within a pen r&p timhip CJ~ context” (Brill, 1992, p. 836, emphasis in the origin;il) and presumed measurable using attributions made by an involved social pa:ty engaged in the exchange relationship. Given this perspective, the concept of supplier power is appropriately viewed only as a social structural phenomenon, an attributed aspect of a relationship between the franchisee and franchiser. It follows from this that suppliers cannot and do

not possess power, Rather$anrhisors are cmgowered only when and to the extent that the franchise manager attributes power to them. Furthermore, because attributicns necessarily are derived from social cues and experiences, supplier power may be predicted from-and, conceptually, it must be explained in terms of-the theoretical social and structural variables invoked. Hence, in the present study, supplier power may be seen as an outcome of relational restrictiveness, managerial morale, and managerial compliance. In focusing on the relationship between relational restrictiveness and supplier power, it seems wise to reflect that, in all social relationships characterized by economic considerations, the ascendancy of one exchange parmer over another is a consequence of the status conferred upon the first party by the second party who desires use or ownership privileges over the economic resources commanded by the first party. That is, franchisees confer deference to their supplier, the franchiser, because *hey depend on the franchiser for the inputs used in operations. To be sure, some aspects of the ascendancy granted are purely social in nature, governed by the sociai rules and customs of proper business conduct in the society. Others, however, are governed by the operational and procedural rules, in a sense the social and political structure, specified for the intecfirm relationship in the franchise contract agreement. For example, the more specific and restrictive the terms of this agreement are. the more legitimate influence the franchiser has which, in turn, can be exprcted to result in greater power attributed to the franchisor by the franchise manager. This expected positive correlation has been observed by Etgar (1976) who found insurance providers with stronger power bases to have increased influence in the business practices of agents. However, this finding was in the context of a noncontractual channel arrangement, so the present hypothesis extends this to the realm of franchise systems. Hq: Increased relational restrictiveness of increased supplier power.

leads to perceptions

Supplier power may also be seen as a consequence of managerial morale. The essence of a franchise contract is that one party, the franchisee, agrees to subordinate itself to another, the franchiser. Because of this property, then, the franchise manager must necessarily attribute power to the supplier. It follows that those who are sansfied with their membership status are likely to recognize and embrace the reasons for the business relationship. That is, managers with high morale, those satisfied with and accepting of their social and organizational circumsances or business role, may be expected to perceive and acknowledge the franchiser’s power. Thus, Hs: Higher levels of managerial morale lead to increased attributions of supplitr power. It seems natural to associate comphance with power. What however, IS the nature of the relation. ship. Consistent with Bonoma’; (I 976) analysis of bargained cxchangc (e.g., market exchange) rclauonships, the existence IS perhaps less obvious.

Beyond rvlsnagerial Qpportmism

of a bargained re~~onship suggests a mixed power system where there is some degree of equality between exchange partners. In such systems, it is this equality that fosters the formation of behavioral norms and the setting of rules, and these are adhered to by the parties involved because each party recognizes that compliant behaviors are in its own best interests. frequent cooperation, and Thus higher leve!s of compliance, _ few attempts at dc s.eption (e.g., opportunism) suggest greater interdependency and equality among the parries involved, and this may be seen to translate ir,to less social power being attributed to the exchange partner. H6: Increased levels of managerial compliance lead to reduced levels of power attributed to the supplier (franchisor). While the hypothesized negativity in this relationship may seem co~nterinmi~ve to some, it is worth noting that this prediction is plausible only when power is viewed as an attribution. Those wh3 cornpLy do so because they see benefits to their cooperation; managers high in compiiance, then, are not particularly likely to attribute then past compliant behaviors to supplier power, but rather to their acceptance and internalization of the social norms (i.e., see their compliance as voluntary choice). It is only when power is conceptualized as an objective resource that it becomes necessary to expect that supplier power and managerial compliance be positively related.

In light of the preceding discussion,

the latent variable structure of the model depicted in Figure I is suggested. The signs corresponding to the specified regression paths are included to reflect the h~o~es~ed directionali~ among the constructs.

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!t is worth noting that it is not necessary that the direct path from relational restrictiveness to comphance be found signifi-

cant for Hypotheses #1 and #j to be supported. Hypothesis #I suggests only that there is a negative association between these constructs; it is Hypothesis #3 that suggests that this retationship is causal in nature. For Hypotl~esib#3 to be supported, it is only necessary that tie paths from relational restrictiveness to morale and from morale to compliance be found significant Whether the path from re&onal restrictiveness to compliance is significant simply determines the strength of the hypothesized mediation by morale: if it is significant, morale is said to be a weak mediator; if it is not, mediation is strong. Certainly, too, it is recognized that predictor variables other than those included in this proposed model might affect managerial compliance and/or suppiier power. While the inclusion of such variables would be desirable, the present study still represents a wo~while contribution to knowledge in that it tests part of a larger and more cumprehensive alternative theoretical model of compliant marragerial behaviors, including opportunism and cooperation, and supplier power. Neve&eless. inasmuch as ignoring other potemiatly important variables is recognized as a limitation of this research, this issue will be discussed in greater detail at a later point.

Methodology and Results John (1984) conducted a self-administered postal survey among top rntinagers of gasoline service station franchises of oil companies. Survey packages were mailed to a total of 1,000 dealers

in March 1980. After two weeks, a fo~ow-up mailing was sent

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to nonresponders. This procedure yielded 151 completed questionnaires featcring only incidental item nonresponse. While the 15% survey response rate is low by modern standards, John (1984) has provided data comparing the sample and population on gallons of gasolinesold (49,234 vs. 45,830), number of years involved with the franchiser (13.03 vs.13.04), years as a gasoline dealer (15.38 vs. 14.73), and number of service bays in service (2.40 vs. 2.30). With only small differences observed for these characteristics, there is evidence that the sample is representative of the population, and nonresponse bias is likely to be acceptably small.

Measures Twelve measures consisting of multiple-item scales were compiled from the data. The content matter of each scale, along with the variable name assigned to it, is indicated in Table 1. Selected scale characteristics, including reliabilities, and the intercorrelations among these measures as previously reported by John (1984) are presented in Table 2.

The scale measures were assigned as indicators corresponding to the model’s latent variables in accordance with judgments bnsed on theory and consideration of the descriptive information provided by John (1984). The specific reasoning that led to the indicator assignment decisions for each latent construct is described below. RELATIONALRESTRKTIVENESS. Relationalrestrictiveness already has been defined as the set of variables that place limitauons on the manager. As such, appropriate measures would reflect

the degree of control or direction that the supplier is able to exert upon the operations of the franchisee. Hence, the relational restrictiveness construct should capture: (1) the supplier’s ability to deny resources or show favoritism to the franchisee so as to encourage desired responses or discourage unwanted behaviors, and (2) the procedural controls or rules and organizational structure that may be imposed upon the franchisee by the supplier. Examinatic,n of the description of the REWARDand COERCIVEscales as wgll as the example items that had been provided by John (1984) indicate that these scales tap the first of these two aspects of relational restrictiveness. Operant learning theory (e.g., see Skinner, 1966) suggests that both posi:ive reinforcements (e.g.,reward) and negative reinforcements (e.g.,coercion! direct behavior. Similady, inspection of the example items provided for the LE‘CITMATscale suggests that this measure is strongly correlated with the supplier imposed rules aspect of relational restrictiveness, The measures corresponding to the three Weberian dimensions of bureaucracy-CENTRAL, FORMAL,and CONTROLS-also have been included among tie indicators of relational restrictiveness. The definitions provided earlier make it seem clear that centralization, formalization, and control (i.e., surveillance and rule enforcement) are constructions reflecting the procedural and operational rules aspect of relational restrictiveness. And, as noted earlier, this assignment decision is consistent with common practice in the channels and interorganizational research literatures. Since these measures reflect limitations on behavior, all should be anticipated to correlate positively with relational restrictiveness. According to the information provided by John (1984), job satisfaction and perceptions of role conMANAGERIALMORALE.

Table 1. Scaie Definitionsof Indicator VariablesUsed in the Analysis Scale

Name

OPTUN~M COOPRATN ROLERT SATSFCTN FORMAL CENTRAL CONTROLS COERCIVE REWARD REFERENT EXPERT LECITMAT

Description of Scale Content Self reported frequency of opportunistic behavior by franchise manager Self reported intentions to cooperate (i.e., perform required role behavior) by manager Perceptions regarding the convergence in beliefs about salient business issues among the supplier and the manager (respondent) Perceived satisfaction experienced by the manager (respondent? from his/her interaction with the supplier Reported formaI~tion of operating procedures Reported centralization of authority in the supplier-retailer relationship l&ported extent of ruk enforcement and surverllance experienced by the retail operation Coercive power attributed to the supplier by the franchise manager (respondent) Reward power attributed to the supplier by the franchise manager (respondent) Referent power attributed to the supplier by the franchise manager (respondent) Expert power attributed to the supplier by the franchise manager (respondent) Lcgitlmate power nrtrlhutcd to rhe supplier by the franchise manager (respondent)

Name Assignedby J&n (1984) Opportuntsm Conative orientation Cn&dvs

orientation

Affective orientation Formalization Centralization Control Coercive influence Reward influence Referent influence Fxpert influence Legitnnstc mffucnzc

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gruen.cc as they perui;; ;o the franchise manager in his or her interface with the franchiser are captured by the SATSFCIN and ROLEFIT measures, respectively. These scales seem ideal for measurement of the morale construct in the proposed model in view of Lawton’s (1977, p. 6) observation that, in its original conceptualization, “morale subsumed the concepts of both job sat&action and the motivation to conform to organizatiorzl requirements. . . .* For this reason, the SATSFCTN and ROLEFIT measures have been used to operationalize the morale construa and they are expected to correlate positively with it and each other. MANAGERIALCOMPUNCE. Farher discussion has already es_ tablished that cooperation and opportunism are behaviors that may be conceptualized as lying along the continuum representing compliant behaviors. Inasmuch as John (1984) indicates that his opportunism scale (OPTUNISM) taps the frequency of oppornmistic behavior, it seems reasonable to adopt this measure as an indicator of the managerial compliance construct in the proposed model. However, given that the COOPRATN scale has been repreqnted as a measure of the conative dimension of managerial attitudes in John’s (1984) study, a sound argument that it is appropriate to use this scale as a behavioral, rather than attitudinal, measure is essential. Support for this position comes from two sources. One is the scale item examples themselves, which have been provided by John (1984, p. 288): “I do not volunteer much information regarding my business to my supplier” and “There are some things that I will do only if my supplier checks up and insists on it.” Only the latter item clear!y refers to intended behavior; the respondent is asked to indicate what he or she wil! do. In contrast, the first item may be interpreted as a report of either actual or intended behavior. because this statement is phrased in the present tense, rather than in the future tense, it is possible to imagine that this item reflects a report of a current behavioral pattern, not simply intended behavior. Indeed, had the items used the past tense-i.e., -1 have not volunteered much information regarding my business to my supplier” and “There are some things that I have not done unless my supplier checked up and insisted on it”- it would have been difficult to view these as anything other than behavioral measures. A second source of support comes from attitude theory. In his study, John (1984) adopted the cognitive-affective-conauve model of attitude structure formalized by Rosenberg and HOVland (1960). This model views attitude as a latent construct that cannot be directly observed and, instead, must be inferred from behavioral responses. Ajzen (1989) has warned that, although it is widely recognized that these behavioral responses may be either verbal, nonverbal, or both, many fail to appreciate this in practice. Instead. researchers tend to use evaluative verbal responses as measures of attitudes and overt behaviors as measures of behavior. The consequence is that almost all models claiming to predtct behaviors from attitudes are more accurately conceptualized as models predicting the nonverbal manifestations of attitudes from the verbal manifestations of these same

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attitudes. This confusion arises largely as a consequence that the conanve dimension of attitude structure is a behavioral component; indeed, Rosenbergand Hovland (19601titled their et&jsic chapter “Cogdive, Affective, and Behavioral Components of Attitudes.”Hence, all reports of behavior are more accurately thought of as indicators of the behavioral component of attitude, rather than as underlying constructions of behavior. The point is that researchers consistently invoke a crucial but typically unstated theoretical assumption: behavioral outcomes are so tightly coupled to the behavioral component of attitude that, in the practice of model building, they may be treated as congruent constructions. In this tradition, the behavioral components of attimde evidenced by the evaluative expressions and reports of managers regarding their exhibitions of opportunistic and cooperative behaviors have been assigned as representations of the underlying behavioral construction of comp~ance. Hence, CQOPRATNand OPTUNISMmay be properly used as indicators of managerial compliance. And, because cooperation is a highly compliant behavior, COOPRATNis expected to correlate positively with managerial compliance. In contrast, since opportunism is a noncompliant activity, the OPTUNKM inpicator is expected to exhibit a negative relationship to the compliance construct and to covary negatively with COOPRATN. SUPPLIERPOWER. The use of French and Raven’s(19.59) five bases of power-referent influence, expert iniluence, legitimate infuence, reward influence, and coercive influence-to operationaltie the power construct has been a common practice in the literature (e,g.,Hunt and Nevin, 1974; Lusch, 1977; Rosenberg and Stern, 1971). Consistent with this approach, the five scale measures correspunding to this ~xonomy of social power bases appearing inJohn’s (1984) data-REFERENT, EXPERT, LEGITMAT,REWARD,and COERCIVE-have been used as indicators of the supplier construct in the present study. However, instead of dividing these iive measures among two or more constructs (e.g., coercive power and noncoercive power) as is frequently seen in practice, all have been related to a single construct, supplier power. There is considerable justification for this departure. First, though uncommon in channels research, precedent for conceptualizii power as a singledimension does exist (e.g.,see Wilkinson, 1981). Second, and perhaps most compelling, is that when the French and Raven(1959) taxonomy is used, the assignment of indicator measures to multiple power constructions may be seen to be largelyarbitrary. As many have observed (e.g.,Ripnis, Schmidt, and Wilkinson, 1980; Raven, 19741, these five influence bases are neither mutually exclusive nor logically distinct. To prove this, one need only consider two power bases, coercive in~uence and reward influence, and recognize that the failure to provide reward by one party might rightly be considered coercion by another. Consequently, conceiving power as a single entity seems a reasonable decision. The d~rectionalities in the relationships between suppliet

power and its indicators should not be expected to be consistent, however. While power is expected to be positively related to compliance, coercive influence can be expected to be attributed only when compliance is not given voluntarily. In contrast, attributions regarding the other forms of influence are not inconsistent with volunrary behavior. Therefore, regression weights from supplier power to these indicators can be expected to be opposite in direction from that to COERCIVE. This expectation is consistent with past studies that have found coercive and nonc~rcive power sources to have opposing relationships with other variables (see Gaski, 1984, for a review).

The parameters of the hypothesized model were estimated using AMOS(Arbuckle, 19881,an alternative structural modelingprogram to the better known USRELu~r~kog and S&born, 1984, 1989) and EQS (Bender, 1985) analysis packages. Recognition of the reliability of AMOScomputations relative to other wellknown programs, such as LISRELand EQS, has been established by its use in several recently published studies (e.g., see Pruchno, et al., 1990). Like these other programs, AMOS first uses a maximum likelihood procedure to estimate the free parameters of the model, next computes covariances among the measures based on these estimates, and then compares these computations with the sample covariances. This makes the use of AMOSand similar programs advan~geous for several reasons. First, a summary statistic with a chi-square distribution is generated from the comparison of the computed and observed covariances. This statistic may be used to test the null hypothesis that the model is consistent with the observed data, statistically significant values of chi-square suggesting that this hypothesis is not supported. Second, the measurement of structural equation systems of the proposed model are simul~neously estimated. Hence, when an adequate correspondence or “fit” between the proposed model and’& data is found, the method provides evidence supporting claims of the convergent, discriminant, and nomolo~~ validity for the model’sindicator measures (Bagozzi and Phillips, 1982). In instances where this evidence is reinforced by conceptual arguments supporting the assignment of indicators (such as those presented above), claims regarding measurement validity are especially strong. Finally, the analysis of covariance structures allows the estimation of regression coefficients of structural paths incorporatingvariables with correlated error terms (Hannan and Tuma, 1979; Markus, 1979). The sample size ofJohn’s (1984) data set may be considered adequate for the application of analysis of covariance structures to the proposed model. Lawley and Maxweil ( 197 1) have suggested that the number of cases examined should be at least 50 more than n(n t !!!2 where n is the number of manikt (i.e., observed) variables included in the model. The sample population of 151 respondent easily exceeds the i 28 minimum suggested by t-he observation of 12 scale measures.

Beyond Managerial Opportunism

JBusnRes 1994:30:21 l-223

Results and Anallyis Results from the analysis of the proposed model (Figure 1) yielded a relatively poor fit (x2 - 84.&l, 6.j - 35, p < 0.001). At this point, the regression path from relational restrictiveness to managerial compliance was not observed to be significant, and so this path was eliminated from the model with only an inconsequential effect on the model’s overall fit (i.e., x2 - 84.572, d.j = 46, p < 0.001). Still, Hypothesis #l remains supported inasmuch as the estimated correlation between these constructs was found to be significant and negative (r - -.278; SE. of r - .082>, as predicted. Inspection of modification indices produced by AMOS suggested that the model’s fit with the data could be improved by allowing selected unobserved error variables associated with indicator measures to covary. Specifically, the analysis suggested that Error 2 should covary with both Error 3 and Error 5, Error 3 should covary with Error 4, and Error 4 should covary with Error 5. These modifications were incorporated for many reasons. First, the idea of covaryingerror variances is consistent with the previously developed argument that the French and Raven (1959) power bases are arbitrary and overlapping, so it is reasonable to imagine that the indicators in question are significandy related to constructions not featured in the model. Second, plausible arguments can be made not only for each of these covariances, but also for why all the error terms corresponding to indicators of suppiier power shou!d not be correlated. For example, because oil companies are not retailers, there is little reason to suppose that .vhatever referent influence they might command from retail managers would have anything to do with managerial perceptions of legitimate authority, reward c: coercive capacities, or expertise in oil production. In con-

trast., expertise does provide one with legimnacy relative to operational decisions, and the withhoidingc.f expertise ma;- be ~CF as a coercive influence tactic; hence, it is reasonable to accept the proposition that the error terms associafed with these dimensions sbvidd covary. I&wise, one party’s ability to reward a second party may provide a basis for the second party to legitimize the first party’s wishes; therefore, it is plausible to imagine that the corresponding error terms should be correlated. In contrast, coercive tactics rarelyare received gmciot& and those being coerced generally seem to downplay the legitimate rights of those who engage in coercive tactics; thus, no covariance between the error terms corresponding to these dimensions should be expected. Similarly, given that a franchise manager may believe that receipt of whatever expert assistance the franchiser might provide is his or her franchise’s right as a consequence of its status in the franchise network, the error variances associated with reward and expert influence need not be correlated. Finally, as the withholding of reward may be seen as a coercive tactic, it seems reasonable to imagine that the corresponding error variances are correlated. As the suggested modifications can be advocated on theoretical grounds and the arguments advanced here appear to have self-evident representational validity, AMOS’s suggestions were incorporated into the model_ The revised model was subsequently tested and found to fit the data quite well Or* 56.772, d.f. - 42, p = 0.064). Figure 2 presents a diagram of the final model including parameter estimates of all regression weights, the variances of all unobserved variables, and rhe covariances among the error variables. The correspondence of the theoretical model with the empirical evidence is confirmed by other goodness-of-fit criteria as well (Bender-Bonett NFI - .914; GET - .946; AGR - .899). In kt, these results compare quite favorably with those reported by 1.49 Emu14 (3

Figure 2.

219

Fmal Model

Ia

220

J. E. Brill

J bun Res 1994:30:21 l--223

John (1984) for hi final proposed model (x2 - 101.63, dj. 43, p< 0.001; Bender-Bonett NFI - .83; GFl - ,851; AGFI .730). But, most importantly, inasmuch as the above discussion has provided a theoretical basis for the model, this ~tatisti~d evidence solidifies the proposed model’s staNs as a plausible and promising theoretical representation. Also noteworthy among these findings is that all strucNrP1 paths were found to be significant at the .05 alpha level and consistent with directional predictions. Likewise, all paths between latent variables and their indicators were found to be consistent with predictions regarding their signs. Furthermore, only path from supplier power to COERCIVE was not found co be slgnticant. Although this is somewhat disappointing, there is little reason for concern; not only has every other hypothesis entailed by the model been supported, but it has been argued that indicator measures for supplier power are somewhat arbltrary in the first place. Together, then, the results lend strong support for the proposed model and demonstrate the validity implied for its constructs and their corresponding measurements.

Discussion The results of this study have provided support for several theoretically argued hypotheses regarding the interrelationships among managerial environment, supplier power, managerial morale, and managerial compliance in a franchised marketing channel relatior,ship. Specifically, support was found for two centra! ideas. First, compliant behaviors exhibited by retail franchise managers, such as opportunism and cooperation, may be explained as a consequence of the restrictive nature of the franchise network agreement with this relationship mediated by managerial morale. Second, the ccnceptualization of supplier/ franchiser power as an attribution-with antecedents in relational restrictions imposed, morale of the franchise manager, and compliant behaviors exhibited by the franchise manager-is consistent with the data. Furthermore, the nature of the relationship between power and these variables would appear to be one of mediation, with morale manifestations of compliance weakly mediating thr influence of relational restrictiveness imposed on the power attributed to the franchiser by the manager. The salient implication, then, is that power is not a resource possessed by suppliers, but rather an aspect of the supplier-retailer relationship. These ideas are in sharp contrast with earlier studies that not only have adopted the cciiception that social power is resource possessed by suppliers, but also have posited that various bases of social power have distinct causal relationships with respect to both managerial attitudes and opportunistic behaviors. The model offers important implications for franchisers wishing to take steps to maximize cooperation and minimize opportunistic behaviors by franchise mangers. The regression coefficients presented in Figure 2 show that there are negative relationships between cooperation and all measures ot relational restrictiveness. Consequently, lower levels of formalization, cen-

tralization, surveillance, and fate control (i.e., reward, coercive, and legitimate influences) should be expected to increase cooperation among franchise managers. Likewise, because of the positive relationship between relational restrictiveness and opportunism, lower levels of thes? variables should be expected to help minimize opportunistic behaviors. In short, the challenge to franchise channel design and management is striking an appropriate balance between the need for imposing these environmental constraints and the negative economic effects associated with the uncooperative and opportunistic behaviors that such controls can be anticipated to elicit.

Limitations

and Directions for Future Research

While the results of this study are certainly promising, a cautious approach is nevertheless advisable for at least three reasons. First, the fact that the data are borrowed from a published table makes it impossible to split the sample and cross-validate the results. This is a moot point, however, since the sample 151 is insufficiently large to yield reliable cross-validated results for a model using 12 observed scale measure; guidelines suggested by J_awley and Maxwell (1971) indicate that each subsample should include at least 128 subjects. Second, the indicator constructs may not be the most appropriate measures to use in testing the proposed latent variable model. Of particular concern are the manners in which relational restrictiveness and supplier power have been dimensionalized. The arguments regarding the overlapping naNre of the French and Raven (1959) bases of influence and the use of shared indicators is certainly largely responsible for the need to correlate selected error terms of the measures loading on these constructs. Needed are better strategies for developing conceptually distinct dimensionaliied measures of these two constructs. Strategies for these enterprises that have been advanced by Benson (1975) and John (1984) in the area of the relational restrictiveness should be considered; also needed are more appropriate measures for supplier power. In developing a political economy framework for understanding channel system behaviors, Benson (1975) developed a construct, environmental StruCNre, which he conceived to define and limit the informational and matter-energy inputs that managers may receive. Six dimensions were identified: (1) resource concentration/dispersion; (2) power concentration/dispersion; (3) network autonomy/dependence (with respect to the systems in which it is embedded); (4) power-exercising patterns among and by network participants; (5) resource abundance/scarcity; and (6) patterns of control mechanisms used (e.g.? incentive vs. authority influence tactics). Still another dimension of the environment worthy of consideration is asset-specificity, the degree to which the means of production (including established procedures) have been tailored to meet the requirements of another channel member such that their utility in serving other potential exchange partners is diminished. As noted by John ( 19841, Williamson ( 1975, 198 1) has hypothesized asset: spccilicity to Increase the propensity of managers to behave opportunistically. In the present model, at best only two of these seven

Beyond Mariagerjal

Opportunism

dim2nsiol;s, autonomy/dependence and patterns of control mechanisms, have been captured by the indicators of rrlatiortil restrictiveness. Clearly a more comprehensive operationalization reflecting additional relevant dimensions of this construct is possible. With respect to the supplier power construct, BriU (1992) has presented conceptual and empirical evidence that power consists of two dimensions, perceived ability to resist influence attempts by others and perceived ability to influence others. Brill’s (1992) scales are not directly applicable to the present purpose, however, because they are intended to meaSur2 social power associated with consumers in a retail setting, not suppliers in a business-to-business context. Still, the resistance and influence dimensions suggested for power might be applied to develop scales for the study of supplier-retailer power relationships. A third limitation of the present study is that other potentially important explanatory constructs have been ignored. For example, the omission of a conflict construe: from the proposed model might be incorporated since power has typically been associated with conflict in the study of marketing channels (e.g., Gaski, 1984; Johnson, 1981; Lusch, 1976; Rosenbergand Stem, 1971; Walker, 1972). Conflict is present when the goals of two parties are disparate and each desires to work toward achieving these disparate goals. And, like pawer, conflict can be conceived as an inherent, stable aspect of a social relationship (Pondy, 1967). Consistent with this view, conflict pot2ntials might be hypothesized to be causally related to three latent constructs of the present model. First, they may be seen to arise as a consequence of managerial compliance that helps define the arena for conflict episodes. Second, they might arise from the attributions of supplier power which, in turn, may be perceived to manifest itself in these episodes. Furthermore, conflict potential may be viewed as an antec2dent contributing to managerial morale, thus modifying subsequent power attributions and compliant tendenci2s. Subjecting these hypotheses to empirical testing through such an extended model using survey measures collected among member firms of franchised and/or nonfranchised marketing channels offers a fresh direction for future research.

The author expresses his appreciation to C. Anthony DiBenedetto. Rachel A Pruchno, Michael F. Smith.JBR editor Ramon Aldag, and the three anonymous ]BR reviewers for their helpful criticisms and suggestions for improvement on earlier drafts of the manuscript. Special thanks are also extended to James L. Arbuckle for his input and guidance in the data analysis and to George John for sharing the Items used to construct the scale measures

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