Sample dissertation proposal hotel franchising

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Introduction

This is a Sample dissertation proposal hotel franchising. Franchising is a business model which has been successfully used mainly within the service industry to expand nationally and to international markets. Franchising is the licensing of the good or service and business model to partners for specified fees (usually a signing on fee and a percentage of the franchisees are avenues or profits). Franchising allows an organisation to expand a successful business whether it is a brand or a model without any considerable additional financial burden, avoiding agency problems and utilising the expertise and market knowledge of entrepreneurs (franchisees). Franchising is used to develop smaller one-person business structures, but in the hotel industry franchising has been a successful model of business developed by mainly the American-based hotel brands for its growth into international markets. The franchisor benefits from leveraging some of the franchisees assets, such as financial capital and market knowledge and on the other hand the franchisee benefits from leveraging the franchisees assets which includes the brand, the organisational structures, purchasing power and managerial capabilities. Although franchising has been seen to be successful in the growth of small business structures, developing a growth model based on franchising in the hotel industry has seen many failures. But according to Sadi and Henderson, (2011) the failure rate for franchised hotels is lower than that of independent hotels. Several researchers have analysed the business model of franchising from the perspective of agency theory, the resource-based view, resource scarcity and entrepreneurship. Out of all be about theories, the agency theory has been used mostly by several researchers in evaluating the different areas of the growth of the business model and a possible reduction in the agency cost through franchising (Hutchinson, Fleck and Reason, 2009 and Thompson and Stanton, 2010). But a short literature review done by the researcher has provided evidence that many authors have disagreed to varying degrees about the reduction in agency cost in the business model of franchising.

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This report is a proposal for doing a dissertation on the subject of the franchising as a model of growth in the hotel industry, and the study will be conducted with the help of the analysis of growth of the Hilton brand of hotels. In this report a short literature review on the specific theoretical areas which will be used in the proposed dissertation and the research methodologies that will be adopted mainly to gather data and its analysis is provided. The researcher proposes that the franchisee model of business be evaluated from the concept of agency theory which concerns the relationship between the principal and an agent of the principal. The agency theory is concerned with the conflicts arising between the principals and agents and in the case of franchising, the franchisor is the principal and the franchisee is the agent. On the other hand for a hotel developing and growing based on the conservative business model has to employ managers on a payroll, rather than developing an agreement with a franchisee providing them with almost (yet to be evaluated) equal stake in the risk and growth potential. The researcher will evaluate whether the agency costs are minimised in the case of the growth model in which franchising is adopted. When coming to the research methodology to be adopted, the researcher plans to conduct a positivist and deductive research with a quantitative methodology. Particularly the primary data is intended to be collected from the managers of the Hilton hotels in the London region by using a survey technique with a structured questionnaire. The data will then be analysed using statistical methods to evaluate the concept of franchising and its relationship with agency cost.

Rationale for the dissertation proposal hotel franchising

The researcher has been working with the Hilton hotel in the London for the past several months and has been able to review the concept of the business model adopted by the Hilton brand. It has been found from a short primary study that, franchising has led to the development of the Hilton group of hotels into a major brand well-recognised worldwide. The business model adopted by Hilton group through franchising of its brand and business structures has been analysed by the author. But apart from the considerations of Hilton’s success, the author is sceptical of franchising as a business model for growth of a branded organisation, mainly because there is a degree of reduction in the control about the way in which the business can be developed from the viewpoints of the franchisee and the franchisor. The franchisor has to continuously monitor the activities of the franchisee and has to develop adequate controls in the agreement to negate any kinds of misadventure on the part of the franchisee which can affect the brand name of the entire organisation. Moreover a franchisee after building up the resources and management knowledge can develop a bargaining power over the franchisor as he will be able to delink from the agreement and do business on their own or switch to an alternative brand. Although in the case of Hilton Hotels such kinds of higher bargaining power may not arise, in the case of lesser-known brands there is a danger of the franchisee switching to an alternative brand very similar to the case of employees moving to other organisations within their capabilities. The cost and the time frame involved in developing a franchisee would go waste in such kind of situation.

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On the other hand the author has also practical experience of the failure of the franchising system in India where the author has witnessed the failure of an educational institution of one of the friends who was a franchisee. The educational institution providing computer-based courses was set up by one of the friend of the author as a franchisee of an Indian organisation but during the initial stages of the operation itself there were disputes which arose mainly because of the lack of adequate support in terms of marketing and resource provision from the part of the franchisor. Even though there was a franchising agreement almost all the development of the operations including the business structure and the course curriculum was developed by the franchisee independent of the franchisor. There was also inadequate managerial expertise provided by the franchisor which led to the collapse of the business agreement. Even though most of these aspects are viewed from the perspective of the franchisee (the friend of the author) alone, there are several elements related to the vulnerability of the franchising system which can be evaluated mainly from the agency theory.

Apart from the above aspects, the author is also aware of the several advantages of the franchising system mainly the growth of the business without taking enormous financial risk. Although from an external perspective the franchising system can be viewed as a risk sharing agreement, the actual elements and the levels of risk shared by the two parties will depend upon the bargaining power of either of the two. In case to analyse these aspects related to the franchising model of business that the author has selected the topic. Furthermore the author has plans to go back to India and take up a franchisee of the branded organisation in the service sector, either in the hospitality (hotel) or travel and tourism industry. A study about the franchising system, the risk associated with it and the growth potential will provide the author with sufficient background knowledge to develop a business.

Aims and objectives of research

The proposed dissertation project will analyse the concept of franchising as a business model from the concept of agency theory. The research will be conducted based on the franchising system developed by Hilton brand.

The objectives of the research are

  1. To critically evaluate the various concepts associated with franchising as a business model
  2. To analyse the concept of franchising from the perspective of agency theory
  3. To evaluate the agency costs associated with franchising
  4. To develop recommendations to the industry in developing a successful franchising model of business

Research questions

The introduction has provided a brief background about the franchising model of business, potential for growth for a branded organisation in the service industry and the concept behind the development of the business model. The author plans to evaluate the following research questions by conducting a research on the subject of franchising with the help of an evaluation of the model developed by the Hilton Hotels.

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  1. What are the silent features of the franchising model developed by Hilton hotels which has contributed to the growth of the brand
  2. Is there any positive reduction in the agency cost with the adoption of the franchising system of business rather than a conventional growth model
  3. What are the advantages and disadvantages for the principal and the agent in the franchising business model adopted by Hilton group of hotels

Although the above research questions are developed with a short background literature on the subject of franchising, the author reserves the right to add or change the questions during the actual research stage in order to completely evaluate the concept, theoretical and practical aspects involved in franchising as a business model.

Literature review

The agency theory has been involved in the analysis of the asymmetry of information between the principal and the agent and the potential conflict of interest between the two parties and various models have been developed to reduce the agency problem by instituting sufficient controls and mechanisms through which both the party’s interests are aligned with sufficient rewards and control structures. According Anwar, (2011), most of the studies on agency theory has been to develop structures, control mechanisms and reward schemes for the agent in order to align their interest with that of the principal in a typical employer employee or a shareholder management relationship. Moreover the cost of controlling the agent which is defined as the agency cost is also evaluated from the perspective of the principal (Sadi and Henderson, 2011). There have been fewer considerations about providing equal opportunities to the agent either in the form of the employees or the management and according to (Brickley and Dark, 1987) almost all the researchers have concentrated on increasing the control structures and reward programs which can benefit the principal or the shareholders of an organisation. But according to Caves and Murphy, (1976) it is necessary to provide the agent (the employee or the management) an equal basis by instituting growth prospects in order to reduce the agency cost.

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The typical bias towards the principal is not seen when studying the franchising model of business and the focus of the research on the development of a successful franchising model according to Juste, Palacios and Redondo, (2011) should be on delinking the concept of principal and agent from the relationship. According to Carney and Gedajlovic, (1991) the franchising model cannot be completely evaluated with the help of the agency theory as the concept does not involve the hiring of agent to perform the services as per the interest of the principal, rather the model hinges on developing a mutually beneficial agreement between the franchisee and the franchisor. Although this concept adopts a larger perspective in the development of the relationship, the several variables involved in the success of the franchising business model can be evaluated with the various elements involved in agency theory and specifically relating to the agency cost. The fundamental problem between the principal and the agent such as the conflict between the franchisor and franchisee in the form of self-interested behaviour on either part can adequately be evaluated from the asymmetry of information between the two parties (Luangsuvimol and Kleiner, 2004). According to Holmberg and Morgan, (2003) the agency theory postulates that the managers have the ability to operate in their own self-interest rather than in the best interest of the organisation because of the asymmetry of information and as per Sadi and Henderson, (2011) this is found to be true in the case of the relationship between the franchisor and franchisee. But according to Madhok, (1996) who evaluated the asymmetry information concept has found evidence to suggest that the information asymmetry is not biased towards the agent (franchisee) or in simple words the franchising model has reduced the effect of asymmetry of information which can provide the franchisees with the ability to manage the business situation to their self-interest.

From the concept of agency cost which is defined as the cost borne by the owners or shareholders of an organisation to encourage managers to maximise the wealth of the owners rather than behave in their own self-interest is also reduced in the franchising business model according to Combs, Michael and Castrogiovanni, (2004). But there is also a research evidence to suggest that agency cost theory in its purely simplistic form cannot be adopted in evaluating the monitoring, structuring and opportunity cost borne by the franchisor (principal) to reduce the self-interested behaviour of the franchisees (agent). According to Carney and Gedajlovic, (1991) the concept of agency cost although can be used in evaluating the maximisation of benefit to the franchisee (principal), is not an adequate model mainly because the relationship in the franchising system is not purely based on principle and agent. But according to Holmberg and Morgan, (2003) the agency cost can be used to evaluate the opportunity cost incurred by both the parties in limiting the ability of either of them to take actions to advance their own self-interest. The fundamental views held by several researchers are that the self-interested motives from the part of the franchising and the franchisor can be reduced by developing an agreement which is beneficial to both the parties and reduce the agency costs.

The above review of the previous research has evaluated various concepts associated with the agency cost in relation to the franchising model of business. The several areas for detailed study are the asymmetry of information between the franchisee and the franchisor, giving rise to potential conflict of interest and the cost involved in monitoring the activities of both the parties which could reduce the potential for business growth. These are the aspects which are planning to be evaluated in-depth by the researcher by conducting a study on the subject. The above mentioned areas will be evaluated with the help of a literature and several conclusive models is hoped to be developed which can further be analysed with the help of primary data collected from the managers of Hilton hotels in London. The methodology in which primary data will be collected and the philosophical approach that will be used by the researcher during the proposed study is provided below.

Methodology of research

In this section the main aspects which are evaluated are the philosophy, the research approach, the strategy and the practical primary data collection methods which are planned for the study on the concept of franchising model of business.

Philosophy of research

The philosophy which will be adopted by the researcher will be positivist in nature which confine itself to the data of experiences and excludes a priori or metaphysical speculations. The research is a process to develop the unknown factors from the data and by providing the philosophy of research adopted by the author in conducting the study, readers will be better informed about the way in which the research is designed such as the collection of data and its interpretation. Positivism emphasises the importance of an objective scientific method and for the present study the researcher’s role is to collect the facts related to the franchising model of business from the perspective of agency theory the past literature and the primary data. The researcher does not plan to interpret the data and fact as the product of human interactions but will develop the analysis based on the predictability of the relationship based on scientific concept.

Strategy / approach of research

The researcher plans to adopt a deductive approach in conducting the proposed study, mainly because deduction is associated with the testing of theory or the hypothesis which has already been developed. In the proposed study, the researcher will evaluate the concept and theories associated with the franchising model of business from the perspective of agency theory. Mainly the specific concepts in agency theory such as the asymmetry of information and the agency cost will be used in an evaluation of the data collected. Particularly the researcher will develop a questionnaire which intends to collect the data from the managers of the Hilton hotels about the asymmetry of information and the agency cost involved in the relationship between the franchisee and the franchisor. This data will be used to correlate the past literature on the subject and develop certain recommendations for the industry.

Data collection

The study is on the subject of the franchising model of business and specifically the model developed by the Hilton brand. The rationale behind the selection of the franchising model of Hilton brand was provided in the previous section of the report. In the development of the report the author plans to collect data from a sample number of respondents in order to evaluate the concept during the literature review. The researcher plans to develop a questionnaire based on the literature review in which the concept of the asymmetry of information and the agency cost involved in the relationship between the franchisee and the franchisor would be evaluated from the perspective of the managers of the Hilton hotel. It has been emphasised previously, during the literature review that most of the research on the subject of agency theory has been from the perspective of the principal and to maximise their benefit. But the present research will take the perspective of the agent in creating a successful business model. It is on this basis that the researcher plans to collect the data from the agents (hotel managers) and mainly relating to their perceptions about the conflict of interest arising due to asymmetry of information and the opportunity cost involved in developing the business. The researcher plans to develop the questionnaire in a structured manner which involves two parts; the first part being an evaluation of the asymmetry of information and the second part considers the agency cost problem.

The researcher will develop the questionnaire after the literature review and intends to conduct a pilot study in order to validate the ability of the research instrument to collect sufficient and reliable data which can be analysed. The researcher hence plans to conduct a small survey using the questionnaire on the friends of the researcher who is working in the hospitality industry. The researcher has already identified five people and has taken their consent in doing the pilot study. The pilot study will act as a validator of the research instrument and the results of the pilot study will be used to modify the structure and the questions of the survey. The pilot study is an important element in the validation and developing the reliability aspect of the questionnaire. To the completion of the questionnaire, the researcher will upload the survey onto a website through which it will be easy to collect the data of the respondents.

In every survey a researcher has to analyse the people from which the data needs to be collected and most of the research projects utilise a sampling method. For the present study the researcher plans to make use of a convenient sampling approach, mainly because the researcher does not have adequate resources and time involved in contacting the higher level managers of the Hilton hotel whose views will be paramount in developing the research. But due to the association of the author with the Hilton hotel in London, the researcher has developed adequate contacts with some of the senior managers and plans to approach them for the survey. On this basis the sampling method is hinged on the aspect of convenience for the researcher mainly because of the constraints due to the resources and time.

The analysis of the data collected from the survey which will be based on the perceptions of these higher-level managers of Hilton hotel about the asymmetry of information and the agency cost will be evaluated with the help of correlating with the literature available on the subject. On this basis a correlation method wherein the data will be evaluated with the different theoretical models and perspectives of the past researchers will be conducted. From this analysis it is expected that the research studies conducted in the past and the models developed will either be validated or negated using a deductive approach. Finally the researcher plans to develop certain recommendations for the industry in creating a successful franchising model of business.

Limitations and ethical considerations

The major limitations which will befall the research study would be the limitation associated with the data collection from the higher-level managers of Hilton hotel. The proposed data collection methodology emphasises on the cooperation of the higher-level managers of Hilton hotel in responding to the survey. The researcher plans to contact as many managers of the hotel in order to solicit the responses to the survey but the response levels of the managers to the survey is a question which could limit the amount of data that can be collected. Apart from this limitation the researcher does not foresee any further complications which will during the research.

An important ethical factor which is connected within the research limitation is that the researcher plans to collect data on the perceptions of the higher level managers of the hotel (Agents) about the relationship with their principals (franchisors). Among the elements of the research study that our areas which are confidential in nature due to the agreement between the franchisees and the franchisors. There is an ethical aspect of divulging this information for a research study as such a practice could negatively affect the respondents. In order to reduce this consideration, the researcher will evaluate any negative effects to the respondents during the pilot study. The researcher will reduce the level of confidential data collection and ensure that the collected data does not have any personal content and would not be published in a manner that could directly affect the respondents. Moreover the researcher plans to undertake all measures necessary to adhere to the ethical standards in doing the research.

Plan of research

 

Week

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12

Conceptualisation of the research problem

Development of literature review

Formation of the methodology

Questionnaire development

Pilot survey and modifications

Survey

Data analysis

Data evaluation and discussion

Conclusions

Draft submission

Final submission

 

References

  1. Anwar, S. T., (2011) Franchising: category issues, changing dynamics and competitiveness, International Journal of Commerce and Management, Volume 21 Issue 3, Pages 241 – 255
  2. Brickley, J. and Dark, F., (1987), The choice of organizational form: The case of franchising. Journal of Financial Economics, Volume 18, Pages 401–420.
  3. Carney, M., and Gedajlovic, E., (1991), Vertical integration in franchise systems: Agency theory and resource explanations. Strategic Management Journal, Volume 12, Pages 607–629
  4. Caves, R. E. And Murphy, W. F., (1976), Franchising: Firms, markets and intangible assets. Southern Economic Journal, Volume 42, Pages 572–586.
  5. Combs, J. G., Michael, S. C., and Castrogiovanni, G. J., (2004). Franchising: A review and avenues to greater theoretical diversity. Journal of Management, Volume 30, Pages 907–931.
  6. Doherty, A. M. and Quinn, B., (1999) International retail franchising: an agency theory perspective, International Journal of Retail and Distribution Management, Volume 27 Issue 6, Pages 224 – 237
  7. Holmberg, S. R., and Morgan, K. B., (2003) Franchise turnover and failure—new research and perspectives. Journal of Business Venturing, Volume 18, Pages  403–418.
  8. Hutchinson, K., Fleck, E. and Reason, E. L., (2009) An investigation into the initial barriers to internationalization: Evidence from small UK retailers, Journal of Small Business and Enterprise Development, Volume 16 Issue 4, Pages 544 – 568
  9. Juste, V. B., Palacios, L. L. and Redondo, Y. P., (2011) An analysis of franchisor failure risk: evidence from Spain, Journal of Business and Industrial Marketing, Volume 26 Issue 6, Pages 407 – 420
  10. Lafontaine, F., and Kaufmann, P. J. 1994. The evolution of ownership patterns in franchise systems. Journal of Retailing, Volume 70, Issue 2, Pages 97-113.
  11. Luangsuvimol, T. and Kleiner, B. H., (2004) Effective franchise management, Management Research News, Volume 27 Issue 4/5, Pages 63 – 71
  12. Madhok, A., (1996), The organization of economic activity: Transaction costs, firm capabilities, and the nature of governance. Organization Science, Volume 7, Pages 577–591.
  13. Sadi, M. A. and Henderson, J. C., (2011) Franchising and small medium-sized enterprises (SMEs) in industrializing economies: A Saudi Arabian perspective, Journal of Management Development, Volume 30 Issue 4, Pages 402 – 412
  14. Thompson, M. and Stanton, J., (2010) A framework for implementing retail franchises internationally, Marketing Intelligence and Planning, Volume 28 Issue 6, Pages 689 – 705.