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Journal of Business Research 92 (2018) 360–373

Contents lists available at ScienceDirect

Journal of Business Research


journal homepage: www.elsevier.com/locate/jbusres

Just going through the motions? An empirical investigation of control, T


compliance, and performance in franchisor-franchisee relationships☆

Jody L. Crosnoa, , Pui Ying Tongb
a
Department of Marketing, College of Business & Economics, 1601 University Avenue, Room 209, West Virginia University, P.O. Box 6025, Morgantown, WV 26506-
6025, United States of America
b
Department of Marketing, College of Business, 225 State Farm Hall of Business, Illinois State University, Campus Box 5590, Normal, IL 61790-5590, United States of
America

A R T I C LE I N FO A B S T R A C T

Keywords: Recent channels research differentiates two forms of compliance—consummate and perfunctory compliance; yet
Behavioral control research stops short of examining how these nuances of compliance impact financial performance. This study
Outcome control fills this void. We assess our research model with longitudinal data collected from 119 franchisees in the United
Perfunctory compliance States. The results indicate outcome and behavioral control have differential effects on perfunctory versus
Consummate compliance
consummate compliance. Further, we find that relationship age moderates the control-compliance relationship
Performance
significantly, with behavioral control increasing consummate compliance in the early stages of franchisor-
franchisee relationships and outcome control increasing consummate compliance in the later stages. Lastly, we
find, unexpectedly, that consummate compliance decreases franchisee financial performance whereas perfunc-
tory compliance enhances franchisee performance.

1. Introduction this study examines different forms of compliance, namely perfunctory


and consummate compliance, and their impact on financial perfor-
Marketing theory and practice recognize that compliance is a key to mance. Perfunctory compliance refers to “a strict adherence to con-
success in principal-agent relationships (Banerjee, Bergen, Dutta, & tractual obligations” (Kashyap & Murtha, 2017, p. 136); the agent does
Ray, 2012; Davies, Lassar, Manolis, Prince, & Winsor, 2011; Hackel, not fully embrace the principal's policies and directives and, therefore,
2014). Franchisors, for example, require franchisee compliance to en- the agent is simply “going through the motions.” Consummate com-
sure a uniform market offering (Blair & Lafontaine, 2005) and to protect pliance, in contrast, refers to going above and beyond contractual ob-
the franchisor's brand name capital (Alchian & Demsetz, 1972; Brickley ligations (Kashyap & Murtha, 2017), where the agent embraces the
& Dark, 1987). Noncompliance, in contrast, may result in “consumer principal's agenda and does more than what is required by the con-
dissatisfaction, reduced sales, declining profitability, closure of units, tractual agreement (Kochanska, 2002). The important managerial
litigation and, eventually, the failure of the brand” (Cheng, 2014, p. 1). question, however, is whether it is worthwhile to distinguish between
To ensure contractual compliance and limit opportunism, principals these nuances of compliance from a financial standpoint. Does it matter
may use governance mechanisms, such as monitoring agent behaviors if agents are simply “going through the motions” as long as they are
and outcomes (Kashyap, Antia, & Frazier, 2012; Murry & Heide, 1998). going through the motions? Research in psychology, marketing chan-
Yet monitoring and control may lead to perfunctory execution of role nels, as well as the results of this study, suggests that, indeed, it is
behaviors (Ghoshal & Moran, 1996; John, 1984; Williamson, 1993). worthwhile (e.g., Kashyap & Murtha, 2017;Kochanska, 2002; Maccoby
Although marketing scholars have theorized that control may lead & Martin, 1983). Research in psychology demonstrates that con-
to perfunctory compliance and, in turn, lower performance (e.g., summate compliance is more generalizable to areas outside the con-
Ghoshal & Moran, 1996), empirical research has yet to examine how troller's reach, and it is consistently associated with successful sociali-
different forms of compliance influence performance. Whereas previous zation (Kochanska, 2002; Maccoby & Martin, 1983). Perfunctory
studies on compliance in marketing largely focus on behavioral ad- compliance, in contrast, is often “shaky,” meaning that it requires
herence to rules (e.g., Kashyap et al., 2012; Payan & McFarland, 2005), continued external pressure to achieve behavioral adherence


This research was supported by a Survey Research Grant, provided by the College of Business and Economics at West Virginia University.

Corresponding author.
E-mail addresses: jody.crosno@mail.wvu.edu (J.L. Crosno), ptong@ilstu.edu (P.Y. Tong).

https://doi.org/10.1016/j.jbusres.2018.08.003
Received 10 July 2017; Received in revised form 1 August 2018; Accepted 2 August 2018
Available online 17 August 2018
0148-2963/ © 2018 Elsevier Inc. All rights reserved.
J.L. Crosno, P.Y. Tong Journal of Business Research 92 (2018) 360–373

(Kochanska, 2002). More recently, research in marketing channels has conclude, a discussion of the results and implications for theory and
demonstrated that perfunctory compliance decreases customer sa- practice are put forth.
tisfaction, while consummate compliance increases customer satisfac-
tion (Kashyap & Murtha, 2017).
2. Forms of compliance
Given these findings, examining the antecedents, consequences,
and boundary conditions associated with these different forms of
In marketing channels, compliance has been defined as “overt be-
compliance is warranted. One of the boundary conditions we un-
havioral adherence to rules or norms” (Brill, 1994, p. 212) and “acting
cover in this research is relationship age. Based on self-determination
in accordance with an influence attempt” (Payan & McFarland, 2005, p.
theory (Deci & Ryan, 1985), we argue that newer franchisees have a
72). Although both definitions focus on behaving accordingly, ex-
stronger need for competence, whereas mature franchisees have a
amining behavior alone may not capture the nuances of compliance
stronger need for autonomy. We argue that a match between the
(Brill, 1994). Specifically, focusing on behavioral adherence to rules
control type and franchisees' needs will result in consummate com-
does not capture the attitude of those who comply and/or the degree of
pliance; however, a mismatch between the control type and fran-
effort put forth to comply (Brill, 1994; Kashyap & Murtha, 2017). As an
chisees' needs will result in perfunctory compliance. For example,
example, Kashyap and Murtha (2017) quote a franchisee: “After 8 p.m.,
the guidance and feedback offered through behavioral control in-
I might sell one pizza, but I have to stay open till midnight. So, I do what I'm
forms the franchisees how to perform operational activities
supposed to, but with no personality. Customers don't get that good feeling.”
(Anderson & Oliver, 1987) and, therefore, is particularly well-re-
The franchisee in this example is only half-heartedly complying with
ceived earlier in the relationship as franchisees are developing
the franchisor's guidelines. To capture these nuances, research has
competence. Later in the relationship, once franchisees develop the
identified and differentiated two forms of compliance: consummate and
skills and capabilities to manage their outlets effectively, they may
perfunctory compliance.1
come to resent behavioral control as it impinges on their autonomy
Consummate compliance has been defined as “wholehearted,
(Blut et al., 2011; Oxenfeldt & Kelly, 1968).
willing, and self-regulated compliance” in which one party fully em-
This study contributes to marketing channels literature in several
braces the other party's agenda and values (Kochanska, 2002, p. 339).
ways. First, contrary to extant research, this study examines the effects
This form of compliance is internally motivated and self-sustained
of two forms of governance mechanisms, namely behavioral and out-
(Kochanska, 2002; Kochanska, Aksan, & Koenig, 1995). In franchising,
come control, on perfunctory and consummate compliance. Previous
franchisees may take the initiative to perform above and beyond the
channels research examining perfunctory and consummate compliance
contractual requirements of the franchisor because they believe in the
merged these two forms of governance into one overarching construct
franchisor's mission and values. These franchisees are devoted to fol-
(e.g., monitoring), masking the meaningful differential effects of be-
lowing the contractual requirements even when they are not being
havioral and outcome control on these two forms of compliance.
monitored by the franchisor (Kochanska, Aksan, & Carlson, 2005;
Second, drawing on self-determination theory, this study argues
Maccoby & Martin, 1983).
that behavioral and outcome control satisfy different needs—namely,
Perfunctory compliance, in contrast, occurs when one party com-
the need for competence and autonomy, respectively—and these needs
plies but does not embrace the other party's agenda and values
change over the course of the franchisor-franchisee relationship.
wholeheartedly (Kochanska, 2002). This form of compliance often re-
Although most channels research on governance and control focuses on
quires sustained external control (Kochanska, Coy, & Murray, 2001),
the need for autonomy, research in psychology underscores the im-
such as monitoring and frequent prompting to ensure adherence to
portance of satisfying the need for competence in garnering positive
rules (Spinrad et al., 2012). Therefore, perfunctory compliance has
outcomes, such as intrinsic motivation (Gagné & Deci, 2005). The need
been described as “shaky” (Kochanska, 2002), “half-hearted”
for competence may override the need for autonomy in some situations
(Kochanska, Tjebkes, & Forman, 1998), and “contingent” on external
(Deci & Ryan, 1992; Ryan & Deci, 2000). For example, new franchisees,
control (Kochanska, 2002). Although research in marketing channels
who often lack certain skills and capabilities (Oxenfeldt & Kelly, 1968),
alludes to the downsides of perfunctory compliance (e.g., Ghoshal &
may forego some autonomy to ensure it is gaining competence in
Moran, 1996; John, 1984; Kashyap & Murtha, 2017), empirical re-
managing their outlets effectively. Once the need for competence is
search has not examined how this form of compliance affects channel
satisfied, franchisees will strive to satisfy their need for autonomy, as
outcomes such as opportunism and financial performance. To fill this
both are needed to sustain intrinsic motivation (Gagné & Deci, 2005).
gap, a research model of perfunctory and consummate compliance is
Satisfying these needs is the thrust of our theoretical argument for the
developed in the next section.
moderating effects of relationship age on the control–compliance re-
lationship. Indeed, the moderator results suggest that behavioral con-
trol yields consummate compliance in the early stages of the franchisor- 3. Research model and hypotheses
franchisee relationship, whereas outcome control produces con-
summate compliance in the later stages. Drawing on institutional economics (Bergen, Dutta, & Walker, 1992;
Third, this study extends previous research (e.g., Kashyap & Murtha, Williamson, 1985) and self-determination theory (Deci & Ryan, 1985),
2017) by examining additional outcomes of perfunctory and con- a model of perfunctory and consummate compliance is developed (see
summate compliance. Specifically, we examine how perfunctory and Fig. 1). Outcome control and behavioral control are examined as
consummate compliance impact conflict, opportunism, and, most im- antecedents of perfunctory and consummate compliance, and re-
portantly, financial performance. Surprisingly, our results show that lationship age is examined as a moderator of the control-compliance
consummate compliance is related negatively to franchisee financial relationships. Conflict, opportunism, and financial performance are
performance, whereas perfunctory compliance is related positively to examined as consequences of perfunctory and consummate compliance.
franchisee performance. Hence, as our final contribution, this study
brings to light a potential downside to consummate compliance—going 1
Consummate compliance is also referred to as committed compliance
above the contractual agreement takes resources and these additional
(Kochanska, 2002), receptive compliance (Maccoby & Martin, 1983), or mature
resources may hinder financial performance. compliance (Crockenberg, 1991; cf. Kochanska, 2002). To be consistent with
The paper is organized as follows: First, drawing on research in extant research in marketing channels (e.g., Ghoshal & Moran, 1996; John,
marketing channels and psychology, consummate and perfunctory 1984; Kashyap & Murtha, 2017), the terms consummate and perfunctory
compliance are defined. Next, the research model and hypotheses are compliance will be used rather than committed and situational compliance,
discussed. Then, research methods and results are presented. To respectively, which are often used in psychology.

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J.L. Crosno, P.Y. Tong Journal of Business Research 92 (2018) 360–373

Fig. 1. Research model.

3.1. Control → compliance unintended, negative effects – decreasing agent motivation, com-
pliance, and performance. Aulakh, Kotabe, and Sahay (1996), for ex-
Control refers to a firm's set of procedures for monitoring, directing, ample, report a negative relationship between outcome control and
evaluating, and compensating agents (e.g., franchisees, trading part- performance of the partnership. The disciplining and crowding out ef-
ners, employees, etc.) (Anderson & Oliver, 1987). Extant research has fects of control are discussed further in the next two sections.
focused on two types of control – outcome control and behavioral
control (Anderson & Oliver, 1987; Heide, Wathne, & Rokkan, 2007; 3.1.1. Disciplining effects of control
Jaworski, 1988). Outcome control is the development, monitoring, and Agents, such as franchisees, determine the amount of work effort to
evaluation of performance outcomes, such as sales revenue, market put forth for the principal. More effort yields higher returns for the
share, product quality, order accuracy, and customer satisfaction. Be- agent, through monetary remuneration and social recognition, but
havioral control, in contrast, is the development, monitoring, and comes at higher costs to the agent (Frey, 1993). Effective monitoring
evaluation of the procedures used to achieve such outcomes (Jaworski & and control motivate agents to put forth more effort on behalf of the
MacInnis, 1989). Behavioral control is based on guidelines regarding principal (cf. Crosno & Brown, 2015). These disciplining effects of
how procedures should be executed (Heide et al., 2007; Kashyap et al., control occurs for two reasons. First, effective controls may reduce the
2012). Examples of behavioral control include monitoring and pro- marginal cost of agent effort (Frey, 1993). Control, for example, may be
viding feedback on sales calls, on-site inspections of manufacturing informative, signaling to the agent which activities to home in on to
processes and/or operating procedures, and examination of storage and improve performance (Anderson & Oliver, 1987). Second, the like-
handling practices (Anderson & Oliver, 1987; Heide et al., 2007). lihood of the principal uncovering agent opportunism increases with
Firms use outcome and behavioral control to “assure that agents tighter controls; therefore, the marginal cost of shirking increases (Frey,
comply with their contractual agreements” (Crosno & Brown, 2015, p. 1993). There are potential financial costs (e.g., fines) and nonfinancial
301). Outcome and behavioral control reduce “information asymmetry costs (e.g., relationship termination) associated with shirking; these
that otherwise would permit noncompliance” with contractual obliga- costs align interests by decreasing the agent's net payoff from shirking
tions (Murry & Heide, 1998, p. 61). Furthermore, control motivates (Antia, Bergen, Dutta, & Fisher, 2006). In short, effective control (be-
agents to perform on the firm's behalf (Anderson & Oliver, 1987) and havioral or outcome) aligns agents' interests with the principal's and,
discourages agent shirking and other opportunistic behaviors (Jensen & therefore, motivates them to comply with the principal's directives.
Meckling, 1976; Stump & Heide, 1996).2
Research, however, has uncovered mixed results, with both out- 3.1.2. Crowding out effects of control
come and behavioral control leading to disciplining and crowding out Research has found that both types of control may produce unin-
effects (Crosno & Brown, 2015). Disciplining effects occur when control tended, negative effects (e.g., Crosno & Brown, 2015; Heide et al., 2007;
produces the desired effect – increasing agent motivation, compliance, Ramaswami, 1996). These crowding out effects may arise when control
and, ultimately, performance. Bello and Gilliland (1997), for example, reduces the agent's incentive and/or motivation to perform on the
find that outcome control is related positively to channel performance. principal's behalf (Frey, 1993). Crosno and Brown (2015) identify four
Crowding out effects, in contrast, occur when control produces possible explanations for the crowding out effect: 1) the agent experi-
ences high costs associated with acceding to the principal's control, 2)
2 the principal's control impinges on the agent's autonomy, leading to
Although not hypothesized, we also modeled the direct effect of behavioral
and outcome control on conflict, opportunism, and performance, as previous reactance effects, 3) the principal's control signals distrust of the agent,
research has established these direct effects (e.g., Crosno & Brown, 2015; Heide and 4) the agent perceives the principal's control as unfair.
et al., 2007; Kashyap et al., 2012). Similarly, in line with extant research, we In short, control mechanisms may undermine autonomy and signal
model the effects of opportunism and conflict on performance (Crosno & distrust (Frey, 1993; Kashyap et al., 2012; Murry & Heide, 1998), which
Dahlstrom, 2008; Eshghi & Sourav, 2016). in turn engender disaffection and less commitment (John, 1984).

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J.L. Crosno, P.Y. Tong Journal of Business Research 92 (2018) 360–373

Ultimately, control mechanisms may lead to “perfunctory execution of “Because of his lack of certain important skills (for instance, planning) he
role behaviors,” where agents are uninspiringly performing only the may initially welcome the close attention and training provided by the
bare minimum of the contractual requirements (John, 1984, p. 280). franchisor. Through time, and especially as he grows, he acquires man-
agerial skills of his own. His self-esteem grows, and he comes to resent the
constraints placed upon his actions by the franchisor. Allied to the in-
3.2. Moderating effect of relationship age on the control → compliance
crease in self-confidence are enhanced financial capabilities if he is
relationship
successful. Again these gains in his strengths would militate against ac-
cepting passively the controls imposed by the franchisor.”
We argue that relationship age moderates the effects of behavioral
and outcome control on perfunctory and consummate compliance. The As franchisees acquire the skills and expertise needed to manage the
age of a franchisor-franchisee relationship influences whether controls franchise successfully, their need to gain competence will diminish.
generate disciplining or crowding out effects and, subsequently, the These experienced franchisees are less tolerant of the close monitoring
franchisees' level of perfunctory and consummate compliance. The ar- of activities under behavioral control (Bucklin, 1973). As they acquire
guments are developed based on self-determination theory (Deci & “local market know-how,” more experienced franchisees believe that
Ryan, 1985). This theory posits that competence and autonomy are they are capable of operating their outlet more successfully than the
fundamental needs, and the satisfaction of these needs drives intrinsic franchisor (Blut et al., 2011; Windsperger & Dant, 2006, p. 263). As a
motivation (cf. Chae, Choi, & Hur, 2017). Competence describes the result, franchisees may perceive the franchisor's control as impinging on
ability to achieve desired outcomes and to succeed at optimally chal- their ability to perform. In short, we expect more experienced fran-
lenging tasks (Baard, Deci, & Ryan, 2004), and autonomy is the ability chisees to be less tolerant of behavioral control (compared to newer
to act with a sense of volition and to have the ability to freely choose franchisees), resulting in higher levels of perfunctory compliance.
one's course of action (Gagné & Deci, 2005).
H1. The association between behavioral control and perfunctory compliance
The central premise of our argument is that these needs change over
is less positive earlier in the relationship than in later stages of the
the course of the franchisor-franchisee relationship, just as the needs
relationship.
and desires of individuals evolve as they experience successive stages of
life (e.g. Eccles, Wigfield, Harold, & Blumenfeld, 1993; Kenrick,
Griskevicius, Neuberg, & Schaller, 2010; LaFontana & Cillessen, 2010). 3.2.2. Outcome control → perfunctory compliance
Depending on one's goals and needs, there are cognitive and develop- Outcome control, in contrast, may not adequately satisfy in-
mental priorities where some needs precedes others (Kenrick et al., experienced franchisees' need for competence. Early in the relationship,
2010). Similarly, we argue that early in franchisor-franchisee re- franchisees lack the skills and capabilities to manage their outlets ef-
lationships, franchisees have a stronger need for competence, whereas fectively “despite the initial training provided by the franchisor” (Blut
those in longstanding relationships have a stronger need for autonomy. et al., 2011, p. 309). Outcome control communicates the desired goals
Further, we view competence as a prerequisite for autonomy; fran- or output levels to be achieved by franchisees but offers little guidance
chisees desire autonomy only when they are competent enough to and feedback to assist franchisees (Anderson & Oliver, 1987; Jaworski
manage the business on their own. This shift in needs over time (Deci & & MacInnis, 1989). New franchisees will be overwhelmed as they strive
Ryan, 1992; Ryan & Deci, 2000) is the thrust of our argument for the to figure out how to manage day-to-day activities to ensure they meet
moderating effects of relationship age on the control–compliance re- the performance goals of the franchisor. As a result, the franchisees will
lationship. experience a high level of burden under outcome control early in the
relationship (Bucklin, 1973). Several studies have demonstrated that
3.2.1. Behavioral control → perfunctory compliance the use of outcome control is associated with higher levels of stress and
The use of behavioral control is particularly effective and well re- job tension (cf. Jaworski & MacInnis, 1989). Further, franchisees may
ceived in the early stages of the franchisor-franchisee relationship. This perceive the franchisor as unsupportive and come to resent the fran-
type of control satisfies inexperienced franchisees' strong need for chisor for its lack of assistance and guidance, resulting in higher levels
competence (Oliver & Anderson, 1994). Early in the franchisor-fran- of perfunctory compliance early on.
chisee relationship, franchisees often lack certain skills and capabilities In the later stages of the relationship, franchisees have more ex-
and, therefore, require more guidance and direction from the franchisor perience to draw on and, as a result, are more capable in achieving the
(Blut et al., 2011; Oxenfeldt & Kelly, 1968). The guidance and feedback desired outcomes (Oxenfeldt & Kelly, 1968). Hence, experienced fran-
offered through behavioral control informs the franchisees how to chisees (compared to new franchisees) feel less burden under outcome
perform operational activities as well as how to rectify any performance control. Once franchisees develop the skillset and expertise needed to
deficits, which enhances their competence (Anderson & Oliver, 1987; manage the franchise successfully, they welcome the autonomy that
Oliver & Anderson, 1994). Hence, newer franchisees should be more outcome control provides. Stated differently, franchisees' need for “self-
capable of carrying out their contractual obligations. determination will increase with the duration of the relationship” (Blut
Further, because of their desire to gain competence and their de- et al., 2011, p. 310). Outcome control is well suited for fulfilling this
pendence on franchisors' expertise, they will have a higher tolerance to need. In short, we expect outcome control to yield higher levels of
franchisor behavioral control (Bucklin, 1973; Seggie, Griffith, & Jap, perfunctory compliance early in franchisor-franchisee relationship and
2013). As described in Bucklin (1973), dependency increases an agent's lower levels of perfunctory compliance later in the relationship, once
willingness to endure the feeling of burden and sacrifice caused by the the franchisees have honed their skills and gained the competence
principal's control. Therefore, we expect franchisees to be more tolerant needed to fulfill contractual obligations.
of behavioral control early in the relationship, resulting in lower levels H2. The association between outcome control and perfunctory compliance is
of perfunctory compliance. more positive earlier in the relationship than in later stages of the
As the relationship ages, however, franchisees develop the expertise relationship.
needed to manage the franchise effectively. Franchisees become more
competent, and therefore are less dependent on the guidance and
feedback offered by franchisor behavioral control. As argued by 3.2.3. Behavioral control → consummate compliance
Oxenfeldt and Kelly (1968), as the relationship ages, franchisees often At the outset of the franchisor-franchisee relationship, franchisees
come to resent the very control they welcomed initially in the re- have a strong need for competence because they lack the knowledge
lationship: and skills to manage their outlets effectively (Blut et al., 2011). The

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J.L. Crosno, P.Y. Tong Journal of Business Research 92 (2018) 360–373

information offered through behavioral control provides specific di- entities (individuals, groups, or larger organizations) which arise from
rection to the franchisees on how to perform operational activities and incompatibility of actual or desired responses” (Raven & Kruglanski,
rectify performance deficits (Anderson & Oliver, 1987). This form of 1970, p. 70). Although conflict may be inevitable in marketing channels
control enables new franchisees to become competent as they are at- (Gaski, 1984), compliance, especially consummate compliance, may
taining sales and profitability (Oliver & Anderson, 1994). According to reduce conflict in channel relationships (Maccoby & Martin, 1983).
self-determination theory, satisfying the need for competence will in- Compliance is often not a matter of a single request by the prin-
trinsically motivate franchisees and compel them to put forth more cipal followed by a single response by the agent; rather, there is often
effort (Chae et al., 2017; Gagné & Deci, 2005). We, therefore, expect a a sequence of events in principal-agent relationships with earlier
more positive relationship between behavioral control and consummate events influencing later events (Brown, Lusch, & Muehling, 1983;
compliance early in the relationship. Maccoby & Martin, 1983). For example, if an agent fails to comply
Later in the relationship, as franchisees have developed the skillset with the initial request, the principal may increase the level of
and expertise to manage their franchise successfully, their need for pressure. Both the failure to comply and the resulting increased
autonomy will play a larger role (than their need for competence) in pressure escalate conflict in the principal-agent relationship (Antia,
sustaining their intrinsic motivation. Behavioral control in the later Zheng, & Frazier, 2013). Conflict arises, therefore, as principals at-
stages of the relationship will stymie franchisees' needs for autonomy tempt to control agents' behavior and agents resist such attempts
and, as a result, quell their intrinsic motivation (Deci & Ryan, 1985). (Gaski, 1984; Pondy, 1967). When the agent embraces the principal's
The lack of autonomy in the later stages may lead to resentment, agenda and values wholeheartedly, the agent will assent to the
frustration, and work-to-rule practices (Frey, 1993; Ghoshal & Moran, principal's directives freely (Bachrach & Baratz, 1969; cf. Gaski,
1996; Heide et al., 2007; John, 1984). Strict, external constraints on 1984), circumventing conflict.
behavior also undermine cooperative attitudes (Ghoshal & Moran, As discussed, consummate compliance does not require external
1996; Williamson, 1993). As a result, franchisees are less likely to put in pressure (Kochanska, 2002; Kochanska et al., 2005). Rather, the agent
extra effort to go above and beyond contractual requirements. There- embraces and adheres to the principal's directives willingly, which
fore, we expect behavioral control to yield a higher level of con- should result in less conflict. In contrast, perfunctory compliance re-
summate compliance earlier in the franchisee-franchisor relationship. quires sustained external pressure (e.g., monitoring and frequent
prompting) (Kochanska, 2002; Spinrad et al., 2012). This form of
H3. The association between behavioral control and consummate
compliance is expected to escalate tension and conflict as agents
compliance is more positive earlier in the relationship than in later stages
comply with directives to which they are not committed whole-
of the relationship.
heartedly. Further, once the agent is “out-of-sight” of the principal, the
agent is unlikely to comply with the principal's directives (Kochanska,
3.2.4. Outcome control → consummate compliance 2002). The principal may respond by increasing the external pressure
Early in the relationship, outcome control may not meet franchisees' for the agent to comply, further exacerbating conflict in the relationship
need for competence. Outcome control provides more autonomy but it (Brown et al., 1983; Kochanska et al., 1998; Maccoby & Martin, 1983).
comes at the expense of less guidance and direction that can build Hence, we posit:
franchisees' competence (Anderson & Oliver, 1987). The inherent lack
H5a. Perfunctory compliance is related positively to conflict.
of direction under outcome control can be both confusing and frus-
trating for franchisees; the franchisees may feel lost when franchisors H5b. Consummate compliance is related negatively to conflict.
provide little guidance on how to carry out the day-to-day operations or
how to rectify performance deficits (Anderson & Oliver, 1987; Blut
et al., 2011). Without franchisor guidance and feedback on the day-to- 3.4. Compliance → opportunism
day activities, inexperienced franchisees are likely to feel incompetent
(Oliver & Anderson, 1994) and, consequently, demotivated (Chae et al., Opportunism refers to guileful, self-interest seeking behaviors
2017). Stated differently, outcome control may thwart the need for (Crosno & Dahlstrom, 2008; Williamson, 1985). Examples of this be-
competence and undermine intrinsic motivation early in the relation- havior include quality shirking, lying, cheating, and “calculated efforts
ship. Franchisees may struggle to achieve the bare minimum of the to mislead, distort, disguise, obfuscate, or otherwise confuse”
desired outcomes, not to mention devoting extra effort to go above the (Williamson, 1985, p. 47). Although compliance and opportunism may
requirements. seem like two sides of the same coin, they are conceptually distinct
As relationships age, franchisees acquire the knowledge and skills to constructs (see Kashyap et al., 2012 for discussion). Research in psy-
manage their outlet effectively. As franchisees gain competence, their chology suggests that compliance, or lack thereof, will affect future
needs shift toward autonomy—the ability to act of their own volition. opportunistic behavior (Kochanska, 2002; Spinrad et al., 2012).
As franchisees become more familiar with the business and local For example, perfunctory compliance may undermine moral con-
market, they may know how to satisfy their local market needs better duct by fostering a view of the self as one who challenges rather than
than the franchisor (Windsperger & Dant, 2006). Because outcome accepts rules and values (Kochanska, 2002). As this view becomes
control only specifies the required outcomes and allows franchisees to “normalized,” more guileful behaviors may follow (Jap, Robertson,
decide the means to achieve such outcomes (Jaworski & MacInnis, Rindfleisch, & Hamilton, 2013, p. 224). Furthermore, agent frustration
1989), it satisfies franchisees' need for autonomy. Hence, the agent stemming from adhering to directives to which s/he is not affectively
maintains a sense of autonomy and self-determination, which should committed may engender opportunistic behavior (John, 1984). As a
foster intrinsic motivation and consummate compliance (Deci & Ryan, result, perfunctory compliance is expected to increase opportunism.
1985; Frey, 1993). Consummate compliance, in contrast, fosters a view of the self as moral,
which in turn “comes to serve as a regulator of future moral conduct”
H4. The association between outcome control and consummate compliance
(Kochanska, 2002, p. 340). Hence, consummate compliance is more
less positive earlier in the relationship than in later stages of the relationship.
likely to generalize to other areas (Maccoby & Martin, 1983), helping to
mitigate opportunistic behaviors. Further, empirical research has de-
3.3. Compliance → conflict monstrated a consistent link between consummate compliance and
socialization (Kochanska et al., 2005), which can serve to limit op-
Conflict has been defined as “tension between two or more social portunism (Wathne & Heide, 2000), but no such link has been found

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between perfunctory compliance and socialization. Therefore, we an- respondents clicked through to the survey, resulting in a click-through
ticipate: rate of 9.8%.
Of the 417, 15 respondents did not qualify to complete the survey as
H6a. Perfunctory compliance is related positively to opportunism.
they were not currently a franchisee and 36 respondents were directed
H6b. Consummate compliance is related negatively to opportunism. out of the survey for failing to read the questions carefully,3 leaving 366
respondents. An additional 161 surveys were deleted due to incomplete
responses,4 leaving 205 completed surveys (a response rate of 4.8%).
3.5. Compliance → performance
The sample was comprised mostly of single-outlet owners (67.8%). The
number of years the respondent managed the franchise ranged from 1
Performance is viewed in terms of productivity and efficiency
to 33 years, with an average of 11.3 years.
(Kumar, Stern, & Achrol, 1992). Research suggests compliance is cri-
Eighteen months after the first wave, the same 205 franchisees were
tical for effective performance in principal-agent relationships (Davies
contacted via email and asked to complete a follow-up survey. Respondents
et al., 2011; Fama & Jensen, 1983), yet perfunctory compliance may
were given a $30 Amazon.com gift card as an incentive for completing the
undermine performance. As discussed, perfunctory compliance is
survey. Thirteen of the 205 emails sent were undelivered (i.e., thirteen
“shaky” and contingent on sustained external control (Kochanska et al.,
could not be contacted for the follow-up survey). Of the deliverable emails,
2001). As noted by O'Reilly and Chatman (1986, p. 493), failure to
158 respondents clicked through to the survey (80%). Eleven respondents
move beyond simple (i.e., perfunctory) compliance “may require the
were directed out of the survey for failing to read the questions carefully3,
organization to bear the increased costs associated with more detailed
and 26 incomplete surveys were excluded from the analysis4. Finally, two of
and sophisticated control systems.” For the principal, more extensive
the respondents had switched positions and, therefore, were excluded from
monitoring and prompting to ensure compliance increases transaction
the analysis, resulting in 119 completed surveys at Time 2. The final sample,
costs (Dahlstrom & Nygaard, 1999). For the agent, this level of control
therefore, consisted of 119 matched questionnaires from Time 1 and Time 2
may undermine intrinsic motivation (Deci & Ryan, 1985), resulting in
(58% of the 205 franchisees from Time 1).
more to work-to-rule behaviors (Ghoshal & Moran, 1996). Furthermore,
The 119 franchisees who completed the second wave of data collection
these work-to-rule behaviors (i.e., just going through the motions) may
were compared to the franchisees who participated only in the first wave of
undermine the quality of market offerings and decrease customer sa-
data collection. Their responses on the study variables collected at Time 1
tisfaction (Kashyap & Murtha, 2017), and, ultimately, affect principal
were evaluated and only one difference was uncovered. Franchisee man-
and agent long-term sales growth and profitability adversely (Wathne &
agers who only completed the first survey reported a higher level of
Heide, 2000).
agreement on one item of the behavioral control scale (“We are held ac-
On the contrary, when agents embrace the principal's agenda
countable for following standard operating procedures regardless of the
wholeheartedly, they will follow the principal's directives in a “self-
results we achieve.”). No other significant differences were found.
regulated, proactive manner” (Kochanska et al., 1998, p. 1378). Hence,
consummate compliance requires less monitoring and control to sustain
(Kochanska, 2002; Kochanska & Kim, 2014). Further, this form of 4.2. Measurement
compliance often engenders pride and satisfaction in carrying out the
principal's directives (Kochanska, 2002), which should result in a more Multi-item, reflective scales were used to measure the key variables
consistent, quality market offering (Wathne & Heide, 2000). These self- in the model. The scale items are reported in the Appendix A, and de-
initiated behaviors are increasingly needed to ensure strong perfor- scriptive statistics are included in Table 1.
mance (Ghoshal & Moran, 1996; Maccoby & Martin, 1983). Therefore,
we posit: 4.2.1. Perfunctory and consummate compliance
Multi-item scales were developed for perfunctory and consummate
H7a. Perfunctory compliance is related negatively to performance.
compliance using procedures outlined by Churchill (1979). First, a search of
H7b. Consummate compliance is related positively to performance. marketing and psychology literature was conducted to identify research
examining some form of compliance (e.g., Brill, 1994; Ghoshal & Moran,
1996; Kashyap et al., 2012; Kochanska, 2002; Maccoby & Martin, 1983;
4. Research methods
Payan & McFarland, 2005). Drawing on this research, definitions of per-
functory and consummate compliance were developed and items were
4.1. Data collection
generated for each form of compliance. Perfunctory compliance is defined as
compliance in which the franchisee does not fully embrace and, therefore,
The empirical context for this study is franchisor-franchisee re-
reluctantly adheres to the franchisor's policies or directives. Consummate
lationships in a variety of industries (e.g., commercial cleaning,
compliance, in contrast, is defined as compliance in which the franchisee
building and construction, automotive, lodging, fast food, and sports
wholeheartedly embraces and willingly adheres to the franchisor's policies
and recreation). Franchisor-franchisee relationships are a fitting
and directives, often going above and beyond (Kashyap & Murtha, 2017)5
context to test the proposed model; these relationships are subject to
principal-agent problems as franchisees have an incentive to renege
on their performance over the course of the relationship (Antia et al., 3
Two items were integrated into the survey to assess how carefully the re-
2013). A longitudinal field study was conducted, with an 18-month spondents were reading the survey questions: 1) Click “Disagree” for this
time lag between the first and second waves of data collection. question to continue, and 2) Leave this question blank (i.e., do NOT click any
Outcome control, behavioral control, relationship age, perfunctory answer for this question). Respondents who responded to either of these
compliance, and consummate compliance were measured at Time 1, questions incorrectly were immediately bumped out of the survey.
4
and conflict, opportunism, and performance were measured at Most of the incomplete surveys were click throughs that either did not begin
the survey or did not answer any questions.
Time 2. 5
Previous channels research conceptualized perfunctory and consummate
The sampling frame was a national email list of 4800 franchisees in
compliance in terms of behavior—strictly adhering to the contractual agree-
the United States. A personalized email invitation to participate in a ment or going beyond contractual obligations, respectively (e.g., Kashyap &
research study examining franchisor-franchisee relationships was sent Murtha, 2017). Drawing on 25+ years of research in psychology (Kochanska,
to the franchisee manager (with a $20 Amazon.com card incentive for 2002; Maccoby & Martin, 1983), this study also incorporates the attitudinal
completing the online survey). Of the emails sent, 535 were un- component of compliance as well—to what extent does the agent embrace or
delivered, resulting in 4265 valid emails sent. Of the valid emails, 417 buy-in to the contractual obligations.

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Table 1
Correlations, means, and standard deviations.
BC OC YR BY OY PC CC CON OPP PER NUM FEE UNC DEP

Behavioral Control (BC) 1.00


Outcome Control (OC) 0.60 1.00
Relationship Age (YR) 0.00 −0.10 1.00
BC*YR (BY) 0.00 0.09 0.00 1.00
OC*YR (OY) −0.04 0.00 0.00 0.54 1.00
Perfunctory Compliance (PC) −0.19 0.01 0.05 0.14 0.13 1.00
Consummate Compliance (CC) 0.34 0.22 −0.04 0.00 0.00 −0.40 1.00
Conflict (CON) −0.15 −0.14 −0.02 −0.01 0.04 0.28 −0.22 1.00
Opportunism (OPP) 0.11 0.12 −0.20 0.06 −0.02 0.23 −0.24 0.37 1.00
Performance (PER) 0.27 0.24 −0.08 0.01 −0.12 −0.05 −0.08 −0.39 −0.04 1.00
Number of Stores (NUM) 0.09 0.10 −0.08 0.06 −0.04 −0.07 0.05 −0.04 0.11 0.09 1.00
Franchising Fee (FEE) 0.10 0.16 −0.14 0.03 −0.04 −0.14 0.11 0.02 0.15 0.17 0.01 1.00
Environmental Uncertainty (UNC) −0.28 −0.16 0.05 −0.14 0.03 0.19 −0.08 0.29 −0.04 −0.43 −0.13 −0.28 1.00
Franchisee Dependence (DEP) 0.30 0.39 −0.13 −0.13 −0.15 −0.19 0.23 −0.38 0.08 0.35 0.20 0.16 −0.32 1.00
Mean 4.42 4.01 11.06 0.00 0.00 3.04 4.44 2.92 2.43 4.80 1.69 2.36 3.50 4.47
Std. Deviation 1.48 1.47 7.19 10.33 11.91 1.09 1.08 1.32 1.16 1.28 1.69 2.51 1.45 1.64
Alpha 0.85 0.77 – – – 0.83 0.85 0.86 0.91 0.90 – – – –
Composite Reliability 0.85 0.79 – – – 0.84 0.85 0.86 0.91 0.90 – – – –
Avg. Variance Extracted 0.60 0.50 – – – 0.57 0.59 0.68 0.63 0.76 – – – –

N = 119; Note: Correlations that are statistically significant are bolded (p ≤ .05).

Once defined, 12 items were generated to capture the domain of one-item measure. The interaction terms for behavioral control and
each form of compliance, totaling 24 items. Many of these items were relationship age as well as outcome control and relationship age are
adapted from existing compliance scales (e.g., Kashyap et al., 2012; calculated based on the residual centering method outlined in Little,
Payan & McFarland, 2005). The content validity of the items was as- Bovaird, and Widaman (2006).7
sessed by three expert judges—two representing the area of marketing
channels and one representing the area of psychology. First, the judges 4.2.3. Outcomes
were given the definitions of perfunctory and consummate compliance Conflict refers to the level of disagreements between the franchisee
and the 24 items in random order. The judges performed a sorting task, and the franchisor (Gilliland, Bello, & Gundlach, 2010). A four-item
in which they were asked to place the scale items into the perfunctory Likert scale was adapted from Gilliland et al. (2010) and Jap and
group, consummate group, or neither if they felt that the item was not Ganesan (2000). Opportunism, or guileful, self-interested behaviors by
representative of either form of compliance. In addition, the judges franchisees, was measured with a six-item Likert scale adapted from
were provided an open-ended opportunity to give feedback regarding John (1984), Brown, Dev, and Lee (2000), and Kashyap et al. (2012).
the wording of the items and the validity of the scales (i.e., What, if any, Performance captured the franchisee's self-reported sales growth,
questions would you delete from the scales? Please explain). overall profitability, and cash flows. The three-item Likert scale was
Based on their feedback, the directions for the scale were modified based on Lusch and Brown (1996) and Palmatier, Dant, and Grewal
to ensure we were capturing the nuances of compliance rather than (2007).
noncompliance. In addition, six items were dropped as they were not
perceived as representative of one of the two forms of compliance (e.g.,
4.2.4. Control variables
“We fully comply with the franchisor's demands.”6). The revised items
Four control variables – initial franchise fee, number of units fran-
were further evaluated based on item-to-total correlations and ex-
chised, franchisee dependence, and environmental uncertainty – are
ploratory factor analysis (using Time 1 data). Three additional items
also posited to influence conflict, opportunism, and performance, and
were dropped due to low item-to-total correlations. Lastly, principal-
are, therefore, modeled as control variables. The larger the initial
factor analyses identified low-loading and cross-loading items, which
franchise fee, the more the franchisee is invested in the relationship.
were also dropped from the scales. This process resulted in a five-item
This should motivate the franchisee to refrain from opportunism, as the
Likert scale for perfunctory compliance and a four-item Likert scale for
franchisee has much to lose from relationship dissolution. Adherence to
consummate compliance. The remaining items were evaluated based on
operating guidelines, in turn, should reduce conflict and bolster per-
the conceptual definitions of perfunctory and consummate compliance
formance. Indeed, a study conducted by FranData reports a positive
to ensure these items represented the domain of the constructs.
relationship between initial franchise fee and revenue growth (Maze,
2013).
4.2.2. Antecedents Multi-unit franchisees may be less likely to strictly adhere to fran-
Outcome control refers to the franchisor's monitoring and evalua- chisor operating guidelines. Research suggests the multi-unit fran-
tion of franchisee performance goals. Outcome control was measured chisees desire more independence and autonomy than single-unit
with a five-item Likert scale adapted from Jaworski and MacInnis franchisees (Dant, Weaven, Baker, & Jeon, 2013). The ownership of
(1989). Behavioral control, in contrast, captures the franchisor's mon- multi-unit franchising stores may increase conflict and fuel opportu-
itoring and evaluation of franchisee behaviors and procedures. Beha- nism in a franchise system. Further, multi-unit franchisees are more
vioral control was measured with a four-item Likert scale adapted from familiar with the latitude that franchisors will give them in their daily
Jaworski and MacInnis (1989). Relationship age refers to the number of
years that the franchisee has been part of the franchise system. It is a
7
Residual centering method provides stable regression coefficients. The
coefficients of the first order-effect terms (e.g., behavioral control, outcome
6
Feedback from one of the judges: “Demands” suggests a non-collaborative control, and relationship age) remain unchanged when the interaction terms
perspective. This could be endorsed by someone who felt they met the letter but are entered into the equation. The method also eliminates multi-collinearity
rejected the spirit of the agreements and requests. Or, it could indicate con- problems because the interaction term is uncorrelated with the first-order effect
summate compliance. terms (Hair, Hult, Ringle, & Sarstedt, 2016; Little et al., 2006).

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operations. Hence, multi-unit franchisees know which guidelines they 4.3.2. Non-response bias
must adhere to and which ones they can shirk. Lastly, multi-unit owners The demographics of early and late respondents are compared to
can capitalize on economies of scale, best practices, and knowledge detect non-response bias (Armstrong & Overton, 1977). For the first
sharing between its franchised units, which may enhance performance. wave, early and late respondents are not statistically different based on
Franchisee dependence is defined as a franchisee's need to maintain the number of stores, year of franchising, age, gender, and education
the relationship with the franchisor in order to achieve its desired goals level. But early respondents earn a higher annual revenue and have
(Frazier, 1983). Research suggests that when one party in an exchange more employees than franchisees who responded late. We also compare
relationship is more dependent than the other party, there will be more early and late respondents' answers to questions about behavioral
dysfunction in the relationship (Anderson & Weitz, 1989), including control, outcome control, perfunctory compliance, and consummate
higher levels of conflict (Kumar, Scheer, & Steenkamp, 1995) and op- compliance. The only significant difference between the two groups is
portunistic tendencies (Gundlach & Cadotte, 1994); ultimately, it will that late respondents agree more strongly with the statement “We re-
affect performance adversely (Scheer, Miao, & Palmatier, 2015). Fran- ceive feedback from the franchisor on the extent to which we achieve
chisee dependence is measured with a three-item Likert scale based on our goals.” Similar to the first wave, early respondents from the second
Lusch and Brown (1996). wave of the study earn higher annual revenues than late respondents
Environmental uncertainty is defined as unanticipated changes in but there are no differences in other attributes. Also, early and late
the circumstances surrounding an exchange (Noordewier, John, & respondents are not significantly different in their answers to oppor-
Nevin, 1990). Volatile, unpredictable business environments make it tunism, conflict, customer satisfaction, and performance questions.
more difficult to control agents (Anderson, 1985). This difficulty is Together, these results suggest that non-response bias is not a concern
expected to exacerbate agent opportunism and conflict in the principal- for this study.
agent relationship. Furthermore, volatile environments may undermine
the consistency of the market offering and/or impact franchisee per-
formance (i.e., sales growth, cash flows, and profitability). 5. Results

4.3. Measurement validation procedures The hypotheses were tested by estimating the structural equation
model depicted in Fig. 1. The data fit the model acceptably
First, we examined the item-to-total correlations to identify and (χ2 = 730.65, df = 512, p < .01, RMSEA = 0.051, CFI = 0.94,
drop items that were not capturing the construct domain. Next, the NNFI = 0.92). The statistical model explains 29% of the variance in
internal consistency of the measures was assessed. Cronbach's alpha conflict, 32% of the variance in opportunism, and 36% of the variance
and composite reliability for all the scales meet the criterion of > 0.70 in performance. Table 2 reports the parameter estimates of the struc-
(Fornell & Larcker, 1981; Nunnally, 1978) and the variance extracted tural equation model. Although we did not hypothesize direct effects,
exceeds the recommended value of 0.50 (Hair, Anderson, Tatham, & behavioral control is related negatively to perfunctory compliance
Black, 1998). Next, measure validation procedures outlined by (γ = −0.56, p ≤ .05) and related positively to consummate compliance
Anderson and Gerbing (1988) were used. Confirmatory factor analysis (γ = 0.54, p ≤ .05). Outcome control is related positively to perfunc-
was conducted to determine the convergent and discriminant validity of tory compliance (γ = 0.44, p ≤ .05) but has no association with con-
the constructs. Satisfactory goodness-of-fit indices for the overall mea- summate compliance.
surement model were achieved: χ2 = 444.31, df = 329, p < .01;
RMSEA = 0.046, CFI = 0.96, NNFI = 0.96. Supporting convergent va-
lidity, all items loaded significantly (p < .001) on their respective 5.1. Hypothesis testing
constructs. Fornell and Larcker's (1981) test demonstrates discriminant
validity for all pairwise relationships. Jointly, these results indicate We hypothesized in H1 that, as the relationship ages, the negative
satisfactory reliability and validity of the measures. association between behavioral control and perfunctory compliance
will weaken; therefore, we expect the interaction term to have a posi-
4.3.1. Common method variance tive sign. Although significant, the interaction term is not in the pre-
We conducted Harman's single factor test to address the issue of dicted direction (γ = −0.32, p ≤ .05). H1, therefore, is not supported
common method variance (CMV) (Podsakoff, MacKenzie, Lee, & (see Fig. 2). For H2, we expect a negative interaction term as we pro-
Podsakoff, 2003). Specifically, we conducted a confirmatory factor posed that the positive relationship between outcome control and
analysis with all the items loaded on one single construct. The results perfunctory compliance will weaken over time. Although it is sig-
suggest that a single factor cannot explain the majority of the variance nificant, the interaction term is not in the predicted direction (γ = 0.51,
(χ2 = 1748.57, df = 350, p < .01; RMSEA = 0.23, CFI = 0.54, p ≤ .05). Hence, H2 is not supported.
NNFI = 0.50). We further evaluated the potential bias of CMV by ap- For H3, we expect to see a negative interaction term, indicating that
plying Lindell and Whitney's (2001) marker variable technique. This the positive association between behavioral control and consummate
approach suggests measuring a marker variable that is conceptually compliance weakens as a relationship ages. The results support H3
distinct from all the variables in the study. The smallest correlation (γ = −0.32, p ≤ .05). Contrarily, a positive interaction term is pro-
between the marker variable and the other variables in the model posed in H4, as we expect that the negative relationship between out-
serves as a proxy for CMV. Materialism of the franchisee manager is come control and consummate compliance will weaken as a relation-
used as the marker variable in this study. Materialism is measured with ship ages. Hence, the results provide support for H4 (γ = 0.53, p ≤ .05).
a three-item Likert scale (with 1 = strongly disagree and 7 = strongly Perfunctory compliance is related positively to conflict (β = 0.27,
agree) (Sirgy et al., 1998): 1) “It is important to me to have really nice p ≤ .05) while consummate compliance is not significantly related to
things,” 2) “I would like to be rich enough to buy anything I want,” and conflict, lending support to H5a but not H5b. As predicted, perfunctory
3) “I would be happier if I could afford to buy more things.” The compliance is related positively to opportunism (β = 0.36, p ≤ .05) and
smallest correlation between the marker variable (i.e., materialism) and consummate compliance is related negatively to opportunism
the other variables in the model was 0.000038; therefore, the correla- (β = −0.27, p ≤ .05). Hence, both H6a and H6b are supported.
tions between the variables are adjusted by this amount. The sig- Contrary to H7a and H7b, perfunctory compliance is related positively
nificance of correlations remains unchanged after the adjustment. to performance (β = 0.26, p ≤ .05) and consummate compliance is
Taken together, these two tests suggest that common method variance related negatively to performance (β = −0.25, p ≤ .05). These results
is not a problem in terms of interpreting the data. will be further discussed in the next section.

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Table 2 to conflict and opportunism, whereas consummate compliance is re-


Results for structural equation model. lated negatively to opportunism and not related significantly to conflict.
Direct paths Std. estimate t-Value Hypotheses Finally, and unexpectedly, perfunctory compliance is related positively
(Exp. sign) to performance and consummate compliance is related negatively to
performance. Managerial and theoretical implications of these findings
Control → Compliance
will be discussed in the next two sections.
Behavioral Control −0.56a −2.50
(BC) → Perfunctory Compliance
Behavioral Control → Consummate 0.54a 2.51 6.1. Managerial implications
Compliance
Outcome Control (OC) → Perfunctory 0.44b 1.99 Our study provides several implications for managers. First, man-
Compliance
agers should be cognizant of how the age of the franchisor-franchisee
Outcome Control → Consummate −0.11 −0.51
Compliance relationship impacts the effect of control on compliance. Our results
Relationship Age (YR) → Perfunctory 0.07 0.56 suggest that behavioral control fosters consummate compliance early in
Compliance franchisor-franchisee relationships. We argue that less experienced
Relationship Age → Consummate −0.04 −0.30
franchisees value the close guidance and feedback offered by the
Compliance
BC*YR → Perfunctory Compliance −0.32 a
−2.11 H1 (+)
franchisor through behavioral control. Behavioral control can be in-
OC*YR → Perfunctory Compliance 0.51a 2.08 H2 (−) formative, providing direction on how to improve business practices
BC*YR → Consummate Compliance −0.32a −2.16 H3 (−) early on (Anderson & Oliver, 1987). Gaining knowledge and compe-
OC*YR → Consummate Compliance 0.53a 2.23 H4 (+) tence about their own operations increases franchisees' intrinsic moti-
Compliance → Outcomes vation and consummate compliance. After franchisees have learned the
Perfunctory Compliance → Conflict 0.27a 2.44 H5a (+) day-to-day operations and developed the skills, knowledge, and cap-
Consummate Compliance → Conflict −0.15 −1.36 H5b (−)
abilities needed to manage the franchise effectively, they value the
Perfunctory 0.36a 3.15 H6a (+)
Compliance → Opportunism direction and feedback from behavioral control less (Oxenfeldt & Kelly,
Consummate −0.27a −2.36 H6b (−) 1968), resulting in less consummate compliance in the later stages of
Compliance → Opportunism the franchisee-franchisor relationship.
Perfunctory 0.26a 2.03 H7a (−) In contrast, the association between outcome control and con-
Compliance → Performance
Consummate −0.25a −2.08 H7b (+)
summate compliance is negative in the early stages of the relationship.
Compliance → Performance Early in the relationship, franchisees may view outcome control as
unhelpful and unsupportive because, by its nature, outcome control
Other Outcomes → Performance
Conflict → Performance −0.37a −3.19 offers little guidance and direction (Anderson & Oliver, 1987). Fran-
Opportunism → Performance −0.15 −1.30 chisees may feel confused and frustrated and, therefore, they are less
Controls → Outcomes likely to reciprocate with consummate compliance. As franchisees gain
Environmental UncertaintyConflict 0.27a 2.98 experience and become more familiar with the operations, they need
Environmental 0.09 1.07 less guidance and feedback and welcome the autonomy provided by
Uncertainty → Opportunism outcome control. Outcome control allows the franchisees to use their
Environmental −0.22a −2.38
own discretion to determine the best means to achieve the end (Crosno
Uncertainty → Performance
Number of Stores → Conflict 0.09 1.00 & Brown, 2015). This form of control signals to the franchisees that the
Number of Stores → Opportunism 0.15b 1.78 franchisors trusts them to operate the franchised outlets effectively.
Number of Stores → Performance 0.06 0.71 Thus, the experienced franchisee responds to outcome control with a
Franchising Fee → Conflict 0.17a 2.00
higher level of consummate compliance.
Franchising Fee → Opportunism 0.18a 2.19
Franchising Fee → Performance 0.14b 1.65 Interestingly, more experienced franchisees are also more likely
Franchising Dependence → Conflict −0.25a −2.86 (than less experienced franchisees) to engage in perfunctory com-
Franchising 0.12 1.41 pliance when the franchisor uses outcome control. Although this ap-
Dependence → Opportunism pears contradictory, it is possible that experienced franchisees learn
Franchising 0.20a 2.27
where they can do the bare minimum without hindering their perfor-
Dependence → Performance
mance. Stated differently, experienced franchisees may go “above and
a
p ≤ .05. beyond” where it matters and scale back their efforts in areas that do
b
p ≤ .10. not provide a high return when they are given the leeway to make these
decisions. Behavioral control, contrary to our prediction, appears to
keep perfunctory compliance in check later in the relationship. There
6. Discussion are several possible explanations for this unexpected finding. First, even
experienced franchisees may perceive some benefit from the direction
This research examines empirically the antecedents and con- and feedback from the franchisor. Hence, behavioral control may
sequences of two forms of compliance – consummate and perfunctory – continue to bolster franchisee competence, resulting in less perfunctory
in franchisor-franchisee relationships. The differential effects of the compliance in the later stages of the relationship. Another possible
antecedents as well as divergent outcomes underscore the importance explanation is that behavioral control, with its more hands on ap-
of investigating the nuances of compliance. Our findings suggest that proach, provides ample opportunities for the franchisee and franchisor
behavioral control is related positively to consummate compliance and to interact. Through these interactions, relational norms may develop
negatively to perfunctory compliance. Outcome control is not related and/or franchises may develop a sense of relatedness with the fran-
significantly to consummate compliance, yet it is related positively to chisor (Deci & Ryan, 1992), quelling perfunctory tendencies. Finally, it
perfunctory compliance. Further, the relationships between both forms is possible that behavioral control ensures that more experienced
of control and compliance are moderated significantly by relationship franchisees do not use their knowledge and experience to take ad-
age. Specifically, behavioral control increases consummate compliance vantage of the franchisor by performing in a perfunctory manner.
in the early stages of franchisor-franchisee relationships, whereas out- Second, while franchisors may seek consummate compliance from
come control increases consummate compliance in the later stages. franchisees, this form of compliance may not yield higher financial
In terms of outcomes, perfunctory compliance is related positively returns. Our study shows that consummate compliance has a direct,

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J.L. Crosno, P.Y. Tong Journal of Business Research 92 (2018) 360–373

Fig. 2. Interactions of control and relationship age on perfunctory and consummate compliance.

negative effect on franchisee financial performance. It is suspected that performance. One explanation is that franchisees are going through the
wholehearted, willing compliance requires additional resources and motions but not contributing anything more; hence, perfunctory com-
this form of compliance does not necessarily enhance the franchisee's pliance conserves franchisee resources while meeting the bare
financial performance.8 Furthermore, consummate compliance may minimum of the franchisor's guidelines. The franchisee's financial per-
deter franchisees from evaluating the relevance of the franchisor's po- formance may be improved because this form of compliance reduces its
licies, procedures, new products, promotions, etc. in their local markets, costs. In addition, perfunctory compliance may increase franchisee sales
which could stymie sales growth. Also, there is likely a time lag be- when franchisees are complying perfunctorily so that they can adapt to
tween market changes and the corresponding updates of the franchisor market changes. Yet, this form of compliance may deteriorate fran-
policies. Solely following extant policy may lead to a failure to respond chisor-franchisee relationships as it heightens conflict and increases
to market changes, especially in unstable environments. franchisee opportunism, which may hurt the franchisee's offerings and/
The research findings of this study lead us to the following question: or brand equity in the long-term (Wathne & Heide, 2000). Hence,
Is it truly beneficial for a franchisee to buy into every policy and di- franchisors and franchisees should consider the potential costs and
rective put forth by the franchisor? The answer is “yes” if the focus is on benefits of both forms of compliance.
ensuring customer satisfaction (Kashyap & Murtha, 2017).9 But the
answer is “no” if the focus is on franchisee financial performance.
Franchisors, however, may also benefit financially from franchisees that 6.2. Theoretical implications
challenge their policies and procedures in a constructive manner in-
stead of buying into even the most frivolous policies. Kashyap and Drawing on self-determination theory, this study posits that fran-
Murtha (2017, p. 141), for example, report that one franchisee im- chisee needs change over the course of the franchisor-franchisee re-
proved upon operating guidelines and was reprimanded, but its im- lationship. Early in franchisor-franchisee relationships, franchisees
provement later became a “brand standard.” Franchisors and fran- have a stronger need for competence; yet later in the relationship,
chisees, therefore, should evaluate the merits of consummate franchisees have a stronger need for autonomy. The central tenet of self-
compliance and work cooperatively to find a happy medium. determination theory is that satisfying these needs increases intrinsic
Lastly, perfunctory compliance is related positively to franchisee motivation and subsequent performance (Deci & Ryan, 1985). Our re-
sults support this theoretical argument for consummate compliance but
not for perfunctory compliance.
8
Kashyap and Murtha (2017) give examples of hotel franchisees going above Hence, self-determination theory appears adept at explaining per-
and beyond formal obligations at their own expense: 1) implementing an op- formance “above and beyond” contractual requirements, but this theory
tional, electronic reservation system, 2) exceeding breakfast standards, and 3) does not shed light on the “going through the motions” behavior.
putting additional supplies in the rooms.
9 Further, our findings suggest that perfunctory and consummate com-
Although not reported in the paper, we developed an alternative model
pliance do not move in tandem (i.e., an increase in consummate com-
where customer satisfaction, along with conflict and opportunism, are modeled
as the outcomes of perfunctory and consummate compliance. Aligning with the pliance does not necessarily correspond to a decrease in perfunctory
results from Kashyap and Murtha (2017), we found that consummate com- compliance). As a result, we suspect that there are different motives and
pliance has a positive, significant effect on customer satisfaction (β = 0.25, theoretical underpinnings of these compliance behaviors (see future
p ≤ .10). Given the marginal effect, we report the more parsimonious model's research for other theories that may shed some insight on these dif-
results. ferent forms of compliance).

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J.L. Crosno, P.Y. Tong Journal of Business Research 92 (2018) 360–373

Regardless of the underlying motives, this study underscores the to respond to the market in a timely manner. Future research, therefore,
importance of examining perfunctory versus consummate compliance may consider defining perfunctory compliance with good attitude/in-
in predicting relational and financial outcomes. Although institutional tent and bad attitude/intent.11 Along the same lines, consummate
economics identifies control as a means to ensure contractual com- compliance may result from franchisee self-interest seeking rather than
pliance (Eisenhardt, 1989; Jensen & Meckling, 1976; Wathne & Heide, the franchisee embracing the franchisor's agenda and values. In short,
2000; Williamson, 1985), it does not explicitly consider the nuances of future research should delve even further into the nuances of com-
compliance. We draw on psychology literature to extend the perspec- pliance.
tive of institutional economics. Aligned with the findings in psychology Finally, future research should also address the methodological
research, consummate compliance leads to desirable relational out- limitations of this research. The sample for this study consisted of
comes while perfunctory compliance has the opposite effect. Extending franchisees in the U.S., which may limit the generalizability of the
research in psychology and institutional economics, our study examines results. For example, behavioral control may be perceived as “in-
financial performance and finds that consummate, rather than per- formative” in a franchise system, leading to consummate com-
functory, compliance is related negatively to franchisee financial per- pliance, yet “controlling” in a buyer-supplier relationship, leading to
formance (i.e., a potential downside to consummate compliance). perfunctory compliance. In addition, the sample size of this study is
Lastly, although the monitoring aspect of behavioral control may relatively small which increases the chance of failing to reject a false
have potential crowding out effects (e.g., Crosno & Brown, 2015; Heide null hypothesis. Despite this limitation, many hypothesized effects in
et al., 2007), this study demonstrates the upside to this form of control. the model are still significant, suggesting that these relationships are
Behavioral control may be perceived as “informative,” particularly quite strong. The 18-month time lag between data collection could
early in franchisor-franchisee relationships, leading to more positive also allow other factors to impact performance. Additional insight
outcomes (Anderson & Oliver, 1987). This form of control signals which may be gained by examining the model at different intervening
behaviors are needed to be successful and it provides feedback that is periods. Lastly, data were collected from franchisees. Although there
germane to improving the agent's performance and competence is no evidence of common method bias, future research should em-
(Anderson & Oliver, 1987). Future research on the informative versus ploy dyadic data to gain a more holistic view of compliance in ex-
controlling nature of behavioral control would further our under- change relationships.
standing of its effects in principal-agent relationships.
7. Conclusion
6.3. Limitations and future research
Attaining agent compliance is essential to ensuring a uniform
market offering and achieving long-term profitability. This study
Several limitations provide additional avenues for research. First,
extends our understanding of compliance by examining the nuances
this research focuses on ex post control mechanisms (e.g., behavioral
of compliance and its effect on performance in franchise relation-
control). Future research should also examine ex ante governance me-
ships. Our results suggest behavioral control bolsters consummate
chanisms, such as contractual terms (e.g., contractual completeness,
compliance early in the franchisor-franchisee relationship, whereas
contractual one-sidedness) and incentive structures (Kashyap et al.,
outcome control increases consummate compliance later in the re-
2012). Franchisees may be more likely to wholeheartedly embrace di-
lationship. Consummate compliance, in turn, decreases opportunism
rectives and policies that are outlined in the contract. Yet incentives
and, unexpectedly, performance. Controls, however, are only one of
may quell consummate compliance as the behavior is attributed to
the many mechanisms principals can leverage to influence the be-
external forces (Anderson & Oliver, 1987; Deci & Ryan, 1985). Second,
havior of agents. Other ex ante and ex post control mechanisms are
future research may benefit from examining relational mechanisms,
viable avenue for future research. We hope that our study prompts
such as norms, commitment, and trust, as well as the interaction effects
additional research on the nuances of compliance in principal-agent
of formal control mechanisms and relational mechanisms on con-
relationships.
summate and perfunctory compliance (Brown et al., 2000).
Another area for future research is examining the underlying me-
Acknowledgements
chanisms that lead to perfunctory versus consummate compliance.
Drawing on other theories, such as power-dependence theory (Gaski,
The authors thank James R. Brown for his helpful suggestions on an
1984; Scheer et al., 2015), equity theory (Adams, 1965), regulatory
earlier version of this manuscript.
focus (Higgins, 1998), and reciprocity and gratitude (Emerson, 1976;
Palmatier, Jarvis, Bechkoff, & Kardes, 2009) may shed some additional
Appendix A. Measurement items
insight. Morgan and Hunt (1994, p. 33), for example, argue that power
and control “yields compliance because firms are compelled to” comply
A.1. Outcome control (adapted from Jaworski & MacInnis, 1989)
rather than wanting to comply. Equity theory may also shed light onto
compliance behaviors. This theory suggests that franchisees compare
To what extent do you agree with the following statements
their inputs and outcomes to a referent other (Adams, 1965). Com-
(1 = strongly disagree and 7 = strongly agree):
pliance behaviors (perfunctory and consummate) serve as inputs into
the equity ratio. Franchisees may feel motivated to go beyond con-
1. The franchisor sets specific performance goals for my firm.*
tractual requirements in the areas that yield better outcomes, but they
2. The franchisor evaluates the extent to which we attain the perfor-
may scale back in other areas to ensure a balanced equity ratio. Ex-
mance goals.
amining the mechanisms underlying different compliance behaviors
3. Our contract requires that we attain certain performance goals.
will provide managers some more direction on transitioning agents
4. We receive feedback from the franchisor on the extent to which we
toward consummate compliance behaviors.10
achieve our goals.
Yet franchisors should be cognizant of the potential benefits of
5. Any reward that we receive from the franchisor depends on how our
perfunctory compliance. Although perfunctory compliance is generally
performance compares with the goals set by the franchisor.
viewed negatively, this form of compliance may be a franchisee's effort

10
Frazier and Sheth's (1985) framework may also offer some initial steps in
11
this regard. We thank one of our anonymous reviewers for this suggestion.

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A.2. Behavioral control (adapted from Jaworski & MacInnis, 1989) 1. Sometimes we have had to alter the facts slightly in order to get
what we need from our franchisor.
To what extent do you agree with the following statements 2. We have sometimes promised our franchisor that we would do
(1 = strongly disagree and 7 = strongly agree): things, though we had no intention of following through.
3. We sometimes breach our formal agreement with the franchisor for
1. The franchisor monitors the extent to which we follow established our benefit.
procedures. 4. On occasion, we have had to lie to our franchisor about certain
2. The franchisor regularly monitors the quality control that my firm things in order to protect our interests.
maintains. 5. Sometimes we have presented facts to the franchisor in such a way
3. Any reward that we receive from the franchisor depends on how that made us look good.
well we follow its standard operating procedures. 6. In order to meet our goals, we have occasionally failed to do things
4. We are held accountable for following standard operating proce- that are expected based on our agreement with the franchisor.
dures regardless of the results we achieve.
A.8. Performance (based on Lusch & Brown, 1996; Palmatier et al., 2007)
A.3. Relationship age
Compared with other franchisees offering similar products, our
How many years have you been a franchisee in this franchise performance is very high in terms of (1 = strongly disagree and
system? 7 = strongly agree):

1. Sales growth
A.4. Perfunctory compliance
2. Overall profitability
3. Cash flows
When you comply with your franchisor, to what extent do you agree
with the following statements (1 = strongly disagree and 7 = strongly
A.9. Control variables
agree):

A.9.1. Franchisee dependence (Adapted from Lusch & Brown, 1996)


1. We reluctantly accommodate the franchisor's requests.
To what extent do you agree with the following statements
2. We do the bare minimum to adjust to the franchisor's needs.
(1 = strongly disagree and 7 = strongly agree):
3. We somewhat comply with the franchisor's rules and procedures.
4. We are not fully committed to following the policies established by
1. We are dependent on our franchisor.
the franchisor.*
2. Our franchisor would be difficult to replace.
5. When it comes to the franchisor's operating guidelines, we “go
3. Our franchisor would be costly to lose.
through the motions.”

A.9.2. Environmental uncertainty (adapted from Anderson, 1988; Heide &


A.5. Consummate compliance
John, 1988)
Describe the business environment for your products (or services).
When you comply with your franchisor, to what extent do you agree
with the following statements (1 = strongly disagree and 7 = strongly
1. Stable environment – Volatile environment
agree):
2. Certain – Uncertain
3. Stable market conditions – Erratic market conditions
1. We willingly accommodate the franchisor's requests.
4. Predictable demand – Unpredictable demand
2. We wholeheartedly comply with the franchisor's rules and proce-
dures.
A.9.3. Franchising fee
3. We are fully committed to following the policies established by the
What was the size of your initial franchise fee?
franchisor.
4. When adjusting to the franchisor's requests, we do more than is
A.9.4. Number of stores
asked of us.
How many franchised outlets do you operate for this franchisor?
*Dropped items.
A.6. Conflict (adapted Gilliland et al., 2010; Jap & Ganesan, 2000)
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