The Added Value of the Plural Form
Evidence from Dutch Pharmacy Chains
TITLE
2
CHAPTER 1
3
NYENRODE BUSINESS UNIVERSITEIT
The Added Value of the Plural Form
Evidence from Dutch Pharmacy Chains
Proefschrift
ter verkrijging van het doctoraat
aan de Nyenrode Business Universiteit
op gezag van de
Rector Magnificus, prof. dr. E.A. de Groot
en volgens besluit van het College voor Promoties.
De openbare verdediging zal plaatsvinden op
dinsdag 24 juni 2008
des namiddags om vier uur precies
door
Rosalie M. Aldewereld-Duijvis
geboren op 14 april 1976
te Zaanstad
4
TITLE
5
CHAPTER 1
Acknowledgements
Leescommissie
Promotores:
Prof. dr. H.R. Commandeur
Prof. dr. E. Peelen
Overige leden :
Dr. F. Langerak
Prof. dr. ir. A.K. Hajdasinski
Prof. dr. R. Huijsman
Prof. dr. H.S.J. Robben
Co-promotor:
Prof. dr. ir. C.A.G.M. van Montfort
Writing a doctoral thesis is something that I never imagined myself doing. I actually
believed it to be boring and something for “nerds.” After my graduation I wanted to work
in business. My graduation thesis was my first real encounter with science. I wrote this
thesis, which was part of somebody else’s Ph.D. research, at Nyenrode Business
Universiteit. During the process of writing, I realized that science was not so boring after
all! I actually considered it to be very challenging. I liked to try to get to the core of things
and to “crack my brains.” Contrary to expectations I therefore decided to conduct my own
Ph.D. research. The Ph.D. period has appeared to be a very valuable and interesting one; a
period in which I have been given the opportunity to develop myself further, intellectually
as well as personally. Despite all positive things it has not always been an easy period for
me. Many times, I have seriously considered quitting. Luckily, I haven’t.
The completion of this doctoral thesis would not have been possible without the help of
many people. I am deeply indebted to them all and I would like to take this opportunity to
thank them.
First of all, I want to thank my supervisors, Harry Commandeur, Ed Peelen, and Kees van
Montfort, for their guidance during the project. Each of them has contributed in a different
and very valuable way. Harry was involved from the very beginning. Whenever I was lost,
he pointed me in the right direction. I very much appreciate his unconditional support and
belief in my research. Ed’s ability to quickly point out cause and effect were very important
in analyzing my data. He pushed me when I really needed to be pushed. Without his focus
on the bigger picture, my thesis would not have been finished yet. Finally, Kees was a great
help to me in the statistical analysis. I don’t know how I would have completed this
analysis without his guidance.
Second, I want to thank the members of the promotion committee. I am grateful for their
valuable suggestions and comments. Special thanks go to Henry Robben, who was very
helpful in constructing my conceptual frameworks.
My gratitude also goes to the pharmacists that participated in the pre-test of the survey and
all interviewees. Of these interviewees, Peter de Jong from Kring-apotheek deserves special
thanks. I also want to thank my former thesis student, Bert Hendriks. His knowledge of the
pharmacy sector has been very useful to me. Furthermore, I want to thank Robert van der
Zwart. Without him I wouldn’t have started this Ph.D. research in the first place.
Third, I have received great support from my colleague, friend, and former roommate, Mr.
Reddy. He has always been there to exchange ideas, to talk about other things than
TITLE
6
research, or to calm me down with some wise words. Vijay, thank you and I miss having
you as a roommate. I am looking forward to your defense! I also want to thank my other
roommate, Mr. Zaka. With such great sense of humor, you will definitely be able to win the
heart of your own blonde bombshell!
I am also very thankful to my parents, whose support I could have not done without.
Whenever the end seemed beyond reach, they were there to listen and to offer an
encouraging word. Last, but certainly not least, I want to thank Jelle, who stood by me
throughout the entire process. Thank you for being so patient with a girlfriend (and now
wife) who always felt the need and the pressure to finish her Ph.D! I know it was difficult
to understand that the difference between a two-week and three-week holiday was not just
that I would finish my Ph.D. a week later. I hope that the three of us will enjoy a lot of
three-week holidays and weekends away in the future!
Rosalie Aldewereld-Duijvis
7
CHAPTER 1
Table of contents
Chapter 1
Introduction to the research questions
Introduction to the research questions 11
Chapter 1
1.1 Introduction
............................................................................................................... 111
1.1
Introduction
1.2 Research
questions
.................................................................................................... 144
1.2
Research
questions
1.3 Research
methodology
.............................................................................................. 144
1.3
Research
methodology
1.4 Objectives..................................................................................................................
155
1.4
Objectives
1.5 Limitations
of of
thethe
thesis
............................................................................................ 166
1.5
Limitations
thesis
1.6 Outline
of of
thethe
thesis...................................................................................................
166
1.6
Outline
thesis
2
Theoretical
framework:
Plural
governance
Chapter 2
Theoretical
framework:
Plural
governance18
2.1 Introduction ............................................................................................................... 18
2.2 Characteristics
2.1
Introductionof governance structures ................................................................... 199
2.3 Firms’
governanceofchoice:
Either-or
......................................................................... 20
2.2
Characteristics
governance
structures
10
2.4 Chain
organizations’
choice: Franchise or company- owned outlets ..... 23
2.3
Firms’
governance governance
choice: Either-or
11
2.5 Firms’
governance
choice:
And-and..........................................................................
2.4
Chain
organizations’
governance
choice: Franchise or company-owned outlets 24
14
2.6 Structure-Conduct-Performance
................................................................................ 26
2.5
Firms’ governance choice: And-and
15
2.7 Conclusions
............................................................................................................... 26
2.6
Structure-Conduct-Performance
17
2.7
Conclusions
17
Chapter 3
Empirical setting: The Dutch pharmacy sector
28
3.1 Introduction
...............................................................................................................
28
Chapter
3
Empirical
setting: The Dutch pharmacy sector
3.2 Pharmaceutical care policy in the Netherlands.......................................................... 29
Controlling drug expenditure
30
3.1 3.2.1
Introduction
19
The role ofcare
health
insurers
the pharmaceutical care market 33
3.2 3.2.2
Pharmaceutical
policy
in theinNetherlands
20
36
3.3 Sector
3.2.1Analysis..........................................................................................................
Controlling drug expenditure
21
3.3.1
3.2.2 Suppliers
The role of36health insurers in the pharmaceutical care market
24
entrants40
3.3 3.3.2
SectorNew
Analysis
27
3.3.3
3.3.1 Substitutes
Suppliers 41
27
3.3.4
42
3.3.2 Buyers
New entrants
31
3.3.5
rivalry 43
3.3.3 Competitive
Substitutes
32
other countries........................................................................................ 44
3.4 Situation
3.3.4 inBuyers
33
...............................................................................................................
48
3.5 Conclusions
3.3.5 Competitive
rivalry
34
3.4
Situation in other countries
35
Chapter Conclusions
4
Research methodology and results: Case study
50
3.5
39
4.1 Introduction ............................................................................................................... 50
4.2 Case
51
Chapter
4 study method.....................................................................................................
Research methodology and results: Case study
4.2.1 Why a case study? 51
Case study design 52
4.1 4.2.2
Introduction
41
4.3 Dutch
4.2
Caseplural
studypharmacy
method chains ................................................................................... 53
42
growth................................................................................................................
53
4.4 Unit
4.2.1
Why a case study?
42
TITLE
VIII
table of contents
8
4.4.1
ondesign
unit growth 55
4.2.2 Constraints
Case study
43
4.4.2
DutchPlural
pluraldynamics:
pharmacy Speeding
chains up the unit growth process 57
44
Local
................................................................................................. 59
Unitresponsiveness
growth
44
4.5.1
limited
local
responsiveness 59
4.4.1 Pharmacies’
Constraints
on unit
growth
46
4.5.2
responsiveness:
Franchise
vs. company-owned
4.4.2 Local
Plural
dynamics: Speeding
uppharmacies
the unit growth
process
48
pharmacies
61
Local responsiveness
50
4.5.3
dynamics:limited
Achieving
levels of local responsiveness
62 50
4.5.1 Plural
Pharmacies’
local higher
responsiveness
Creating
uniformity
...................................................................................................
65
4.5.2
Local responsiveness:
Franchise pharmacies vs. company-owned
4.6.1 Generating
ideas 67
pharmacies
52
4.6.2
dynamics:
Generating
more
ideas
and of
more
varied
ideas 68
4.5.3 Plural
Plural
dynamics:
Achieving
higher
levels
local
responsiveness
53
Testing
and evaluating ideas
69
4.6 4.6.3
Creating
uniformity
56
4.6.4
dynamics:
A more thorough testing process
70
4.6.1 Plural
Generating
ideas
58
4.6.5
4.6.2 Decision-making
Plural dynamics: 71
Generating more ideas and more varied ideas
59
4.6.6
dynamics:
Persuading
franchisees and pre-decision learning 74 60
4.6.3 Plural
Testing
and evaluating
ideas
4.6.7
75more thorough testing process
4.6.4 Implementation
Plural dynamics: A
61
4.6.8
dynamics: Persuading franchisees and post-decision learning 76 62
4.6.5 Plural
Decision-making
uniformity..............................................................................................
78
4.7 Maintaining
4.6.6 Plural
dynamics: Persuading franchisees and pre-decision learning
65
4.7.1
dynamics: Achieving higher levels of uniformity 80
4.6.7 Plural
Implementation
66
...............................................................................................................
4.8 Conclusions
4.6.8 Plural
dynamics: Persuading franchisees and post-decision learning 81
67
4.7
Maintaining uniformity
69
5
Conceptual
framework
and hypotheses
83
Chapter 4.7.1
Plural dynamics:
Achieving
higher levels of uniformity
71
5.1 Introduction
............................................................................................................... 83
4.8
Conclusions
72
5.2 Structural characteristics: Franchise pharmacies vs. company- owned pharmacies .. 84
5.3 Conceptual
frameworks.............................................................................................
84
Chapter
5
Conceptual
framework and hypotheses
5.3.1 Conceptual framework 1: Local responsiveness 85
Conceptual framework 2: Generating ideas
88
5.1 5.3.2
Introduction
75
5.3.3
Conceptual
framework
3: Testing
ideas 90
5.2
Structural
characteristics:
Franchise
pharmacies
vs. company-owned
5.3.4
Conceptual framework 4: Decision-making
92
pharmacies
76
Conceptual
framework 5: Implementation
93
5.3 5.3.5
Conceptual
frameworks
76
pharmacies
vs. 1:
company-owned
pharmacies............................. 95
5.4 Conduct:
5.3.1 Franchise
Conceptual
framework
Local responsiveness
77
Plural pharmacy
chains
vs. pure pharmacy
5.5 Performance:
5.3.2 Conceptual
framework
2: Generating
ideas chains .............................. 97
80
Plural chain
pharmacies
vs. pureideas
chain pharmacies ........................... 99
5.6 Performance:
5.3.3 Conceptual
framework
3: Testing
82
...............................................................................................................
99
5.7 Conclusions
5.3.4 Conceptual
framework 4: Decision-making
84
5.3.5 Conceptual framework 5: Implementation
85
Chapter Conduct:
6
Research
methodology:
101
5.4
Franchise
pharmacies Survey
vs. company-owned
pharmacies
87
6.1 Introduction
.............................................................................................................
101
5.5
Performance:
Plural pharmacy chains vs. pure pharmacy chains
89
6.2 Why
a survey? .........................................................................................................
101
5.6
Performance:
Plural chain pharmacies vs. pure chain pharmacies
91
6.3 Sampling
frame ....................................................................................................... 101
5.7
Conclusions
91
6.4 Pretest ...................................................................................................................... 102
6.5 Data
102
Chapter
6 collection.........................................................................................................
Research methodology: Survey
6.6 Structure of the survey............................................................................................. 103
6.7 Scales.......................................................................................................................
103
6.1
Introduction
93
6.2
Why a survey?
93
4.3
4.5
4.4
4.5
4.6
9
table
of contents
CHAPTERIX
1
6.8 Conclusions
............................................................................................................. 106
6.3
Sampling frame
93
6.4
Pretest
94
Chapter Data
7 collection
Research results: Survey 107
6.5
94
7.1 Introduction
.............................................................................................................
107
6.6
Structure of
the survey
95
7.2 Correspondence
between the observed and the actual distribution ........................ 107
6.7
Scales
95
7.3 The
measurement model: Confirmatory factor analysis .......................................... 109
6.8
Conclusions
98
7.3.1 Construct validity 110
7.4 Structural
characteristics:
Franchise
pharmacies vs. company- owned pharmacies 112
Chapter
7
Research results:
Survey
7.5 The structural model................................................................................................ 113
Assessing overall structural model fit
113
7.1 7.5.1
Introduction
99
Local responsiveness:
structure,
conduct, and
7.2 7.5.2
Correspondence
between theRelationships
observed and among
the actual
distribution
99
114 model: Confirmatory factor analysis
7.3 performance
The measurement
101
7.5.3
hypotheses
7.3.1 Testing
Construct
validity115
102
7.5.4
Generating
ideas: Relationships
among structure,
conduct, and performance
7.4
Structural
characteristics:
Franchise pharmacies
vs. company-owned
120
pharmacies
104
Testing hypotheses
121
7.5 7.5.5
The structural
model
105
7.5.6
ideas:overall
Relationships
among
structure,
conduct, and performance 105
7.5.1 Testing
Assessing
structural
model
fit
124
7.5.2Local responsiveness: Relationships among structure, conduct, and
7.5.7 Testing
hypotheses 124
performance
106
7.5.8
Relationships among structure, conduct, and performance
7.5.3 Decision-making:
Testing hypotheses
107
125
7.5.4Generating ideas: Relationships among structure, conduct, and
7.5.9 Testing
hypotheses 125
performance
112
7.5.10
Relationships among structure, conduct, and
7.5.5 Implementation:
Testing hypotheses
113
performance
127 ideas: Relationships among structure, conduct, and
7.5.6Testing
7.5.11
Testing
hypotheses
127
performance
116
pharmacies vs. company-owned pharmacies........................... 131
7.6 Conduct:
7.5.7 Franchise
Testing hypotheses
116
Plural pharmacyRelationships
chains vs. pure
pharmacy
chains
............................
133
7.7 Performance:
7.5.8Decision-making:
among
structure,
conduct,
and
7.8 Performance:
Plural chain pharmacies vs. pure chain pharmacies ......................... 139
performance
117
.............................................................................................................
140
7.9 Conclusions
7.5.9 Testing
hypotheses
117
7.5.10Implementation: Relationships among structure, conduct, and
Chapter 8
Conclusions,
contribution, and suggestions for further research 141119
performance
.............................................................................................................
141
8.1 Introduction
7.5.11 Testing
hypotheses
119
8.2 Answering
question
1................................................................................
141
7.6
Conduct:research
Franchise
pharmacies
vs. company-owned pharmacies
123
8.3 Answering
research
question
2 and
3 ......................................................................
142
7.7
Performance:
Plural
pharmacy
chains
vs. pure pharmacy chains
125
Local responsiveness:
Relationships
among
structure,
conduct, and
7.8 8.3.1
Performance:
Plural chain pharmacies
vs. pure
chain
pharmacies
131
7.9 performance
Conclusions144
132
8.3.2 Generating ideas: Relationships among structure, conduct, and performance
148
Chapter
8
Conclusions, contribution, and suggestions for further research
8.3.3 Testing ideas: Relationships among structure, conduct, and performance
8.1 150
Introduction
133
Decision-making:
Relationships
among structure, conduct, and performance
8.2 8.3.4
Answering
research question
1
133
8.3 151
Answering research questions 2, 3, and 4
134
TITLE
X
table of contents
10
8.3.5
Implementation:
Relationships
among structure,
conduct,conduct,
and performance
8.3.1
Local responsiveness:
Relationships
among structure,
and
152
performance
136
8.3.6
Conduct:
Franchise
vs. among
company-owned
pharmacies
154
8.3.2
Generating
ideas:pharmacies
Relationships
structure, conduct,
and
8.3.7 Performance:
Plural pharmacy chains vs. pure pharmacy chains
158140
performance
8.3.8
Performance:
Plural
chain pharmacies
pure chains
pharmacies
162
8.3.3
Testing ideas:
Relationships
among vs.
structure,
conduct,
and
8.4 Contributionperformance
to science and practice........................................................................ 163
142
8.4.1
Scientific
contributionRelationships
164
8.3.4
Decision-making:
among structure, conduct, and
8.4.2 Practical
contribution
165
performance
143
and suggestions for
further research.....................................................
167
8.5 Limitations
8.3.5Implementation:
Relationships
among structure, conduct, and
performance
144
References
8.3.6 170Conduct: Franchise pharmacies vs. company-owned pharmacies
146
8.3.7 Performance: Plural pharmacy chains vs. pure pharmacy chains
150
A ListPerformance:
of people interviewed
178 vs. pure chains pharmacies
Appendix
8.3.8
Plural chain pharmacies
154
8.4
Contribution to science and practice
155
B Cover
letter contribution
and survey 179
Appendix
8.4.1
Scientific
156
8.4.2 Practical contribution
157
Appendix
C Descriptive
statistics for further
198 research
8.5
Limitations
and suggestions
159
Appendix D Test statistics of multi-item constructs 203
References
163
E Removed
items interviewed
204
Appendix A
List of people
171
Nederlandse
206and survey
Appendix
B samenvatting
Cover letter
173
Appendix C
Descriptive statistics
193
Appendix D
Test statistics of multi-item constructs
199
Appendix E
Removed items
201
Nederlandse samenvatting
203
Curriculum vitae
213
C
1
CHAPTER
HAPTER 1
11
11
Chapter
Chapter 1
1
1.1
1.1
Introduction
Introduction to
to the
the research
research questions
questions
Introduction
Introduction
Most empirical
empirical work
work on
on governance
governance decisions
decisions focuses
focuses on
on explaining
explaining firms’
firms’ choice
choice among
among
Most
governance
structures.
These
works
consider
this
choice
as
a
function
of
circumstances.
governance structures. These works consider this choice as a function of circumstances.
Under
Under certain
certain circumstances,
circumstances, one
one governance
governance structure
structure does
does better
better than
than another.
another. As
As the
the
circumstances
vary,
so
do
the
governance
structures
that
are
observed.
Nevertheless,
circumstances vary, so do the governance structures that are observed. Nevertheless, in
in
practice
practice very
very different
different governance
governance structures
structures often
often exist
exist side
side by
by side.
side. Many
Many retail
retail chain
chain
organizations, for
for example,
example, use
use both
both franchise
franchise and
and company-owned
company-owned outlets
outlets (i.e.
(i.e. outlets
outlets that
that
organizations,
are
owned
by
the
chain
operator).
Well
known
retail
chains
active
in
different
industries
are owned by the chain operator). Well known retail chains active in different industries
such
such as
as Albert
Albert Heijn,
Heijn, McDonald’s,
McDonald’s, Etos,
Etos, and
and Benetton
Benetton all
all have
have franchise
franchise outlets
outlets as
as well
well as
as
their
own
outlets.
Also
in
other
marketing
settings,
firms
use
different
governance
their own outlets. Also in other marketing settings, firms use different governance
structures
structures simultaneously.
simultaneously. For
For example,
example, firms
firms often
often make
make and
and buy
buy parts
parts (Heide,
(Heide, 2003);
2003);
alternatively, they
they sometimes
sometimes use
use aa direct
direct sales
sales force
force and
and third
third party
party distributors
distributors (Anderson
(Anderson
alternatively,
and
and Schmittlein,
Schmittlein, 1984).
1984). In
In the
the literature
literature the
the simultaneous
simultaneous use
use of
of1 different
different governance
governance
1 (Bradach and Eccles,
structures
for
the
same
function
is
referred
to
as
the
“plural
form”
structures for the same function is referred to as the “plural form” (Bradach and Eccles,
1989).
1989).
The first
first explanations
explanations concerning
concerning the
the use
use of
of the
the plural
plural form
form have
have been
been limited
limited to
to specific
specific
The
conditions.
For
instance,
according
to
Brickley
and
Dark
(1987),
the
combination
conditions. For instance, according to Brickley and Dark (1987), the combination of
of
franchise
franchise and
and company-owned
company-owned outlets
outlets within
within aa system
system is
is based
based on
on monitoring
monitoring costs.
costs. As
As
company-owned
company-owned outlets
outlets incur
incur higher
higher monitoring
monitoring costs,
costs, they
they are
are located
located near
near company
company
headquarters,
while
as
franchise
outlets
incur
lower
monitoring
costs,
franchising
headquarters, while as franchise outlets incur lower monitoring costs, franchising occurs
occurs in
in
more distant
distant locations.
locations. Some
Some researchers
researchers have
have started
started to
to shed
shed the
the assumption
assumption that
that one
one
more
particular
particular governance
governance structure
structure is
is obviously
obviously superior
superior under
under certain
certain conditions.
conditions. Rather
Rather than
than
(just)
the
product
of
micro
level
conditions,
they
argue
that
the
plural
form
is
the
(just) the product of micro level conditions, they argue that the plural form is the product
product of
of
the
the synergistic
synergistic potential
potential of
of different
different governance
governance structures.
structures.
The synergistic
synergistic benefits
benefits of
of the
the plural
plural form
form have
have been
been highlighted
highlighted by
by aa number
number of
of research
research
The
works
(e.g.
Bradach
and
Eccles,
1989;
Dant
et
al.,
1992;
Lafontaine
and
Kaufmann,
works (e.g. Bradach and Eccles, 1989; Dant et al., 1992; Lafontaine and Kaufmann, 1994)
1994)
and
and then
then have
have been
been further
further developed
developed and
and empirically
empirically validated
validated by
by Bradach
Bradach (1992,
(1992, 1997).
1997).
In
In his
his exploratory
exploratory research,
research, Bradach
Bradach studied
studied how
how restaurant
restaurant chains
chains use
use aa plural
plural form
form to
to
better
meet
their
key
strategic
objectives
(e.g.
uniformity
and
local
responsiveness).
better meet their key strategic objectives (e.g. uniformity and local responsiveness). He
He
1
1
As
As described
described by
by Heide
Heide (2003),
(2003), the
the term
term “plural
“plural form”
form” is
is used
used somewhat
somewhat differently
differently by
by researchers.
researchers. Cannon
Cannon et
et
al.
al. (2000),
(2000), for
for example,
example, define
define aa plural
plural form
form as
as aa mixture
mixture of
of different
different control
control mechanisms
mechanisms used
used for
for aa single
single
exchange. Bradach
Bradach (1992),
(1992), on
on the
the other
other hand,
hand, considers
considers aa plural
plural form
form to
to be
be aa combination
combination of
of distinct
distinct
exchange.
governance
governance structures.
structures. Bradach
Bradach and
and Eccles
Eccles (1989)
(1989) allude
allude to
to both
both uses
uses of
of the
the term.
term. In
In this
this thesis
thesis we
we adopt
adopt
Bradach’s
Bradach’s use
use of
of the
the term.
term.
2TITLE
chapter12
1
explained that differences in the organization and management of franchise and companyowned restaurants can cause certain processes, which he calls “plural dynamics”, across
these restaurants. For instance, due to their stronger financial incentives, franchisees are
motivated to search for revenue enhancing ideas, which can be used later in companyowned restaurants. According to Bradach, these plural dynamics enable operators of plural
restaurant chains to better meet their strategic objectives. Hence, he predicts that plural
chains outperform pure chains (i.e. chains that consist only of franchise outlets or companyowned outlets).
After Bradach, a number of scholars have conducted empirical research on the synergistic
benefits of the plural form. For instance, Cliquet and Croizean (2002) studied the
advantages of having both franchise and company-owned outlets for cosmetic chain
organizations, and Lewin (1997) examined the implications of a mixture of franchise and
company-owned outlets for innovation within restaurant chains. Some other scholars have
studied the benefits of the plural form outside the context of franchising systems. For
example, in the context of industrial purchasing, Heide (2003) investigated whether firms
can better manage information asymmetry problems by augmenting market relationships
with internal organization.
In this thesis we investigate the benefits of the plural form for Dutch pharmacy chains. In
the Netherlands the pharmacy sector has been characterized by considerable consolidation
in the past years. Approximately 59% of the Dutch community pharmacies 2 are currently
part of a chain organization. The reasons for this chain development are diverse. For
example, since 1999, it has become considerably easier for non-pharmacists to exploit
pharmacies in the Netherlands. In reaction to this measure, various parties, particularly
pharmaceutical wholesalers, have started to acquire pharmacies. The measures imposed by
the Dutch government to control the expenditure on pharmaceutical aid have also played an
important role in the development of pharmacy chains. These measures have caused the
margins of pharmacies to be under increasing pressure. In combination with uncertainty
about future measures, this has made many pharmacies to opt for the security of a large
organization. Dutch pharmacies chains are organized in different ways. Two chains use a
mix of franchise 3 and company-owned pharmacies. Other pharmacy chains consist either of
franchise pharmacies or of company-owned pharmacies. Operators of these chains often
2
3
In the Netherlands prescription drugs are dispensed by community pharmacies, hospital pharmacies, and
dispensing doctors (i.e. general practitioners that usually cover rural areas). Only community pharmacies are
part of chain organizations. Therefore, whenever we use the term “pharmacy” in this thesis, we mean a
community pharmacy.
Dutch pharmacy chains make use of business format franchising. This is a form of franchising in which the
franchisee operates under a complete business format that is structured by the franchisor. This format includes,
for example, trade names, trademarks, operating methods, marketing techniques, and the franchisor’s knowhow.
13
introduction
to the research questions
CHAPTER 13
consider extending their chains with company-owned pharmacies respectively franchise
pharmacies.
In this thesis we base our work on Bradach’s qualitative research (1992, 1997). We
examine to what extent his findings with respect to the benefits of the plural form can be
applied to the Dutch pharmacy sector. In addition, we investigate whether the plural form
offers any other benefits in this sector. Broadening Bradach’s work to other retail sectors
will create a more complete understanding of the added value of the plural form. To study
the benefits of the plural form, we make use of the Structure-Conduct-Performance (SCP)
paradigm. Rather than adopting an industry (meso) perspective in using the SCP paradigm,
we adopt a pharmacy chain/pharmacy (micro) perspective. After Bradach, we start by
examining how operators of pharmacy chains have structured their relationship with
franchise and company-owned outlets. Cliquet and Croizean (2002) have also investigated
the applicability of Bradach’s findings to another sector (i.e. the cosmetic sector). Rather
than beginning with the “how” question, they, however, only studied why cosmetic chains
make use of the plural form. We believe that the “how” question is essential in fully
understanding the dynamics that exist within plural pharmacy chains, and in understanding
why these dynamics are similar to or different from those identified by Bradach in the
restaurant sector.
In addition to studying the structural characteristics of franchise and company-owned
pharmacies, we examine the relationship that exists between these characteristics and the
conduct (behavior) of pharmacies within the chain organization. More specifically, we
study pharmacies’ conduct with respect to the chain’s strategic objectives. As described by
Bradach (1992), differences in the structural characteristics of franchise and companyowned restaurants cause these restaurants to make distinctive contributions to the chain’s
strategic objectives. In combination, these contributions of franchise and company-owned
restaurants lead to certain plural dynamics. That is, the contribution of franchise restaurants
sometimes positively affects the contribution of company-owned restaurants and vice versa.
On the other hand, franchise and company-owned restaurants both make specific
contributions that are not made by the other. After Bradach, we examine the plural
dynamics that arise when franchise and company-owned pharmacies are used concurrently.
Finally, similar to Sorenson and Sorenson (2001) and Srinivasan (2006), we study the
performance implications of the plural form. A distinction is made between two types of
performance: the performance of chain operators (i.e. the effectiveness of chain operators in
achieving their strategic objectives and their contribution to the performance of pharmacies
through products and services) and the performance of pharmacies (i.e. financial and nonfinancial performance). We examine the indirect effect of conduct on pharmacy
performance (via chain operator performance) and the direct effect. By investigating
pharmacy performance, we can determine whether pharmacies benefit from being part of a
plural chain. Thus, whether plural dynamics lead to enhanced pharmacy performance.
14
14
chapter 1
TITLE
TITLE
4
1.2
1.2
Research questions
questions
Research
As noted
noted earlier,
earlier, we
we start
start our
our empirical
empirical research
research by
by examining
examining how
how operators
operators of
of pharmacy
pharmacy
As
chains
structure
their
relationship
with
franchise
and
company-owned
pharmacies.
chains structure their relationship with franchise and company-owned pharmacies. Hence,
Hence,
we
we pose
pose the
the following
following research
research question:
question:
R1
R1
How do
do operators
operators of
of pharmacy
pharmacy chains
chains structure
structure their
their relationship
relationship with
with franchise
franchise and
and
How
company-owned pharmacies?
pharmacies?
company-owned
Once
Once we
we have
have analyzed
analyzed the
the structural
structural characteristics
characteristics of
of franchise
franchise and
and company-owned
company-owned
pharmacies,
the
next
step
in
this
thesis
is,
as
described,
to
determine
the
pharmacies, the next step in this thesis is, as described, to determine the link
link between
between these
these
characteristics and
and the
the conduct
conduct of
of pharmacies
pharmacies within
within the
the chain
chain organization.
organization. We
We examine
examine
characteristics
the contribution
contribution of
of franchise
franchise and
and company-owned
company-owned pharmacies
pharmacies to
to the
the chain’s
chain’s strategic
strategic
the
objectives,
the
differences
in
their
contribution,
and
the
plural
dynamics
that
result
objectives, the differences in their contribution, and the plural dynamics that result from
from
these
these differences.
differences. Our
Our second
second research
research question
question is
is as
as follows:
follows:
R2
R2
What is
is the
the effect
effect of
of the
the way
way in
in which
which chain
chain operators
operators structure
structure their
their relationship
relationship
What
with pharmacies
pharmacies on
on the
the conduct
conduct of
of pharmacies
pharmacies within
within the
the chain
chain organization?
organization?
with
The
The final
final step
step is
is to
to investigate
investigate the
the link
link between
between the
the conduct
conduct of
of pharmacies
pharmacies and
and
performance.
As
described,
we
study
the
indirect
effect
of
conduct
performance. As described, we study the indirect effect of conduct on
on pharmacy
pharmacy
performance (through
(through chain
chain operator
operator performance)
performance) and
and the
the direct
direct effect.
effect. In
In addition
addition to
to the
the
performance
link between
between conduct
conduct and
and performance,
performance, we
we also
also investigate
investigate the
the differences
differences in
in the
the
link
performance
of
operators
of
plural
pharmacy
chains
and
those
of
pure
pharmacy
chains,
performance of operators of plural pharmacy chains and those of pure pharmacy chains,
and
and the
the differences
differences in
in the
the performance
performance of
of pharmacies
pharmacies of
of plural
plural chains
chains and
and those
those of
of pure
pure
chains.
We
have
formulated
the
following
two
research
questions:
chains. We have formulated the following two research questions:
R3
R3
What is
is the
the effect
effect of
of the
the conduct
conduct of
pharmacies on
on the
the performance
performance of
of chain
chain
What
of pharmacies
operators,
and
what
is
the
effect
of
this
performance
on
the
performance
operators, and what is the effect of this performance on the performance of
of
pharmacies?
pharmacies?
R4
R4
What is
is the
the effect
effect of
of the
the conduct
conduct of
of pharmacies
pharmacies on
on their
their performance?
performance?
What
1.3
1.3
Research
Research methodology
methodology
In
In this
this thesis
thesis we
we combine
combine different
different research
research methods,
methods, that
that is,
is, literature
literature research
research and
and
different
types
of
empirical
research.
In
our
literature
research,
we
draw
a
different types of empirical research. In our literature research, we draw a link
link between
between
theory on
on the
the plural
plural form
form and
and several
several related
related theories
theories (e.g.
(e.g. Transaction
Transaction Cost
Cost Economics
Economics and
and
theory
the Resource-Based
Resource-Based View
View of
of the
the Firm).
Firm). The
The empirical
empirical data
data in
in this
this thesis
thesis is
is gathered
gathered through
through
the
both
both qualitative
qualitative and
and quantitative
quantitative research.
research. The
The first
first part
part of
of the
the empirical
empirical research
research consists
consists
15
introduction
to the research questions
CHAPTER 15
of a case study. This case study is conducted among pharmacy chains that have adopted the
plural form. The objective of the case study is to examine the relationships between the
structural characteristics of franchise and company-owned pharmacies, their contribution to
the chain’s strategic objectives, the plural dynamics, and the way in which these dynamics
enable plural pharmacy chains to better meet their strategic objectives. The second part of
the research consists of a survey. The survey is not sent to the operators of pharmacy chains
but to their pharmacies (both pharmacies of plural chains and of pure chains). In conducting
the survey, we thus take a pharmacy-level focus rather than a chain operator-level focus.
This is due to three reasons. First, by taking a pharmacy-level focus, we create a more indepth insight into pharmacies’ structural characteristics, their behavior, their performance,
and the relationship between these variables. Second, it allows us to test whether the chain
operator’s view (that we determine by means of the case study) corresponds with
pharmacists’ view. Pharmacists may, for example, perceive their relationship with the chain
operator to be structured differently from what is assumed by the chain operator. Third, a
practical reason is that the number of Dutch pharmacy chains is simply not sufficient to
make statistical inferences on the chain operator-level.
1.4
Objectives
This thesis has both scientific and practical objectives.
Scientific objectives:
1. Providing detailed insight into the benefits of the plural form in the pharmacy sector
and the realization of these benefits, and demonstrating why and to what extent these
benefits are similar to or different from those identified by Bradach (1992, 1997) in the
restaurant sector.
2.
Presenting statistical evidence on the relationship among the structural characteristics
of pharmacies, their contribution to the chain’s strategic objectives, the plural
dynamics, and the performance of pharmacies.
To the best of our knowledge, these relationships have not previously been statistically
investigated. Studies on these relationships have only taken a qualitative approach
(Bradach, 1992, 1997). Studies on the plural form that have taken a statistical approach
have either investigated the effect of certain conditions such as incumbency/lock in
problems and performance ambiguity (Dutta et al., 1995) and the firm’s recognition of the
synergistic benefits of the plural form (Dant and Kaufmann, 2003) on the mix of
governance structures, or they have investigated the effect of a mix of governance
structures on intangible firm value (Srinivasan, 2006) or firm performance (Sorenson and
Sorenson, 2001), thereby making theoretical assumptions about the benefits of the plural
form. Only Heide (2003) investigated the relationship between the mix of governance
6TITLE
chapter16
1
structures and the dynamics between these structures, but thereby he focused, as noted
earlier, on solving information asymmetry problems and not on meeting strategic
objectives.
3.
Providing insight into the differences between pharmacies of plural chains and
pharmacies of pure chains.
In his study Bradach (1992, 1997) only examined plural restaurant chains, thereby making
assumptions about pure restaurant chains. By also including pharmacies of pure chains in
our survey sampling frame, we can compare the conduct and performance of these
pharmacies with that of pharmacies of plural chains. Ultimately, such a comparison is
needed to ascertain whether differences indeed exist between these two types of
pharmacies.
Practical objective:
4. Assisting the operators of Dutch pharmacy chains in making optimal use of the plural
form and in increasing the performance of their pharmacies.
1.5
Limitations of the thesis
This research is characterized by two different limitations.
1.
We only focus on pharmacy chains and not on other retail chains in this thesis. This
allows us to deepen our theoretical understanding of the plural form phenomenon.
Such a deepening is necessary because theory on this phenomenon is only emerging.
2.
In this thesis we only investigate Dutch pharmacy chains and do not consider foreign
pharmacy chains. The reason for this is that country specific characteristics are also
expected to play a role in understanding the behavior of pharmacies and thus in
understanding the benefits of the plural form within the pharmacy sector. In the
Netherlands the pharmaceutical care policy is different from that in other countries. As
we will explain in chapter 3 of this thesis, the pharmaceutical care policy has a severe
impact on the structure of the Dutch pharmacy sector. This structure in turn is likely to
influence the way in which pharmacies behave.
1.6
Outline of the thesis
This thesis consists of eight different chapters. Chapter 2 presents the theoretical
framework. The first part of this chapter focuses on governance structures and the
differences between the structural characteristics of franchise and company-owned
17
introduction
to the research questions
CHAPTER 17
governance structures. In the second part, we delineate a number of theories that treat the
choice of governance in either-or terms. Moreover, we discuss research that treats the
choice of governance in and-and rather than in either-or terms, and we elaborate on the
Structure-Conduct-Performance paradigm. Chapter 3 explores the empirical setting of this
thesis: the Dutch pharmacy sector. To fully understand the movements that take place
within this sector, we start by describing the pharmaceutical care policy in the Netherlands.
Subsequently, we analyze the structure of the pharmacy sector. This analysis is essential as
it enables us to create a better insight into the behavior of pharmacies. Chapter 4 reports on
the findings of the case study. We start this chapter by elaborating on the case study
method. Next, we discuss the key strategic objectives of pharmacy chains. For each of these
strategic objectives, we explain how certain dynamics across franchise pharmacies,
company-owned pharmacies, and the chain operator do lead plural pharmacy chains to be
more effective in meeting them. Chapter 5 presents five different conceptual frameworks
and related hypotheses. These conceptual frameworks link structure, conduct, and
performance to each other and are based on theory and the results of the case study.
Moreover, hypotheses are presented regarding the differences in the structural
characteristics and conduct of franchise and company-owned pharmacies and regarding the
differences in the performance of plural and pure pharmacy chains and the performance of
plural chain and pure chain pharmacies. Chapter 6 elaborates on the second research
method that is used in this thesis: the survey method. Subsequently, chapter 7 reports on the
results of the survey. Through the use of Structural Equation Modeling, we test the
hypothesized relationships among structure, conduct, and performance. Furthermore, we
test the hypotheses regarding the differences in structure, conduct, and performance that
have been formulated in chapter 5. Finally, chapter 8 discusses the major findings,
delineates the scientific and practical contribution of the research, describes the limitations,
and suggests an agenda for further research.
18
18
TITLE
TITLE
Chapter
Chapter 2
2
2.1
2.1
Theoretical
Theoretical framework:
framework: Plural
Plural governance
governance
Introduction
Introduction
Interfirm transactions
transactions can
can be
be managed
managed by
by different
different governance
governance structures.
structures. In
In the
the literature
literature aa
Interfirm
broad
range
of
governance
structures
have
been
identified.
This
broad
range
broad range of governance structures have been identified. This broad range is
is often
often
categorized
into
three
basic
types
of
structures:
(1)
markets,
(2)
hierarchies,
(3)
and
categorized into three basic types of structures: (1) markets, (2) hierarchies, (3) and hybrids.
hybrids.
In
In market
market governance
governance firms
firms interact
interact with
with each
each other
other at
at arm’s
arm’s length
length across
across aa nameless,
nameless,
faceless
market.
To
mediate
their
transactions,
they
rely
on
market-determined
faceless market. To mediate their transactions, they rely on market-determined prices
prices
(Barney, 2002).
2002). In
In hierarchical
hierarchical governance,
governance, on
on the
the other
other hand,
hand, external
external transactions
transactions are
are
(Barney,
brought
within
the
boundaries
of
the
firm.
Hierarchy
rather
than
price
is
relied
upon
brought within the boundaries of the firm. Hierarchy rather than price is relied upon to
to
control
control transactions.
transactions. Finally,
Finally, hybrid
hybrid governance
governance is
is traditionally
traditionally viewed
viewed as
as aa wide
wide class
class of
of
structures
structures that
that combine
combine characteristics
characteristics of
of market
market and
and hierarchical
hierarchical governance.
governance. Examples
Examples of
of
hybrid
governance
are
R&D
partnerships,
franchising,
and
joint
ventures.
hybrid governance are R&D partnerships, franchising, and joint ventures.
In
In the
the literature
literature different
different definitions
definitions have
have been
been provided
provided to
to the
the term
term governance
governance structure.
structure.
Williamson
and
Ouchi
(1981),
for
example,
have
defined
it
as
a
Williamson and Ouchi (1981), for example, have defined it as a “mode
“mode of
of organizing
organizing
transactions.”
transactions.” This
This is,
is, however,
however, aa rather
rather broad
broad definition.
definition. Yin
Yin and
and Zajac
Zajac (2004)
(2004) have
have
delineated
a
governance
structure
as
an
organization
design
that
incorporates
delineated a governance structure as an organization design that incorporates systems
systems of
of
incentives, decision-making,
decision-making, and
and operational
operational control.
control. This
This is
is aa more
more precise
precise definition
definition as
as it
it
incentives,
specifies
the
characteristics
of
the
concept.
According
to
Yin
and
Zajac,
franchise
(i.e.
specifies the characteristics of the concept. According to Yin and Zajac, franchise (i.e.
hybrid
hybrid governance)
governance) and
and company-owned
company-owned (i.e.
(i.e. hierarchical
hierarchical governance)
governance) governance
governance
structures
differ
significantly
from
each
other
with
respect
to
these
structures differ significantly from each other with respect to these characteristics.
characteristics.
The structure
structure of
of this
this chapter
chapter is
is as
as follows.
follows. In
In paragraph
paragraph 2.2
2.2 we
we describe
describe the
the differences
differences in
in
The
the
characteristics
of
governance
structures.
More
specifically,
as
the
focus
of
this
thesis
the characteristics of governance structures. More specifically, as the focus of this thesis is
is
on
on franchise
franchise and
and company-owned
company-owned governance
governance structures,
structures, we
we delineate
delineate the
the degree
degree to
to which
which
these
these structures
structures differ
differ from
from each
each other
other with
with respect
respect to
to their
their characteristics.
characteristics. In
In the
the third
third
paragraph,
we
broaden
our
focus
to
governance
structures
in
general.
We
describe
paragraph, we broaden our focus to governance structures in general. We describe two
two
theories that
that are
are often
often used
used in
in existing
existing literature
literature to
to explain
explain firms’
firms’ choice
choice among
among governance
governance
theories
structures:
structures: Transaction
Transaction Cost
Cost Economics
Economics and
and the
the Resource-Based
Resource-Based View
View of
of the
the Firm.
Firm. In
In the
the
fourth
paragraph,
we
narrow
our
focus
once
again
to
franchise
and
company-owned
fourth paragraph, we narrow our focus once again to franchise and company-owned
structures.
structures. We
We delineate
delineate two
two theories
theories that
that explain
explain the
the choice
choice of
of chain
chain organizations
organizations between
between
franchise
and
company-owned
governance
structures:
the
agency
franchise and company-owned governance structures: the agency cost
cost theory
theory and
and the
the
ownership redirection
redirection theory.
theory. In
In paragraph
paragraph 2.5
2.5 we
we describe
describe research
research works
works that
that treat
treat the
the
ownership
choice
choice of
of governance
governance structure
structure in
in and-and
and-and terms
terms rather
rather than
than in
in either-or
either-or terms.
terms. In
In the
the last
last
paragraph,
we
provide
an
explanation
of
the
Structure-Conduct-Performance
paradigm.
paragraph, we provide an explanation of the Structure-Conduct-Performance paradigm.
C
HAPTER 1
Cchapter
HAPTER 1
2
19
19
10
2.2
2.2
Characteristics of
of governance
governance structures
structures
Characteristics
As described
described by
by Yin
Yin and
and Zajac
Zajac (2004),
(2004), franchise
franchise and
and company-owned
company-owned governance
governance
As
structures
differ
from
each
other
with
regard
to
incentives,
decision-making,
structures differ from each other with regard to incentives, decision-making, and
and
operational
operational control.
control.
Incentives
Incentives
Managers
in company-owned
company-owned outlets
outlets (i.e.
(i.e. company
company managers)
managers) have
have weaker
weaker financial
financial
Managers in
incentives
than
franchisees.
Company
managers,
who
may
have
some
incentive
incentives than franchisees. Company managers, who may have some incentive
compensation,
compensation, mainly
mainly receive
receive fixed
fixed salaries
salaries (Brickley
(Brickley and
and Dark,
Dark, 1987).
1987). Franchisees’
Franchisees’
rewards,
on
the
other
hand,
are
determined
by
the
financial
performance
rewards, on the other hand, are determined by the financial performance of
of their
their outlet(s).
outlet(s).
Except
Except for
for aa fixed
fixed or
or variable
variable fee,
fee, franchisees
franchisees appropriate
appropriate the
the net
net income
income of
of their
their outlet(s).
outlet(s).
Because their
their compensation
compensation is
is more
more incentive-based
incentive-based than
than that
that of
of company
company managers,
managers,
Because
franchisees’
concern
about
the
business
is
greater.
They
are
motivated
to
maximize
franchisees’ concern about the business is greater. They are motivated to maximize outlet
outlet
sales
sales through
through the
the effective
effective management
management and
and promotion
promotion of
of the
the franchise
franchise concept
concept (Carney
(Carney
and
and Gedajlovic,
Gedajlovic, 1991).
1991).
Decision-making
Decision-making
The
The decision-making
decision-making structure
structure that
that characterizes
characterizes aa dyadic
dyadic relationship
relationship can
can be
be described
described in
in
terms
of
three
dimensions:
(1)
centralization,
(2)
formalization,
and
(3)
participation
terms of three dimensions: (1) centralization, (2) formalization, and (3) participation (e.g.
(e.g.
4
Dwyer
Dwyer and
and Welsh,
Welsh, 1985)
1985) 4 .. Franchise
Franchise and
and company-owned
company-owned outlets
outlets differ
differ considerably
considerably from
from
each
other
with
respect
to
these
dimensions.
each other with respect to these dimensions.
Centralization
Centralization is
is the
the degree
degree to
to which
which the
the power
power to
to make
make and
and implement
implement decisions
decisions within
within
the
dyadic
relationship
is
concentrated
at
one
vertical
level
(John
and
the dyadic relationship is concentrated at one vertical level (John and Reve,
Reve, 1982).
1982).
Company
Company managers
managers are
are employees
employees and
and have
have little
little decision-making
decision-making power.
power. The
The decisiondecisionmaking
authority
resides
with
the
chain
operator.
Franchisees,
on
the
other
hand,
making authority resides with the chain operator. Franchisees, on the other hand, enjoy
enjoy far
far
more independence
independence in
in this
this respect.
respect. This
This is
is at
at odds
odds with
with the
the franchise
franchise contract,
contract, which
which seems
seems
more
to
to create
create the
the functional
functional equivalent
equivalent of
of the
the employee
employee relationship
relationship (Bradach,
(Bradach, 1992).
1992). In
In
practice,
however,
the
character
of
the
chain
operator-franchisee
relationship
practice, however, the character of the chain operator-franchisee relationship is
is often
often
different
different from
from the
the terms
terms of
of the
the contract.
contract. Contractual
Contractual disagreements
disagreements are
are rarely
rarely litigated.
litigated. A
A
reason
for
this
is
that
it
is
difficult
for
the
chain
operator
to
win
in
court
reason for this is that it is difficult for the chain operator to win in court against
against aa
franchisee. Bradach
Bradach (1992)
(1992) quotes
quotes aa CEO
CEO of
of aa restaurant
restaurant chain
chain who
who explained
explained why:
why: “It
“It is
is
franchisee.
by
no
means
clear
who
would
win
in
litigation.
The
big
company
picking
on
the
small
by no means clear who would win in litigation. The big company picking on the small
entrepreneurs
entrepreneurs does
does usually
usually not
not play
play well
well in
in front
front of
of the
the juries.”
juries.”
4
4
In
In addition
addition to
to these
these three
three dimensions
dimensions of
of decision-making
decision-making structures,
structures, Dwyer
Dwyer and
and Welsh
Welsh distinguish
distinguish aa fourth
fourth
dimension:
specialization
(i.e.
the
amount
of
task
differentiation).
No
differences
exist
among
dimension: specialization (i.e. the amount of task differentiation). No differences exist among franchise
franchise and
and
company-owned
company-owned outlets
outlets with
with respect
respect to
to this
this dimension.
dimension. Both
Both types
types of
of outlets
outlets display
display the
the same
same level
level of
of
specialization,
specialization, as
as they
they carry
carry out
out the
the same
same functions.
functions. As
As this
this thesis
thesis focuses
focuses on
on the
the differences
differences between
between
franchise
franchise and
and company-owned
company-owned outlets,
outlets, we
we leave
leave this
this dimension
dimension out
out of
of consideration.
consideration.
TITLE
theoretical
framework: plural governance
11
20
Formalization is the degree to which decision-making is regulated by explicit rules and
procedures (Dwyer and Welsh, 1985). In case of franchising, the degree of formalization is
high (Kneppers-Heynert, 1988). Chain operators draw up many rules and procedures for
franchise outlets. In franchise contracts and especially in operating manuals, chain
operators explicitly describe in what way franchisees must exploit their outlets. The
relationship between the chain operator and company-owned outlets is characterized by
even more rules and procedures. The rules and procedures described in operating manuals
also apply to company-owned outlets. Moreover, they have to obey rules with respect to
budgets, targets, and reporting.
Participation in dyadic decision-making is the degree of input to decisions (Hage and
Aiken, 1967), including ideas generation, decision-making involvement, and goal
formulation (Dwyer and Oh, 1988). Although the differences between franchise and
company-owned outlets with respect to participation are not described as such in the extant
literature, some authors do implicitly address them. For example, Bradach (1992) describes
that in the franchise arrangement decisions are often made through face-to-face interactions
between the chain operator’s executives and franchisees, while in the company arrangement
these decisions are made centrally. Similarly, Yin and Zajac (2004) quote an executive
director of a large restaurant chain who noted that franchisees typically have much more
access to people who make decisions than company managers, and that the latter ones have
little input. In summary, franchisees do thus experience more participation in decisionmaking than company managers
Operational control
Company-owned outlets are subject to more operational control from the chain operator
than franchise outlets. The greater operational flexibility of franchise outlets is evident, for
example, in a wider span of control. The field staff responsible for franchise outlets
supervises a larger number of outlets than the staff responsible for company-owned outlets.
In addition, mechanisms to reinforce compliance with the chain operator are used less
frequently and less intensively for franchise outlets than for company-owned outlets
(Bradach, 1992). The difference in operational control between franchise and companyowned outlets is caused by the difference in incentives. Company managers have weak
incentives and therefore pose a risk of shirking (Brickley and Dark, 1987). Operational
control is necessary in order to prevent these managers from reducing their efforts. In
contrast, franchisees demonstrate a higher level of self-management due to their strong
incentives. Hence, the need for operational control is much smaller in their case.
2.3
Firms’ governance choice: Either-or
Most current work on governance decisions has studied firms’ choice among governance
structures: why do firms make or buy a part (Monteverde and Teece, 1982), utilize direct
21
12
Cchapter
HAPTER 1
2
versus indirect channels of distribution (John and Weitz, 1988), or select a direct or third
party sales force (Anderson and Schmittlein, 1984). Two theories have been used to explain
the choice among governance structures: Transaction Cost Economics and the ResourceBased View of the Firm.
Transaction Cost Economics
Transaction Cost Economics (TCE) has received the most attention in scientific literature.
TCE’s central claim is that transactions will be managed by a governance structure that
minimizes the costs involved in carrying out the transaction (e.g. negotiation and
monitoring costs). TCE is based on two assumptions concerning human nature: bounded
rationality and opportunism. The essence of bounded rationality is that human actors face
constraints on their cognitive capabilities. Although human actors intend to behave
rationally, these cognitive constraints prevent them from doing so (Simon, 1961).
Opportunism, on the other hand, is defined as “self-interest seeking with guile”
(Williamson, 1985).
TCE further maintains that there are three dimensions with respect to how transactions
differ. The first dimension is asset specificity, which refers to the extent to which the assets
used in support of a particular transaction are specialized or non-redeployable. The second
dimension is uncertainty. TCE distinguishes two types of uncertainty (Williamson, 1985).
The first type of uncertainty, environmental uncertainty, refers to the condition of being
unable to anticipate unforeseen contingencies in the product-market environment of the
firm, while the second type of uncertainty, behavioral uncertainty, refers to the difficulties
associated with assessing the contractual performance of transaction parties. Finally, the
third dimension of transactions is frequency, which concerns the number of times
transaction parties engage in exchange with one another.
According to TCE, the interaction between the two characteristics of human nature and
these dimensions of transactions cause certain contracting problems (Speklé, 2001). For
instance, given opportunism, asset specificity creates a safeguarding problem. If a firm
invests in specific assets, it experiences a lock-in effect. Its transaction partner may
opportunistically exploit this situation by demanding various kinds of concessions from the
firm. To prevent this from happening, the firm is forced to design expensive safeguards.
Another example is that under the assumption of bounded rationality, behavioral
uncertainty gives rise to a performance evaluation problem. Because of constraints on the
rationality of human actors, non-compliance to contracts may remain undetected. To avoid
this, a firm must closely evaluate the contractual performance of its transaction partners.
The more elaborate a governance structure, the better it can deal with these contracting
problems and thus the better it can economize on the associated transaction costs. If
minimizing transaction costs were the only goal, hierarchical governance would always be
chosen over non-hierarchical governance. However, the more elaborate a governance
TITLE
theoretical
framework: plural governance
13
22
structure, the more costly it is. Therefore, TCE predicts that if a transaction is exposed to
minor contracting problems, market governance will be the most efficient means to mediate
the transaction. The costs of organizing the transaction within a firm (i.e. bureaucratic
costs) would exceed the costs of conducting the transaction within the market. If a
transaction is confronted with major contracting problems, however, hierarchical
governance will minimize the costs associated with overcoming these problems. Finally, if
the contracting problems to which a transaction is exposed are moderate, hybrid
governance will be preferred to both market and hierarchical governance. On the one hand,
this type of governance is more elaborate than market governance and therefore better able
to economize on the transaction costs associated with overcoming these moderate
problems. On the other hand, adopting hybrid governance is less costly than adopting
hierarchical governance.
The Resource-Based View of the Firm
Another theory that has been used by some scholars to explain firms’ choice among
governance structures is the Resource-Based View of the Firm (RBV) (e.g. Chi, 1994;
Conner and Prahalad, 1996; Madhok, 2002). Whereas TCE posits that exchange conditions
determine the choice of governance structure, the RBV posits that a firm’s relative
resources determine this choice. Resources are defined as all assets, capabilities,
organizational process, firm attributes, information, knowledge, and so forth that are
controlled by a firm and that enable the firm to conceive of and implement strategies that
improve its efficiency and effectiveness (Barney, 1991). The RBV’s domain of interest is
the search for competitive advantage rather than the search for the most efficient
governance structure (Madhok, 2002). According to RBV logic, resources are at the center
of a firm’s competitive advantage. There are two basic assumptions underlying the RBV
(Barney, 1991). The first assumption is that firms are considered bundles of resources
(Penrose, 1958) and that these resources are heterogeneously distributed across firms. No
two firms have had the same set of experiences, acquired the same assets and skills, or built
the same organization culture (Collis and Montgomery, 1995). The second assumption is
that resources may not be perfectly mobile across firms. That is because they either may be
very costly to copy or inelastic in supply. If a firm’s resources are heterogeneous,
imperfectly mobile, and if they enable the firm to exploit opportunities or neutralize threats,
then they are considered as potential sources of (sustained) competitive advantage (Barney,
2002).
As described above, the RBV considers resource differences among firms a very important
determinant in making governance choices (Barney, 2002). According to RBV logic, if a
firm possesses resources and capabilities which enable it to carry out a certain activity in a
superior manner vis-à-vis other firms, the firm will internalize this activity (i.e. adopt
hierarchical governance). However, if another firm possesses these superior resources, the
firm will engage in market exchange (or it will acquire the other firm). Finally, if the focal
firm possesses some but not all of the needed resources, a common response will be to
23
14
Cchapter
HAPTER 1
2
combine resources with an external firm (Combs and Ketchen, 1999) using, for example, a
joint venture.
2.4
Chain organizations’ governance choice: Franchise or companyowned outlets
Two streams of research related to TCE and the RBV specifically focus on chain
organizations’ governance choice between franchise and company-owned outlets: the
agency cost theory and the ownership redirection theory.
The agency cost theory
The agency cost theory, which is closely related to TCE, argues that agency problems
determine a chain organization’s choice between franchise and company-owned outlets. Of
these agency problems, shirking has received the most attention (Brickley and Dark, 1987;
Norton, 1988; Rubin, 1978). As described above, managers in company-owned outlets pose
a greater risk of shirking and therefore need more monitoring. To curb monitoring costs,
agency cost theory claims that company-owned outlets are observed in locations where the
cost of monitoring is low, while franchise outlets are observed where the cost of monitoring
is high. The distance between an outlet and corporate monitoring offices is often used as an
indicator of the extent of monitoring costs (Brickley and Dark, 1987).
On the other hand, franchising also gives rise to two agency problems (Brickley et al.,
1991). The first problem is the potential for free riding. Because franchisees appropriate the
net income of their outlet(s), they have incentives to reduce quality if the gains from such
activities can be internalized and the costs externalized (Carney and Gedajlovic, 1991). The
danger of free riding is greatest at outlets where the number of repeat customers is low (e.g.
outlets that are located along the highway). In that case the cost of reduced quality is born
primarily by other outlets that lose the customer’s patronage and by the franchisor whose
trademark will be less valuable. Alternatively, the cost savings from providing lower
quality go directly to the given franchisee (Brickley et al., 1991). Consequently, the agency
cost theory predicts that outlets that serve a large proportion of non-repeat customers are
owned by chain organizations. The second agency problem inherent to franchising is
inefficient risk-bearing. As franchisees have a large part of their wealth tied up in a single
outlet, they are forced to consider the full risk of undertaking investments (Brickley and
Dark, 1987). Therefore, franchisees are likely to make less optimal investment decisions
than decision-makers who have a more diversified investment portfolio. For example, local
advertising campaigns have spillover effects on other outlets that are part of the system.
Such spillovers mean that individual franchisees will not appropriate the full return of their
investment. As a result, such investments may be foregone by franchisees and be left to
others (Carney and Gedajlovic, 1991). To facilitate optimal investment decisions, it is
argued that when outlets are geographically concentrated and thus when spillovers are more
TITLE
theoretical
framework: plural governance
15
24
common, the outlets should be collectively owned and operated (Carney and Gedajlovic,
1991).
In short, while franchising economizes upon monitoring costs, it involves other agency
costs. The monitoring benefits of franchising must be traded-off against these other costs. It
is this trade-off which leads organizations to own and franchise outlets in a discriminating
way (Carney and Gedajlovic, 1991).
The ownership redirection theory
The ownership redirection theory, which is couched in the RBV, claims that the choice
between franchise and company-owned outlets is determined by the phase in the chain
organization’s life cycle and is thus transitory in nature. To penetrate the market as widely
and as rapidly as possible, chain organizations rely mainly upon franchising early in their
life cycle. That is because franchisees provide three essential resources that chain operators
lack in this phase: capital, information about the desirability of particular locations and
knowledge of local conditions, and skilled management (Oxenfeldt and Kelly, 1968-1969).
If the franchise system is successful, these resources are expected in time to become more
directly available to the chain operator. That is to say, the chain operator now experiences
positive cash flows, accumulates and develops its own information bases (because of its
intimate contact with franchisees), and the supply of managerial talent becomes more
readily available. Moreover, once chain organizations have attained their desired size, they
become more concerned with operational efficiency and the development and maintenance
of an overall image (Oxenfeldt and Kelly, 1968-1969). As both objectives can best be
attained through tight control, free of resource constraints, franchise systems will evolve
into large company-owned chains. Only low-performing outlets in rural areas as well as
outlets in new market territories where the chain operator has little local market expertise
and where it is attempting to establish another critical mass of outlets will be franchised
(Carney and Gedajlovic, 1991).
2.5
Firms’ governance choice: And-and
The theories described above are all based on the assumption that firms make mutually
exclusive choices concerning governance structures as one governance structure does better
than another under certain circumstances. Both TCE and agency cost theory search for
variations in environmental circumstances to explain firms’ choice of governance structure.
The unit of analysis in these theories is the individual transaction or outlet. The RBV and
the ownership redirection theory, on the other hand, look for differences in firms’ resources
to explain this choice. The unit of analysis in these theories is the firm rather than the
individual transaction or outlet.
25
16
Cchapter
HAPTER 1
2
Although these theories definitely have merit, their assumption that firms make mutually
exclusive choices among governance structures keeps us from understanding certain
phenomena that we observe. For example, as opposed to agency cost theory logic, franchise
and company-owned outlets are often located together in practice. In addition, contrary to
the ownership redirection theory argument, many chain organizations continue to have a
large number of franchise outlets when they grow. These phenomena can only be
understood if we discard the assumption that firms make such mutually exclusive choices.
In an influential article, Bradach and Eccles (1989) criticized the traditional “make-or-buy”
principle. They invoke the concept of tapered integration (Harrigan, 1984) to argue that
firms often purposely combine distinct governance structures for the same function. In their
view this combination of governance structures 5 (what they refer to as the “plural form”)
enables firms to reap certain synergistic benefits that are unavailable if only one ideal
governance structure is used. That is, the existence of one governance structure
complements and benefits the management of the other structure and vice versa. The
benefits of a combination of governance structures have been highlighted by several
research works. For example, Harrigan (1984) described that firms that are backward or
forward integrated and that rely on outsiders for a portion of their supplies or distribution,
can monitor the R&D developments of the outsiders, reduce vulnerability to strikes and
shortages within their systems, and examine the products of competitors, while enjoying the
lower costs and greater advantages (and profit margins) of vertical integration. In the
context of franchising systems, Bradach and Eccles (1989) explained that franchisees may
spot new ways of enhancing efficiency which then can be employed in company-owned
outlets. In the same way, company-owned outlets may provide more information that
enables firms to negotiate with and control franchise outlets effectively. Dant et al. (1992)
also identified some of the synergistic benefits specific to franchising systems. For instance,
franchisees can be a source of innovative products and business ideas for future growth,
while company-owned outlets may serve as efficient laboratories for market testing of new
ideas before these ideas are promoted to franchisees.
Bradach (1992, 1997) has probably contributed the most to the existing knowledge of the
synergistic benefits of the plural form. As described in chapter 1, he studied how restaurant
chains use franchise and company-owned outlets to better meet their strategic objectives.
Bradach identified four different strategic objectives of restaurant chains: unit growth (i.e.
growth in the number of outlets), maintaining uniformity, local responsiveness, and system
wide adaptation (i.e. the way threats to and opportunities for a chain as a whole are
translated into action). In the beginning of this chapter, we explained that franchise and
company-owned outlets differ considerably from each other with respect to the way in
which their relationship with the chain operator is structured. According to Bradach, these
5
As described in chapter 1, Bradach and Eccles (1989) refer to the plural form both as a combination of
governance structures (e.g. markets and firms) and a combination of control mechanisms (i.e. price, authority,
and trust).
TITLE
theoretical
framework: plural governance
17
26
differences in structural characteristics give rise to certain plural dynamics between the
chain operator and franchise and company-owned restaurants. For example, by
implementing new standards in company-owned restaurants, a chain operator shows its
commitment to these standards, which makes it easier to persuade franchisees to implement
them as well. Or, for example, following Dant et al. (1992), Bradach considers franchisees
to be an important source of innovative product and business ideas in contrast to company
managers. According to Bradach, such plural dynamics enable restaurant chains that have
adopted the plural form to better meet their strategic objectives. Hence, his central claim is
that plural chains outperform pure chains.
2.6
Structure-Conduct-Performance
As described in chapter 1, we make use of the Structure-Conduct-Performance (SCP)
paradigm in this thesis to study the benefits of the plural form. The SCP paradigm has been
developed by Mason (1939, 1949) and Bain (1959) and is one of the major approaches to
the study of industrial organization. The basic premise of the SCP paradigm is that structure
affects conduct, which in turn affects performance. The term structure in this paradigm
refers to the structure of an industry, measured by such factors as the number of buyers and
sellers, vertical integration and entry barriers. Conduct, on the other hand, refers to the
behavior of firms in the industry, including pricing strategies, product differentiation, and
research and development. Finally, performance refers to the success of the industry in
producing benefits for consumers (Carlton and Perloff, 2000) and is captured by such
factors as profitability, price-cost margin, and innovation rate. As noted earlier, rather than
adopting an industry (meso) perspective, we adopt a pharmacy chain/pharmacy (micro)
perspective in applying the SCP paradigm.
2.7
Conclusions
In this chapter we have provided an overview of the structural characteristics of franchise
and company-owned governance structures and the theories that are used to explain a
firm’s governance choice. Most of these theories treat this choice in either-or terms. That is,
one structure is considered to do better than another under certain circumstances. TCE and
the agency cost theory both argue that variations in environmental circumstances determine
the choice of governance structure. In contrast, the RBV and the ownership redirection
theory contend that a firm’s relative resources determine this choice. Notwithstanding the
value of these theories, we often see in practice that firms use different governance
structures under similar conditions. To understand why, some authors have rejected the
assumption that firms make mutually exclusive choices among governance structures.
Rather, they treat the choice of governance structure in and-and terms. They argue that
firms often deliberately combine different governance structures as this enables them to
28
28
TITLE
TITLE
27
18
Cchapter
HAPTER 1
2
reap certain synergistic benefits that are unavailable if only one ideal governance structure
is used.
Chapter
Chapter 3
3
3.1
3.1
Empirical
Empirical setting:
setting: The
The Dutch
Dutch pharmacy
pharmacy sector
sector
Introduction
Introduction
The empirical
empirical setting
setting of
of this
this thesis
thesis is
is the
the Dutch
Dutch pharmacy
pharmacy sector.
sector. The
The pharmacy
pharmacy sector
sector is
is
The
part
of
the
pharmaceutical
care
market.
The
demand
side
of
this
market
is
structured
part of the pharmaceutical care market. The demand side of this market is structured
differently
than
differently
than in
in other
other markets.
markets. This
This is
is due
due to
to aa separation
separation among
among enjoying,
enjoying, deciding,
deciding, and
and
6
6 . Because of this separation, the function of price as a value indicator diminishes.
paying
paying . Because of this separation, the function of price as a value indicator diminishes.
Not
Not consumers
consumers but
but physicians
physicians are
are the
the decision-makers.
decision-makers. Consumers
Consumers have
have little
little knowledge
knowledge
about drugs
drugs and
and therefore
therefore physicians
physicians decide
decide on
on the
the amount,
amount, type,
type, and
and brand
brand of
of aa drug.
drug.
about
Physicians
usually
base
this
decision
on
the
quality
of
the
drug
rather
than
on
its
price.
Physicians usually base this decision on the quality of the drug rather than on its price.
Furthermore,
Furthermore, health
health insurers
insurers are
are usually
usually the
the ones
ones to
to pay
pay for
for the
the drug.
drug. As
As consumers
consumers are
are
insured
for
the
costs
of
most
drugs,
they
are
not
directly
confronted
with
drug
insured for the costs of most drugs, they are not directly confronted with drug prices
prices and
and
hence
hence are
are price-insensitive.
price-insensitive. The
The pharmaceutical
pharmaceutical care
care market
market is
is also
also different
different from
from most
most
other markets
markets in
in that
that it
it is
is characterized
characterized by
by considerable
considerable government
government regulation.
regulation. As
As the
the
other
absence
of
the
price
mechanism
leads
to
an
imbalance
between
demand
and
supply,
absence of the price mechanism leads to an imbalance between demand and supply, the
the
Dutch
Dutch government
government regularly
regularly intervenes
intervenes in
in the
the pharmaceutical
pharmaceutical care
care market.
market. These
These
interventions
interventions have
have considerable
considerable consequences
consequences for
for Dutch
Dutch pharmacies.
pharmacies.
Figure 3.1
3.1 on
on the
the next
next page
page depicts
depicts the
the main
main players
players in
in the
the pharmacy
pharmacy sector
sector and
and their
their
Figure
interrelationships.
The
government
is
not
part
of
the
value
chain
but
has
a
considerable
interrelationships. The government is not part of the value chain but has a considerable
influence
influence on
on the
the money
money flows
flows and
and the
the goods/services
goods/services flows
flows within
within this
this chain.
chain. Health
Health
insurers
also
have
an
influence
on
these
flows
(as
will
be
described
in
paragraph
insurers also have an influence on these flows (as will be described in paragraph 3.2.2)
3.2.2) and
and
are
are part
part of
of the
the value
value chain
chain at
at the
the same
same time.
time.
In
In this
this chapter
chapter we
we conduct
conduct aa two-level
two-level analysis
analysis of
of the
the pharmaceutical
pharmaceutical care
care market.
market. First,
First, at
at
the
highest
level
of
aggregation,
we
start
by
analyzing
the
pharmaceutical
care
policy
the highest level of aggregation, we start by analyzing the pharmaceutical care policy in
in the
the
Netherlands.
Netherlands. In
In paragraph
paragraph 3.2
3.2 we
we describe
describe the
the ways
ways in
in which
which the
the Dutch
Dutch government
government tries
tries to
to
control
the
expenditure
on
drugs,
and
subsequently
we
delineate
the
growing
importance
control the expenditure on drugs, and subsequently we delineate the growing importance of
of
health insurers
insurers in
in the
the pharmaceutical
pharmaceutical care
care market.
market. This
This analysis
analysis of
of the
the Dutch
Dutch
health
pharmaceutical
care
policy
is
necessary
as
it
enables
us
to
understand
the
structure
pharmaceutical care policy is necessary as it enables us to understand the structure of
of the
the
pharmacy
sector.
Only
by
understanding
this
structure,
we
are
fully
able
to
explain
pharmacy sector. Only by understanding this structure, we are fully able to explain the
the
behavior
behavior of
of pharmacies.
pharmacies. In
In paragraph
paragraph 3.3,
3.3, at
at aa lower
lower level
level of
of aggregation,
aggregation, we
we examine
examine the
the
6
6
A
A separation
separation among
among enjoying,
enjoying, paying,
paying, and
and deciding
deciding only
only exists
exists for
for prescription
prescription drugs
drugs and
and not
not for
for so-called
so-called
OTC
OTC (Over
(Over the
the Counter)
Counter) drugs.
drugs. Unlike
Unlike prescription
prescription drugs,
drugs, OTC
OTC drugs
drugs are
are available
available to
to consumers
consumers without
without aa
prescription
prescription and
and are
are not
not reimbursed
reimbursed by
by the
the health
health insurer.
insurer. They
They are
are sold
sold by
by both
both pharmacies
pharmacies and
and drugstores.
drugstores.
On
On average,
average, only
only 5%
5% of
of pharmacies’
pharmacies’ revenues
revenues come
come from
from OTC
OTC drugs.
drugs. Therefore,
Therefore, this
this chapter
chapter will
will focus
focus on
on
pharmacies
as
suppliers
of
prescription
drugs.
pharmacies as suppliers of prescription drugs.
Cchapter
HAPTER 1
3
29
20
structure of the pharmacy sector. Finally, in paragraph 3.4 we briefly describe the situation
in the pharmacy sector in Germany as well as the United States and compare it to the
situation in the Netherlands.
Figure 3.1 Main players in the pharmacy sector and their interrelationships
Government/ Health insurers
Physicians
TITLE
empirical
setting: the dutch pharmacy sector
pharmaceutical aid, the Ministry of VWS also continued implementing measures to directly
control the costs of pharmaceutical aid. In 2006, the expenditure on extramural 7
pharmaceutical aid was € 4.7 billion in the Netherlands (Vektis, 2007), which was 11.5% of
the total expenditure on health care (CBS, 2007). Although the costs of pharmaceutical aid
do not form the largest cost category within health care 8 , the rapid increase in these costs
has been an important cause for the increase in the total expenditure on health care. From
2001 to 2006, the expenditure on pharmaceutical aid increased with 30.6% (Vektis, 2007).
This increase was due to factors such as the growth and ageing of the Dutch population, the
shift of care from the hospital to the home, and the shift in consumption towards newer,
usually more expensive medicines (SFK, 2007).
3.2.1
Manufacturers
Wholesalers
Pharmacies
Patients
Health
insurers
Flow of goods and/or services
Flow of money
Influence
The data in this chapter has been gathered through desk research. Because the
pharmaceutical care market is characterized by a complex web of rules and regulations and
thus not very transparent, it was difficult to provide a good overview of this market.
3.2
Pharmaceutical care policy in the Netherlands
The Dutch pharmaceutical care policy is based on the principle of safe and affordable
pharmaceutical care that is accessible to everyone. This policy is implemented by the
Ministry of Health, Welfare, and Sport (Volksgezondheid, Welzijn en Sport, VWS). In the
80s, the Ministry of VWS tried to guarantee the affordability of pharmaceutical aid mainly
by policies of regulation. In the 90s, the focus of the Ministry of VWS shifted more to
introducing competitive elements in the pharmaceutical care market. This is not to say that
the Ministry pursued a model of pure competition. Rather, to guarantee the affordability of
pharmaceutical care, policy reforms were aimed at introducing a system of regulated
competition (Westerhout, 2004). To stimulate competition in the pharmaceutical care
market, the Ministry of VWS took two different measures. First, it removed some of the
barriers that kept new parties from entering the pharmaceutical care market. Second, it
provided a greater responsibility to health insurers. To ensure the affordability of
21
30
Controlling drug expenditure
To regulate the expenditure on drugs, the Ministry of VWS has implemented three
important measures in the past years: the Drug Prices Act, the Health Care Tariffs Act, and
the Drug Reimbursement System.
Drug Prices Act
In 1996, the Drug Prices Act (Wet Geneesmiddelenprijzen, WGP) was introduced. The act
focuses on the list prices of pharmaceutical manufacturers. List prices are the officially
registered purchase prices of drugs. They are determined by manufacturers. The WGP
stipulates that manufacturers’ list prices cannot exceed the average prices of the same drugs
in Belgium, France, Germany, and the UK. As a consequence of this act, drug prices have
decreased substantially.
Health Care Tariffs Act
The Health Care Tariffs Act (Wet Tarieven Gezondheidszorg, WTG) was implemented by
the Ministry of VWS in 1980 9 . This act determines the maximum price that pharmacies
may charge consumers or their health insurers. The maximum price is made up of two
components: a fixed fee and a purchase fee (SFK, 2007). Pharmacies are allowed to charge
a fixed fee for each prescription. This fee is a reimbursement for the operating costs of
pharmacies and is independent of the price and the quantity of the drug. In 2007, the fixed
fee was €6.10. The purchase fee, on the other hand, directly remunerates pharmacies for the
drugs they dispense. This fee is in principle based on the list prices of manufacturers.
Due to cutbacks, the Ministry of VWS decided to reduce the fixed fee in 1991. To earn
back the difference, pharmacies were stimulated to negotiate with manufacturers and
7
8
9
Extramural means not through the hospital.
Hospital care forms the largest cost category within health care.
In 2006, the WTG was replaced by the Healthcare Market Regulation Act (Wet Marktordening
Gezondheidszorg, WMG).
31
22
Cchapter
HAPTER 1
3
wholesalers for purchase benefits 10 . In the past years, these purchase benefits have been the
subject of considerable political debate. The Ministry of VWS considers the purchase
benefits too high. Pharmacies, on the other hand, claim that purchase benefits are an
indispensable element in financing their practice, as the fixed fee lags behind operating
costs (SFK, 2007). To skim the purchase benefits of pharmacies and to fight margin
competition, the Ministry of VWS has taken a number of measures.
In 1998, the Ministry of VWS introduced the so-called clawback. This measure obliged
pharmacies to grant consumers or health insurers a discount of 3% on the list prices of
manufacturers. In 1999, the Ministry of VWS reached a three-year agreement with the
Royal Dutch Pharmaceutical Society (Koninklijke Maatschappij ter Bevordering der
Pharmacie, KNMP) to adjust the clawback. For the period 2000-2002, the clawback was
increased from 3% to 6.82% (to a maximum of €6.80 per prescription). In exchange for this
adjustment of the clawback, the fixed fee was gradually increased from €5.08 to €6.00 in
this period.
In 2003, the then minister of VWS (De Geus) announced another revision of the clawback.
A distinction was made between single-source drugs (drugs that are produced by one
manufacturer, usually patented drugs) and multi-source drugs (drugs that are produced by
more than one manufacturer). As pharmacies are able to negotiate higher price discounts on
multi-source drugs 11 , a clawback of 40% was imposed on the list prices of these drugs and
a clawback of 9% on the list prices of single-source drugs. Because many pharmacies
feared that the revised clawback would get them into serious financial trouble, the case was
brought before court. A few months after its introduction the judge ruled the revised
clawback invalid.
To reach a solution for the impasse, the Ministry of VWS began negotiations with the
KNMP, the Dutch Health Insurers (Zorgverzekeraars Nederland, ZN), and the Trade
Organization of the Generic Drug Industry Netherlands (Bond van de Generieke
Geneesmiddelenindustrie Nederland, BOGIN). In 2004, it entered into a covenant with
these parties. The covenant consisted of two main components. First, the prices that
pharmacies pass on to consumers and health insurers for generic drugs would decrease with
an average of 40% below manufacturers’ list prices (including the clawback of 6.82%).
Second, pharmacists and health insurers would commit themselves to make optimal use of
10
11
These purchase benefits are the result of the differences between the list prices and the cost prices of
manufacturers. To be able to provide large purchase benefits, manufacturers try to set their list prices as high
as possible. Competition between manufacturers is thus not based on price but on margin.
The overall discount on generic drugs (multi-source drugs) is estimated to vary from 50% to 55%. In
comparison, it is estimated to vary from 5% to 10% for branded drugs (ABN AMRO, 2007). Branded drugs
can both be single-source and multi-source drugs. If the patent on a branded drug expires and other
pharmaceutical manufacturers start producing the drug also, it changes from a single-source drug into a multisource one. In that case the discount on the branded drug is likely to increase.
TITLE
empirical
setting: the dutch pharmacy sector
23
32
the availability of cheaper (generic) drugs 12 . In 2005, the covenant was extended and the
association of innovative drug manufacturers, Nefarma, also agreed to the covenant. In
addition to the rules of the 2004 covenant, it was decided that the prices of patented drugs
for which generic substitutes were available would decrease with an average of 40% or that
compensating price reductions would be implemented within the single-source segment. In
exchange for this, Nefarma set the condition that the Ministry of VWS would not sharpen
the Drug Reimbursement System (see below) during the term of the covenant (SFK, 2007).
For the period 2006-2007, the agreements made within the 2005 covenant were extended.
Drug Reimbursement System
The
Ministry
of
VWS
launched
the
Drug
Reimbursement
System
(Geneesmiddelenvergoedingssysteem, GVS) in 1991. This act determines whether and to
what extent drugs are reimbursed to consumers. Drugs that are eligible for reimbursement
and that are considered inter-replaceable are clustered. Per cluster a reimbursement limit is
set. Drugs that are eligible for reimbursement but have a unique therapeutic value (and thus
cannot be clustered) are fully reimbursed. In case the reimbursement limit is lower than the
list price of the manufacturer, the price difference is made up by the consumer. To prevent
co-payments and thus to prevent possible loss of market share, pharmaceutical
manufacturers usually do not set their list prices above the reimbursement limit. A
disadvantage of the GVS is that manufacturers who could price their drugs below the
reimbursement limit (e.g. manufacturers of generic drugs) often match their list prices to
the reimbursement limit 13 . This means that the prices of these drugs are pushed up
artificially.
Future measures
After 2007, when the covenant would expire, the Ministry of VWS was planning to
modernize the GVS. To safeguard the price reductions that were realized through the
covenant, the reimbursement limits would be recalculated based on a lower price level. In
addition, the Ministry of VWS planned to introduce a modular tariff system for pharmacies.
This modular tariff would consist of two parts: a standard tariff and a tariff for so-called
plus modules. The standard tariff would be based on a number of activities that pharmacies
minimally have to undertake (e.g. monitoring the correctness of the medication). For
additional activities (so-called plus modules), pharmacies and health insurers would be able
to make agreements with each other (e.g. screening of patient groups). The modular tariff
would provide health insurers more possibilities to influence the behavior of pharmacies,
and it would make better use of pharmacies’ expertise as care providers. In addition, it
would enable pharmacies to distinguish themselves from each other. The modular tariff
would replace the fixed fee that pharmacies currently receive and was expected to lead to a
12
13
The share of generic drug dispensing has increased from 49% in 2003 to 56% in 2006 (Vektis, 2007).
This enables these manufacturers to provide large discounts to pharmacies and thus to generate large sales.
Cchapter
HAPTER 1
3
33
24
TITLE
empirical
setting: the dutch pharmacy sector
25
34
better coverage of pharmacies’ operating costs. In exchange for this, pharmacies would be
required to renounce their purchase benefits.
As there would not be an obligation anymore to have a different pharmacist in each
pharmacy, the flexibility of these parties would increase.
It has been announced recently that the modular tariff system will not be introduced after
all in 2008. Instead, the Ministry of VWS has reached an agreement with the KNMP and
the BOGIN that the prices of generic drugs will be lowered by another 10%. The system of
purchase benefits will remain intact. This agreement has a duration of two years. “What
they have not been able to do for years, they are not able to do now either: to transform the
drug market in a more or less normal market” (FD, 2007). One of the reasons for not
implementing the modular tariff system and not abolishing the system of purchase benefits
is that the Ministry of VWS has a large budget deficit. The agreement will realize an
immediate savings of €340 million in 2008 and another savings of €116 million in 2009
(FD, 2007).
Despite the plans of the Ministry of VWS, health insurers did not really manage to fulfill
their intended role. This was due to several (related) reasons. First, the program of
measures aimed at regulation and instrumentation was only partially implemented. Some of
the measures still await their implementation, while other measures were not implemented
due to changes in policy views. For example, as described above, the Ministry of VWS
decided not to introduce the modular tariff system. After a storm of protests, the Ministry of
VWS further decided not to abolish article 19. Personal contact between pharmacists and
patients was considered to be too important. Second, although the Ministry of VWS
announced to reduce its involvement in the pharmaceutical care market, it continued to
intervene directly in practice. The introduction of the revised clawback and the covenant
are examples of such interventions. In combination with the fact that not all proposed
deregulation and instrumentation measures were implemented, this left little room for
health insurers to maneuver. Third, most health insurers were not yet internally equipped so
as to fulfill a leading role in the pharmaceutical care market. Fourth, health insurers did not
have the full confidence of all parties within the pharmaceutical care market. Some parties
were skeptical about the ability of health insurers to perform a leading role and sometimes
simply refused to cooperate with them.
3.2.2
The role of health insurers in the pharmaceutical care market
Since 2000, the policy of the Ministry of VWS has been aimed at providing health insurers
a leading role in the pharmaceutical care market. The reason for this policy is that the
Ministry of VWS considers health insurers best able to control the costs of pharmaceutical
aid. Health insurers are budget responsible for these costs and therefore have incentives to
control them. In addition, they are the only independent party between care providers
(supply) and the insured (demand). As a consequence of the enhanced responsibility of
health insurers, the Ministry of VWS decided to take a step backward. It would restrict
itself to setting limiting conditions and to overseeing the quality and the accessibility of
pharmaceutical care.
To equip health insurers for their leading role, the Ministry of VWS developed an extensive
program of measures aimed at deregulation and instrumentation in 2000. These measures
can roughly be divided in two groups. One group included measures that increase health
insurers’ influence on prescribing and dispensing drugs. An example of a proposed measure
was the introduction of the modular tariff system. The other group included measures that
increase health insurers’ influence on the prices and reimbursement of drugs. An example
of a measure that was proposed was the gradual dismantlement of the GVS. By abolishing
the reimbursement limits, health insurers would be given the possibility to negotiate with
pharmaceutical manufacturers about drug prices, which was supposed to lead to greater
price competition. Another proposed measure, that did not fit into one of these two groups
of measures, was the abolishment of article 19 of the Medicines Act (Wet op de
Geneesmiddelenvoorziening, WOG). Article 19 stipulates that pharmacists may only
practice pharmacy in one pharmacy. By abolishing this article, competition was expected to
increase as it would become more attractive for new parties to enter the pharmacy market.
It seems as if health insurers are slowly enhancing their grip on the pharmaceutical care
market though. For example, to manage the costs of drugs, a number of health insurers
jointly started the so-called preference policy in 2005. Based on this policy, health insurers
designate drugs per GVS cluster that are reimbursed. Per cluster only those drugs are
reimbursed that have a price within a 5% range of the lowest priced drug. Health insurers
conduct the preference policy jointly as this enables them to guarantee the manufacturers of
designated drugs a substantial market. The preference policy currently only applies to three
GVS clusters. The objective of the preference policy is to create more price competition
among pharmaceutical manufacturers. So far, however, this policy has hardly resulted in
any price reductions. At the start of the preference policy, only one manufacturer (Merck)
reduced its price marginally (one eurocent below the lowest cluster price). Besides Merck,
no other manufacturers lowered their price. The preference policy caused all generic drugs
to become preferential as the prices of these drugs already fell within the 5% range. All
branded drugs became non-preferential. As a consequence, the market share of branded
drugs decreased by approximately a third with the health insurers participating in the
preference policy (Vektis, 2007).
The introduction of the new Health Insurance Act in 2006 has been the most important
reason for health insurers to achieve a stronger position in the pharmaceutical care market.
Under this new act, it is in principle compulsory for everyone to have a standard health
insurance package. Until 2006, only those people with incomes below the maximum wage
35
26
Cchapter
HAPTER 1
3
level were required to be insured under the Social Health Insurance Act (i.e.
Ziekenfondswet). People with higher incomes could either take out private insurance or no
insurance at all 14 . Under the new act, people can insure care that is not covered by the
standard package through supplementary packages. For the standard health insurance
package, individual health insurers are obligated to accept everyone under the same
conditions. Risk selection is thus prohibited.
The introduction of the new act has led to enhanced competition among health insurers.
This is due to several reasons. First of all, it has become easier for people to change insurer.
Before 2006, it was difficult for many people to switch to another insurer due to risk
selection, compulsory participation in social health insurance plans, and mandatory
collective contracts (Ministry of VWS, 2006). Nowadays everyone is allowed to switch
once a year. Second, people have more reason to change insurer than before. Until 2006,
limited premium differences existed among insurers. The introduction of the new act has
led, however, to a true price war among insurers, which has resulted in much lower nominal
premiums than expected. Next to the greater premium differences, people also simply have
more to choose from than before. They can choose among different types of policies (see
below) and different own risks. For people who were previously insured under the Social
Health Insurance Act, it has further become possible to choose a collective contract (and a
corresponding premium discount). This in combination with the fact that it has become
easier to switch, has led to a significant migration of people to different insurers. In 2006,
approximately 18% of Dutch citizens changed to another insurance company (NZa, 2006).
Third, the new health insurance system is only operated by private health insurance
companies (the social health insurance funds have become private companies). These
private health insurance companies can make profits and can pay dividends to shareholders.
Under the new act, health insurers no longer have to enter into a contract with every care
provider. This means that health insurers can refuse to sign contracts with those care
providers that are considered to provide insufficient quality or to charge high prices. This
ability provides health insurers with a stronger position versus care providers and stimulates
competition among these providers15 . To increase their purchasing power towards care
providers (and to increase internal efficiency), there has been a massive wave of mergers
among health insurers after the introduction of the new act. Almost 90% of the market is
controlled by six large insurance firms at this moment (Schut, 2007). To get people to
switch from non-contracted care providers to contracted ones, health insurers offer a socalled in-kind policy. Based on this policy, the health insurer fully reimburses the insured
for care received from contracted care providers. The health insurer pays the bill directly to
14
15
Approximately two-third of the Dutch population was insured for health care through a social health insurance
fund, while one-third was privately insured.
Despite the abolishment of the contracting obligation, health insurers have limited room to maneuver in
purchasing care at this moment. Prices are still regulated for the most part. Price competition is only allowed
for physiotherapy and for a small part of hospital care.
TITLE
empirical
setting: the dutch pharmacy sector
27
36
the care provider. If the insured prefers to go to a non-contracted care provider, he may not
receive full reimbursement. In addition, health insurers offer a so-called restitution policy.
In this case the insured is free to choose a care provider but has to pay the bill himself and
then apply to the health insurer for reimbursement. A reimbursement policy is generally
more expensive than an in-kind policy.
In 1992, the contracting obligation was already abolished for pharmacies. Nevertheless,
health insurers have hardly used this freedom. Over the years health insurers have made
higher demands upon pharmacies though. Since 2002, pharmacies have, for example, been
required to hand in a quality plan annually. In this quality plan, pharmacies have to describe
their objectives with respect to the quality and the efficiency of the care they provide. The
introduction of the Health Insurance Act has not caused health insurers to be selective in
contracting pharmacies either. That is because health insurers fear reputation loss and
losing customers if these customers can no longer go to their trusted care providers. In the
future, however, health insurers are expected to be more selective. For a number of years,
some health insurers have experimented with so-called preferred pharmacies with which
they conclude favorable contracts. To stimulate people to visit these preferred pharmacies,
health insurers use financial (e.g. a bonus) and qualitative impulses (e.g. extra service)
(Boonen and Schut, 2006).
3.3
Sector Analysis
The different policy reforms and cost controlling measures of the Ministry of VWS have
had a large impact on the market relations within the pharmacy sector. To analyze the
structure of the pharmacy sector, we make use of Porter’s five forces framework (Porter,
1979). This framework is derived from the SCP paradigm and consists of five different
forces: power of suppliers, threat of new entrants, threat of substitutes, power of buyers,
and competitive rivalry.
3.3.1
Suppliers
Pharmacies are supplied by three different parties: pharmaceutical manufacturers,
pharmaceutical wholesalers, and physicians.
Pharmaceutical manufacturers
The power of pharmaceutical manufacturers has been strongly affected by the
government’s substitution policy. To curb the rising expenditure on pharmaceutical aid, the
Ministry of VWS agreed with the LHV to stimulate the prescription of drugs by their
generic name in 1996. If a general practitioner prescribes a drug by its generic name, a
pharmacist is free to decide whether or not to dispense a branded drug or to substitute it for
Cchapter
HAPTER 1
3
37
28
a cheaper generic version. As noted earlier, the discounts provided on generic drugs are
often much higher than those provided on branded drugs, which makes generic substitution
financially appealing to pharmacies. Health insurers also make agreements with
pharmacists on target percentages for generic substitution. If pharmaceutical manufacturers
produce unique branded drugs for which no generic copies are available (because they are
protected by patents), they have much more power. Branded drugs are, however, hardly
truly unique anymore because of the widespread introduction of so-called me-too drugs16 .
Pharmaceutical wholesalers
In the early 90s, there were actually only three pharmaceutical wholesalers in the
Netherlands 17 . Currently, however, numerous other (small) wholesalers exist. There are
four major wholesalers though. OPG is the largest, with a market share of approximately
29%. Thereafter come Interpharm (25%), Brocacef (18%), and Mosadex (13%) (Kempen &
Co, 2006). Both Interpharm and Brocacef have been acquired by foreign pharmaceutical
wholesalers. In 2000, Interpharm was sold to Alliance Unichem (UK), which recently
merged with the drugstore retailer Boots. Brocacef was purchased by Phoenix (Germany)
in 2001.
In the past years, the profit margins of pharmaceutical wholesalers have been under severe
pressure. This has been due to the stronger competition between wholesalers and to the
various measures imposed by the Ministry of VWS. Although none of these measures has
been directly aimed at wholesalers, they have been subject to increasing margin pressure
from both pharmaceutical manufacturers and pharmacies as intermediaries. To cope with
decreasing margins, wholesalers have broadened the scope of their business. Large
wholesalers, for instance, have started to provide a wider array of services to their
pharmacies (e.g. floor plan designs, stock management systems, advice on acquiring
pharmacies, multiple deliveries per day, etc.). This way they can distinguish themselves
from smaller wholesalers. This higher service level has, however, also led to higher
overhead costs, which in turn has caused large wholesalers to provide lower discounts on
generic and parallel imported drugs 18 . Pharmacies therefore often purchased these drugs
from smaller wholesalers in the past, while they acquired the rest of their assortment from a
large wholesaler. To prevent pharmacies from doing this, most large wholesalers have
started to provide an overall discount percentage on pharmacies’ entire assortment rather
than a discount percentage per product. This has led to more one-on-one relationships
between large wholesalers and pharmacies.
Dutch wholesalers have also begun to vertically integrate. Initially, they were integrated
backward in the production of generic drugs. This activity, however, appeared not
profitable enough. Since 1999, it has become considerably easier for non-pharmacists to
TITLE
empirical
setting: the dutch pharmacy sector
exploit pharmacies. As pharmacies realize relatively large profit margins, wholesalers
shifted their attention from backward to forward integration. They started to acquire
pharmacies. This also enabled wholesalers to strengthen their grip on the distribution chain.
A disadvantage of acquisition is that the goodwill prices of pharmacies are very high 19 and
acquisition thus involves a large capital investment. Acquisition is, however, still often
preferred by wholesalers to internal development because pharmacies generally have a very
loyal customer base. Once registered at a pharmacy, people usually remain customer until
they move 20 . A reason for this is that most people are simply not aware of the fact that they
have a free choice. It appeared from research that more than half of the people incorrectly
believed that the choice of pharmacy was determined by the health insurer or the general
practitioner. Because people do not switch pharmacies, it is often difficult for newly opened
pharmacies to establish a customer base. Recently, however, some wholesalers have slowly
started to open pharmacies. They often do this in so-called AHOED’s or health care
centers 21 . The disadvantage of internal development is overcome this way. That is, the
close presence of other care providers in AHOED’s and health care centers guarantees
pharmacies a continuing stream of customers.
Except for Mosadex, all major wholesalers have acquired Dutch pharmacies. Table 3.1
depicts the number of pharmacies that each wholesaler approximately owned in 2006
(ASKA, 2007) and the names of the company-owned chains. Also shown in this table is the
wholesaler Celesio (Germany). This company has also acquired Dutch pharmacies but is
not active in the Dutch market as a wholesaler. OPG, Alliance Boots, and Celesio in
principle maintain full ownership over their Dutch pharmacies. Phoenix, on the other hand,
allows pharmacists to purchase a majority share in their pharmacies after a couple of years.
Dutch wholesalers have not just moved forward through vertical integration but also
through franchise formulas for pharmacies. Around 1990, OPG, Interpharm, and Brocacef
each set up a franchise formula. By means of these franchise formulas, the wholesalers tried
to distinguish themselves from one another. By delivering added value, they hoped to
create a stronger bond with affiliated pharmacies. In 2003, OPG disposed of its franchise
formula. This was, amongst other reasons, due to the fact that it was difficult to convince
pharmacists of the added value of a franchise formula. In 2005, OPG introduced a formula
for its own pharmacies. This formula has been adopted by the first independent pharmacy
recently. Service Apotheek is a franchise formula which has been set up by pharmacists
rather than by wholesalers. In 2005, the Service Apotheek formula was sold to Mosadex.
19
20
16
17
18
Me-too drugs are patented drugs that differ slightly from breakthrough drugs.
OPG, Interpharm, and Brocacef.
Parallel imported drugs are drugs that are imported from low-price countries.
29
38
21
The goodwill is estimated to range from 1.0 to 1.5 times the annual turnover. In 2006, the turnover of an
average pharmacy was € 2,385,000 (SFK, 2007).
It is estimated that less than 5% of the Dutch population switches pharmacies annually.
An AHOED is a new construction in which a pharmacy is located together with general practitioners in one
building. In a health care center, a pharmacy is not just situated together with general practitioners but also
with other health care providers such as dentists and physiotherapists.
Cchapter
HAPTER 1
3
39
30
Table 3.1 shows the number of franchise pharmacies that the different parties within the
pharmacy sector have and the names of their franchise formulas.
Table 3.1
Number of company-owned and franchise pharmacies
Wholesaler
Company-owned
Number of
Franchise
Number of
chain
company-owned
formula
franchise
Mediveen
220
Mediq
1
Alliance Boots/
Alliance
78
Kring-apotheek
200
Interpharm
Apotheek
Phoenix/ Brocacef
Escura Apotheek
81
Escura Apotheek
30
Mosadex
No company-
0
Service
150
owned chain
Lloyds Apotheek
Apotheek
56
No franchise
0
formula
Others (>5 outlets)
31
40
described, the close presence of general practitioners in these settings guarantees
pharmacies a continuing stream of customers. To take part in an AHOED or a health care
center, it is important for pharmacies to be well informed of the future plans of general
practitioners and to be the pharmacy with which these practitioners prefer to cooperate.
3.3.2
New entrants
pharmacies
pharmacies
OPG
Celesio
TITLE
empirical
setting: the dutch pharmacy sector
245
In summary, the power of wholesalers has decreased and increased again. In the early
nineties, wholesalers were reasonably powerful as there were actually only three
wholesalers. Due to the fact that many other wholesalers entered the market, this power
decreased. Wholesalers’ power has increased again recently because of the trend towards
one-on-one relationships between large wholesalers and pharmacies and because of forward
integration.
Physicians
Physicians are very important to pharmacies as they write prescriptions. Without these
prescriptions, pharmacies are not able to dispense most drugs. Pharmacies thus depend on
physicians for their livelihood. Physicians can be divided into general practitioners and
specialists. As general practitioners write most extramural prescriptions, they are especially
important to pharmacies. General practitioners are officially not allowed to direct their
clients’ pharmacy choice. However, they do have an influence on this choice. For instance,
if a general practitioner refers to a specific pharmacy as a good one, new inhabitants of a
city are more likely to choose this pharmacy. General practitioners are also important as
they influence which drugs pharmacies dispense. As described, since 1996, general
practitioners are encouraged to prescribe drugs by their generic name. For the most part,
general practitioners do prescribe generics. However, if a general practitioner prescribes a
branded drug, a pharmacy is not allowed to substitute it for a generic copy without getting
permission from the general practitioner and the patient first. As the margins on generic
drugs are much higher than on branded drugs, pharmacies try to get general practitioners to
prescribe generic drugs as much as possible. The power of general practitioners has
recently increased further due to the rise of AHOED’s and health care centers. As
In 2006, there were approximately 1,800 community pharmacies. The loyalty of customers
to existing pharmacies forms an important barrier to entrance into the pharmacy market.
New pharmacies are therefore often established in new construction areas or in AHOED’s
and health care centers. Since it has become easier for non-pharmacists to exploit
pharmacies in 1999, various new parties have entered the pharmacy market. As described
above, wholesalers have recently begun to establish pharmacies. Other new parties to the
pharmacy market are drugstore chains. In 2003, Etos opened up a number of pharmacies
and so-called medicine service points22 in the Netherlands. These service points were either
located in Etos drugstores or Albert Heijn outlets 23 . In 2004, the drugstore chain DA also
entered the pharmacy market. Etos and DA tried to distinguish their pharmacies from
existing ones by focusing on convenience. Greater convenience was, for example, provided
in the form of longer opening hours, time efficiency (picking up drugs at locations where
people go to do their shopping anyway), and free delivery service.
Despite the ambitious plans of Etos and DA to roll out their pharmacy concept quickly
throughout the entire country, their market presence is still very limited. In 2005, Etos
decided to stop opening pharmacies. Instead it announced to offer its pharmacy-drugstore
formula as a franchise concept to existing pharmacies. Etos only has pharmacies and
medicine service points in two Dutch cities at this moment. The medicine service points in
Albert Heijn have been closed. DA also owns only a few pharmacies. Several reasons may
explain why Etos and DA have not (yet) been able to realize their ambitions in the
pharmacy market. First, the fact that article 19 has not been abolished has played a major
role. Both Etos and DA intended to establish small pharmacies in their existing drugstores.
If each of these small pharmacies is required to employ its own pharmacist, the labor costs
will simply be very high. Second, Etos and DA had difficulties hiring pharmacists.
Working for an Etos or DA pharmacy is generally not very well-liked by pharmacists as
they consider it as being “a druggist with a pharmacy degree.” As there is also a pharmacist
shortage at this moment, it is even more difficult for these drugstore chains to attract
pharmacists. Third, Etos and DA pharmacies had difficulties obtaining a loyal customer
base. A reason for this is that, as described above, Dutch people rarely switch pharmacies.
Another reason is that Etos and DA do not have as reliable an image as existing pharmacies
22
23
Medicine service points distribute drugs but have no stock.
Albert Heijn is a supermarket chain and a sister company of Etos.
Cchapter
HAPTER 1
3
41
32
when it comes to drugs. For a lot people it still seems important to get their drugs from a
“real pharmacy” rather than from a drugstore. Finally, Etos and DA sometimes faced local
opposition from pharmacies. Some pharmacies, for example, refused to provide Etos and
DA insight into patient files, which made it more difficult for them to check prescriptions
for their compatibility with medicines that patients were already using.
Other new entrants to the pharmacy market are so-called policlinic pharmacies. Policlinic
pharmacies are located in hospitals and deliver drugs to non-hospitalized persons. Before
2000, hospital pharmacies were only allowed to deliver drugs to hospitalized persons. Since
this has changed, the number of hospitals pharmacies with both a clinical and a policlinic
part has been growing. There are currently approximately 16 policlinic pharmacies and
more of these pharmacies are expected to be established in the near future. Some hospital
pharmacies are partly owned by health insurers or by pharmaceutical wholesalers.
Finally, some health insurers have entered the pharmacy market. These insurers only
exploit a few pharmacies (usually in AHOED’s) at this moment. There are two reasons for
health insurers to enter this market. First, it gives them better insight into the purchase
benefits of pharmacies. For fear of having to hand in too much of their purchase benefits,
pharmacists have always been rather secretive about the size of these benefits. Second, it
shakes pharmacists awake. By entering the pharmacy market, health insurers demonstrate
that they do not sit still. As a consequence, pharmacies feel pressurized to undertake more
local initiatives.
In conclusion, the power of new entrants has grown in the past years. As described, the
loyalty of customers to existing pharmacies has always formed an important barrier to
entrance into the pharmacy market. Although this is still a problem, since the government
has removed some of the barriers that kept new parties from entering the community
pharmacy market, the threat of new entrants has increased.
3.3.3
Substitutes
As far as substitutes are concerned, we focus on the substitution of the function of
community pharmacies rather than on the substitution of drugs. Such substitutes actually
did not exist in the past but currently they do. Substitutes for the function of pharmacies
are, for example, nationally operating Internet pharmacies. These pharmacies are not
considered a real threat at this moment. The market share of these pharmacies is less than
1% (NYFER, 2006). It is, however, expected that their market share will increase. In the
United States, Internet pharmacies are a much more common phenomenon. Internet/mailorder pharmacies there have a share of 20.2% of the prescription drug market (NACSD,
2006), and ordering drugs online is much cheaper than through community pharmacies
because of more efficient drug distribution. Research has demonstrated that Internet
TITLE
empirical
setting: the dutch pharmacy sector
33
42
pharmacies can also lead to lower drug prices in the Netherlands (TPG, 2004). Internet
pharmacies are considered to lend themselves especially well to repeat prescriptions. A
party that has recently entered the Internet pharmacy market is TNT Post 24 . Together with
other parties, TNT Post (being the logistical provider) initiated the Nationale-Apotheek.nl
in 2006. Besides TNT Post, a number of health insurers have entered the Internet pharmacy
market. In collaboration with an existing Internet pharmacy, health insurer Univé, for
example, has set up the pharmacy Unive-Apotheek.nl. Some other health insurers have
assigned Internet pharmacies as preferred pharmacies. To get customers to order drugs
online, Internet pharmacies often provide discounts. The rise of Internet pharmacies has led
to various protests by pharmacists and general practitioners. They claim that Internet
pharmacies worsen medication control and lead to a lower quality of service.
So-called unique deliveries currently pose a bigger threat to community pharmacies. In case
of unique deliveries, pharmaceutical manufacturers use one national pharmacy to deliver
their drugs to people’s homes. Drugs are thus being distributed without intermediation of
community pharmacies. This distribution system is mainly used for expensive and
specialist drugs (e.g. biopharmaceuticals). Information about or assistance in administering
these drugs is provided by the national pharmacy to end-users. An example of such a
national pharmacy is Red Swan, which is part of the wholesaler OPG. Over the past years,
the market share of unique channels in the expensive drug market has increased
considerably (at the expense of the share of community pharmacies in this market). In
2006, unique channels had a market share of 40% (Tinke, 2006). In order not to lose too
much market share, community pharmacies have started to set up national pharmacies in
collaboration with one another.
3.3.4
Buyers
Pharmacies have two different buyers: health insurers and patients. As described, health
insurers usually pay for drugs, while patients are the ones to “enjoy” the drugs.
In paragraph 3.2.2 we have explained the role of health insurers in the pharmaceutical care
market. Since 2000, the power of health insurers has grown as the Ministry of VWS, as
described, has pursued a policy that is aimed at providing health insurers a leading role in
the pharmaceutical care market. Health insurers were initially not really able to fulfill their
intended role and their power thus remained limited. However, more recently, due to
several reasons, health insurers have enhanced their grip on the pharmaceutical care market.
24
TNT Post is a Dutch mail delivery company.
Cchapter
HAPTER 1
3
43
34
As noted earlier in this chapter, Dutch people rarely switch pharmacies. This is due to
several reasons besides the fact that many people are not aware that they have a free choice
with respect to pharmacies. First of all, there are no differences between pharmacies’
prescription drug assortment and the prices that they charge for these drugs. As people are
insured for the costs of prescription drugs, they are price-insensitive anyway. Most people
simply visit the nearest pharmacy. Second, in small villages there is often only one
pharmacy. In those cases people simply have no other option. In addition to the fact that
Dutch people hardly switch pharmacies, until recently they did not really demonstrate
substitution behavior either. In the past there were of course simply no substitutes. Next to
consumers, pharmacies sometimes also have institutional customers such as prisons or
nursing homes. As the buying volume of these institutional customers is relatively large,
losing them as customers poses a more significant threat to pharmacies.
3.3.5
Competitive rivalry
Dutch community pharmacies have always enjoyed a low degree of internal rivalry. This is
due to several reasons. First, the density of pharmacies in the Netherlands is relatively low.
The customer base of a Dutch pharmacy consists on average of 8,500 patients. In contrast,
pharmacies in Belgium and France serve respectively approximately 2,000 and 2,500
patients (SFK, 2007). The relatively large customer base of Dutch pharmacies is a
consequence of the fact that the KNMP regulated the establishment of pharmacies until
1998. With the idea that pharmacies can only deliver high quality when they are financially
solid, the KNMP decided that pharmacies needed a minimum of 8,000 customers 25 .
Second, as described, people rarely switch pharmacies. The size of the customer base of
Dutch pharmacies is thus not just relatively large but also stable. Third, running a pharmacy
has always been a rather lucrative business. Next to the fact that Dutch pharmacies serve a
relatively large number of customers, they receive, as noted earlier, large purchase benefits
from manufacturers and wholesalers. Although pharmacies are now required to hand in part
of their purchase benefits, they easily earn this money back through volume growth (FD,
2007). In 2006, the EBIT margin 26 of pharmacies was estimated to be 9%-10% (ABN
AMRO, 2007), while it was estimated to be around 10% in 2001 (ABN AMRO, 2002). No
significant margin changes have thus taken place in the past years. Fourth, Dutch
pharmacies did not really face the threat of new entrants or substitutes until recently.
Community pharmacies owned by pharmacists simply enjoyed a monopoly with respect to
the extramural delivery of prescription medicines. Because of these reasons, there was no
real need for pharmacies to compete with each other. They were happy with the status-quo.
In addition, most pharmacists considered competition “not done” due to the societal
25
26
Later this was changed to minimally 40,000 prescriptions per year.
Operational profit minus depreciation and amortization as a percentage of sales.
TITLE
empirical
setting: the dutch pharmacy sector
35
44
character of the pharmacy business. Pharmacists generally also refer to each other as
colleagues rather than as competitors.
The competition in the pharmacy sector is rising, however. As described above, substitutes
for the service of community pharmacies have been introduced, and new entrants have
found their way to the pharmacy market. Furthermore, although the margins of pharmacies
have remained stable in the past years, it is expected that they will decrease due to new
health care reforms. Because of this uncertainty, more and more pharmacists have started to
sell their pharmacies to chain organizations or have joined franchise formulas. Pharmacies
that are not part of a chain organization are often involved in some kind of cooperation
agreement (foundations, holdings, partnerships, etc.). For individual pharmacists it is
becoming increasingly difficult to buy a pharmacy. As the future earnings of pharmacists
are uncertain, banks often do not want to issue loans anymore. The competition within the
pharmacy market currently mainly takes place among existing community pharmacies, new
entrants, and providers of substitutes. Existing community pharmacies often try to form a
block against these entrants and providers of substitutes. Competition among community
pharmacies is, however, also slowly becoming a more common phenomenon.
Table 3.2 summarizes the five forces analysis of the Dutch pharmacy sector in 1993, 2000,
and today.
Table 3.2
Five forces analysis of the Dutch pharmacy sector
Force
1993
2000
Today
Supplier power:
x
Manufacturers
Medium
Low
Low
x
Wholesalers
Medium
Low
Medium
x
Physicians
Medium
Medium
High
Threat of new entrants
Low
Low but growing
Medium
Threat of substitutes
Low
Low
Medium
Buyer power:
x
Health insurers
Low
Low but growing
Medium/high
x
Patients
Low
Low
Low
Low
Low
Low but growing
Competitive rivalry
3.4
Situation in other countries
In this paragraph we briefly describe the situation in the pharmacy sector in two other
countries: Germany and the United States. We compare the situation in these countries with
that in the Netherlands and, based on this comparison, we explain why we have chosen to
focus only on the Netherlands in this thesis.
45
36
Cchapter
HAPTER 1
3
Germany
In 2005, the expenditure on extramural pharmaceutical aid was 14.5% of the total
expenditure on health care in Germany (SBD, 2007). As compared with the Netherlands,
Germany thus has a relatively high spending in regards to pharmaceutical aid. To curb the
level of overall spending, the German government has implemented a wide range of policy
reforms since the late 80s. For example, in 1989, it implemented a reference price system.
This system is comparable to the Dutch GVS. That is, it sets the maximum price at which
drugs (i.e. generic and me-too drugs) are reimbursed by the SHI (see below) to patients. If
the prices of such drugs are above the reimbursement limit, patients must pay the
difference. To prevent co-payments, manufacturers often readjust their prices to
accommodate the reference price (OECD, 2004). On top of the price differential, a copayment of 10% of the drug price (minimum €5, maximum €10) is required. In Germany
approximately 13% of the expenditure on prescription drugs is paid “out of pocket,” while
in the Netherlands only 0.3% of this expenditure is paid by patients themselves (OFT,
2007).
Unlike in the Netherlands, the German government regulates the margins of pharmaceutical
wholesalers and pharmacies. Until 2003, the government specified the margin between the
retail price and the manufacturer’s price. It, however, allowed for bargaining between
pharmacies and wholesalers (within a constraint on the maximum wholesale margin).
Reforms in 2003 abolished the regulation of the retail margin (OECD, 2004). German
pharmacies now receive a fixed fee of €8.10 per prescription rule plus 3% of the pharmacy
purchase price but have to grant SHI’s a discount of €2.30 per prescription rule. Pharmacies
can still bargain with wholesalers with regards to purchase benefits. However, these
purchase benefits are not allowed to exceed the maximum wholesale margin that is set out
by the German government. In comparison to Dutch pharmacies, German pharmacies are
thus left little room to negotiate for purchase benefits, leading to lower profit margins.
The German health insurance system resembles the system that was used within the
Netherlands before the introduction of the new health care act. In Germany a distinction is
made between two types of insurance. The first type, Statutory Health Insurance (SHI)
through sickness funds, is compulsory for everyone whose income does not exceed a
certain level. People above this income level, the self-employed, and civil servants in
higher positions can take out Private Health Insurance (PHI). They can, however, also
choose to enroll in a Statutory Health Insurance program. Approximately 90% of the
German population is insured through SHIs (OFT, 2007). The German government is
planning to reform the insurance system. A mixture of the SHI and PHI may possibly be
introduced as recently happened in the Netherlands.
The density of pharmacies in Germany is rather high in comparison to the density within
the Netherlands. Pharmacies in Germany serve on average about 4,000 patients (SFK,
2007). In Germany pharmacies cannot be owned by non-pharmacists (leading to a smaller
TITLE
empirical
setting: the dutch pharmacy sector
37
46
threat of new entrants). At the heart of this ownership restriction is the argument that nonpharmacist owners may let commercial considerations over-ride the professional ethics of
pharmacists. Another argument is that if pharmacies could also be owned by nonpharmacists, pharmaceutical wholesalers would quickly start buying pharmacies and the
market would subsequently change into an oligopoly. The four largest German wholesalers
together hold 75% of the market (Credit Suisse, 2007). Until 2003, single pharmacists were
allowed to own only one pharmacy. Nowadays, they may maximally own four pharmacies
in close proximity to each other. Large chains of company-owned pharmacies thus do not
exist in Germany. This may change in the future, however. Although the German
government is in favor of retaining the ban on non-pharmacist and multiple (more than
four) ownership of pharmacies, under European law these prohibitions may have to be
abrogated (the case is pending at the European Court of Justice). As in the Netherlands,
independent pharmacies are often affiliated (for example, to franchise formulas or to
buying groups, which are often under the control of wholesalers). Approximately 62.4% of
the German pharmacies have joined a franchise formula or a buying group (James Dudley,
2007).
Since 2004, mail-order trade (and thus also e-commerce) has been allowed for pharmacyonly drugs in Germany. Before that time such trade was only permitted for drugs which
could be sold outside pharmacies. As in the Netherlands, the market share of Internet/mailorder pharmacies is currently rather low (approximately 1%).
United States
In 2005, the United States spent 16% of its gross domestic product on health care. This was
more than any other industrialized country in the world (Germany, for example, spent
10.7% of its gross domestic product and the Netherlands 12.3%). As in other countries, the
costs of pharmaceutical aid are among the fastest-growing health care costs in the United
States. The US expenditure on extramural pharmaceutical aid was 13.0% of the total
expenditure on health care in 2005 (CMS, 2007).
In contrast with Dutch people, Americans are not obliged to take out health insurance 27 . It
is estimated that approximately 15% of the US population is uninsured (OFT, 2007). There
are two main routes of access to health insurance in the United States. The first is through a
publicly funded program (for those people of 65 and over and for the poor). Medicare is an
example of such a program. Publicly funded programs only provide hospital insurance
coverage in essence. Supplementary (and heavily subsidized) insurance is optional. The
second route is through a privately funded program. This type of insurance is either
obtained through an individual private insurance policy or through an employer. In the
latter case, the employer contributes to the costs of health care but the employee pays for
27
Only people in Massachusetts must take out health insurance.
47
38
Cchapter
HAPTER 1
3
the majority of these costs. Not all employers offer health insurance, and in some instances
they only insure those people working full time (OFT, 2007).
A major difference between the structure of the Dutch and German pharmacy sector and the
American one is the presence of so-called Pharmacy Benefit Managers (PBMs). PBMs are
distribution intermediaries that provide a range of services to providers of public and
private health insurance programs (i.e. health plans). For example, they negotiate drug
prices with pharmaceutical manufacturers. Pharmacies are thus cut out of this negotiation
process. PBMs contract with pharmacies to establish networks of pharmacies through
which enrollees can have their prescriptions filled. It is estimated that PBMs contract with
90% of the pharmacies in the region that they serve (OFT, 2007). PBMs reimburse
pharmacies by providing them a dispensing fee plus the average wholesale price 28 minus a
discount. If a PBM represents a large number of enrollees, it will be able to obtain a better
discount rate from pharmacies. PBMs manage a significant proportion of the US drug
market. It is estimated that 70 PBMs control 80% of the expenditure on prescription drugs
(OFT, 2007). As quite some money sticks to the fingers of PBMs, the profit margins of
American pharmacies are more modest than those of Dutch pharmacies.
PBMs also develop formularies for health plans. A formulary is a list of preferred
prescription drugs. It usually consists of three different tiers that determine the level of copayment. The higher the tier, the higher the co-payment will be. The first tier of the
formulary, for example, only includes generic drugs for which co-payments are very low.
The inclusion or exclusion of a drug in the formulary (or in lower tier) can significantly
impact a manufacturer’s sales volume, which provides PBMs substantial bargaining power.
In the United States co-payments are high relative to Germany and especially to the
Netherlands. US citizens pay approximately 24.9% of the expenditure on prescription drugs
themselves (OFT, 2007).
As in the Netherlands, there are no restrictions on pharmacy ownership in the United States.
Already in the 70s, pharmacy chains were established. Especially in the 90s, chaining has
increased significantly. To strengthen their bargaining power with PBMs, wholesalers, and
manufacturers, independent pharmacies and existing chains consolidated rapidly. In
contrast to the Netherlands and Germany, selling pharmaceutical products is almost always
combined with other retail activities in the United States. For example, a great number of
US pharmacies are part of drugstore chains (e.g. CVS or Walgreens). In addition to
drugstore chains, mass merchandisers (e.g. Wal-Mart) and supermarket chains also operate
pharmacies. In 2006, mass merchandisers accounted for 9.7% of the US prescription drug
market, supermarket chains for 11.5%, drugstore chains for 41.2%, and independent
28
The average wholesale price (AWP) is the official list price at which wholesalers sell a drug to pharmacies. In
practice the AWP is usually not an accurate reflection of the real price that pharmacies pay. In case of generic
drugs, PBMs do not reimburse pharmacies the AWP but a reference price.
TITLE
empirical
setting: the dutch pharmacy sector
39
48
pharmacies for 17.4% (NACDS, 2006). Due to the high density of US pharmacies 29 , the
competition among the different types of pharmacies is intense. Although there are no
restrictions on pharmacy ownership in the United States, there are only two or three
pharmacy chains that have adopted the plural form. US pharmacy chains typically consist
only of franchise pharmacies or of company-owned pharmacies.
The market share of Internet/mail-order pharmacies has increased considerably in the
United States in recent years. As noted earlier, these pharmacies have a market share of
20.2%. Most large mail-order pharmacies are owned and operated by PBMs. Increasingly,
PBMs are mandating mail order for repeat prescriptions. Some of the larger pharmacy
chains also have mail order facilities.
Although similarities exist between the Dutch pharmacy sector and the pharmacy sectors in
Germany and the United States, as described, there are also important differences such as
the ownership restriction in Germany, the presence of PBMs in the United States, the
density of pharmacies, and the market share of Internet/mail-order pharmacies. These
differences are likely to lead to differences in the conduct of pharmacies with respect to the
strategic objectives of pharmacy chains. Considering the impact of country specific
characteristics, we have chosen to focus our study on the Netherlands.
3.5
Conclusions
In this chapter we have described that a lot of changes have taken place within the
pharmaceutical care market over the past years. The Ministry of VWS has implemented a
large number of regulations to control the rising expenditure on pharmaceutical aid. More
regulations are expected to be implemented in the near future. The situation is still
favorable for pharmacies at this moment. Pharmacy margins do not really seem to suffer
from the various measures that are implemented. Volume growth compensates for the
negative effects of these measures. Furthermore, the competitive intensity within the
pharmacy sector is still rather low. Although the Ministry of VWS has tried to stimulate
this competition by means of different measures (e.g. it has become considerably easier for
non-pharmacists to exploit a pharmacy), due to multiple reasons, the new entrants and
substitutes generally play a somewhat limited role. In the long term, the situation is likely
to become less favorable though. As described in this chapter, the system of pharmacy
purchase benefits is under attack. While not in the following year, this system will probably
be abolished in the future; this will have severe consequences for the margins of
pharmacies. In addition, health insurers, who are great advocates of competition within the
pharmaceutical care market, are likely to further consolidate their grip on this market. Once
29
A consumer patronizing a pharmacy in the United States has on average access to 21 competing pharmacies
located near their current pharmacy (SK&A, 2007).
50
50
TITLE
TITLE
49
40
Cchapter
HAPTER 1
3
they have settled their internal organizations and have gained more experience in this
market, they will be better equipped to actually fulfill a leading role. Finally, the threat of
new entrants and substitutes is expected to increase in the future due to relaxation of
restrictive measures (e.g. the abolishment of article 19) and familiarization of the public to
these entrants and substitutes. As noted earlier, unique delivery is a substitute that is already
very successful. Because of these changes in the environment, pharmacies will need to
make certain adaptations. For example, due to greater competition, they will have to put
more effort into acquiring and maintaining customers. As they are not (yet) reduced to the
extreme, such adaptations are not yet made by most pharmacists. Chain organizations,
however, have greater foresight than pharmacists and as will be described in chapter 4,
have already started to make some necessary adaptations to their pharmacies.
Chapter
Chapter 4
4
4.1
4.1
Research
Research methodology
methodology and
and results:
results: Case
Case study
study
Introduction
Introduction
In this
this chapter
chapter we
we describe
describe the
the outcomes
outcomes of
of our
our first
first research
research method:
method: the
the case
case study.
study. As
As
In
described
in
chapter
2,
according
to
Bradach
(1992),
restaurant
chains
face
four
key
described in chapter 2, according to Bradach (1992), restaurant chains face four key
strategic
strategic objectives:
objectives: unit
unit growth,
growth, local
local responsiveness,
responsiveness, maintaining
maintaining uniformity,
uniformity, and
and system
system
wide
adaptation.
It
appeared
from
the
case
study
that
unit
growth
and
local
responsiveness
wide adaptation. It appeared from the case study that unit growth and local responsiveness
are
are also
also two
two important
important strategic
strategic objectives
objectives of
of pharmacy
pharmacy chains.
chains. As
As far
far as
as the
the third
third objective,
objective,
uniformity, is
is concerned,
concerned, it
it appeared
appeared that
that pharmacy
pharmacy chains’
chains’ first
first priority
priority is
is currently
currently to
to
uniformity,
create
uniformity.
In
contrast
to
the
restaurant
chains
investigated
by
Bradach,
pharmacy
create uniformity. In contrast to the restaurant chains investigated by Bradach, pharmacy
chains
chains are
are not
not yet
yet large
large and
and established
established organizations.
organizations. They
They are
are still
still in
in the
the process
process of
of
creating
uniformity.
Therefore,
instead
of
only
focusing
on
maintaining
uniformity,
creating uniformity. Therefore, instead of only focusing on maintaining uniformity, we
we also
also
focus
focus on
on the
the process
process of
of creating
creating uniformity.
uniformity. Bradach
Bradach (1992)
(1992) defines
defines system
system wide
wide adaptation
adaptation
as the
the way
way in
in which
which threats
threats to
to and
and opportunities
opportunities for
for aa chain
chain as
as aa whole
whole are
are translated
translated into
into
as
management
action.
A
system
wide
adaptation
shifts
the
uniform
business
format
to
a
new
management action. A system wide adaptation shifts the uniform business format to a new
standard.
standard. As
As pharmacy
pharmacy chains
chains are
are still
still in
in the
the midst
midst of
of creating
creating aa uniform
uniform business
business format,
format,
they
do
not
yet
engage
in
system
wide
adaptations
often.
The
importance
they do not yet engage in system wide adaptations often. The importance of
of system
system wide
wide
adaptation
adaptation as
as an
an objective
objective is
is thus
thus currently
currently less
less for
for these
these chains.
chains. Following
Following theories
theories of
of
organizational decision-making,
decision-making, Bradach
Bradach considers
considers the
the system
system wide
wide adaptation
adaptation process
process to
to
organizational
be
composed
of
four
stages:
(1)
generating
ideas,
(2)
testing
and
evaluating
ideas,
(3)
be composed of four stages: (1) generating ideas, (2) testing and evaluating ideas, (3)
decision-making,
decision-making, and
and (4)
(4) implementation.
implementation. In
In this
this thesis
thesis we
we conceptualize
conceptualize the
the process
process of
of
creating
uniformity
to
consist
of
the
same
stages.
In
this
process
ideas
for
creating uniformity to consist of the same stages. In this process ideas for uniform
uniform
standards,
standards, for
for example,
example, also
also have
have to
to be
be generated
generated and
and evaluated.
evaluated. The
The only
only difference
difference is
is that
that
the ultimate
ultimate goal
goal of
of the
the process
process is
is usually
usually to
to create
create aa new
new standard
standard rather
rather than
than to
to adapt
adapt an
an
the
existing
one.
This,
however,
does
not
change
the
steps
that
need
to
be
taken.
existing one. This, however, does not change the steps that need to be taken.
It
It appeared
appeared from
from the
the case
case study
study that
that although
although all
all pharmacy
pharmacy chains
chains consider
consider unit
unit growth,
growth,
local
responsiveness,
and
uniformity
as
their
most
important
strategic
objectives,
local responsiveness, and uniformity as their most important strategic objectives, some
some
chains attach
attach greater
greater importance
importance to
to one
one objective,
objective, while
while others
others attach
attach greater
greater importance
importance to
to
chains
another
objective
at
different
points
in
time.
For
example,
as
will
be
described
below,
early
another objective at different points in time. For example, as will be described below, early
in
in their
their life
life cycle
cycle most
most pharmacy
pharmacy chains
chains focus
focus on
on fast
fast unit
unit growth.
growth. However,
However, once
once they
they
have
reached
a
considerable
scale,
their
focus
moves
beyond
unit
growth
to
have reached a considerable scale, their focus moves beyond unit growth to include
include
uniformity.
uniformity. According
According to
to another
another pharmacy
pharmacy chain
chain (Lloyds
(Lloyds Apotheek),
Apotheek), it
it is
is very
very difficult
difficult to
to
create uniformity
uniformity in
in the
the second
second instance.
instance. Therefore,
Therefore, this
this pharmacy
pharmacy chain
chain has
has focused
focused on
on
create
both
both unit
unit growth
growth and
and uniformity
uniformity from
from the
the start.
start. Because
Because it
it requires
requires aa lot
lot of
of time
time and
and effort
effort
to
create
uniformity,
this
chain
has
demonstrated
a
somewhat
slower
growth
rate.
to create uniformity, this chain has demonstrated a somewhat slower growth rate.
Cchapter
HAPTER 1
4
51
42
In the first paragraph of this chapter, we describe the case study method and explain why
this method has been chosen to study the plural form phenomenon. Moreover, we delineate
the set up of the case study: the case study design. In the remaining paragraphs, we discuss
the three strategic objectives of pharmacy chains, unit growth, local responsiveness, and
uniformity (creation and maintenance), in greater detail. For each of the objectives, we
explain how plural dynamics can lead pharmacy chains to be more effective in meeting
them. In doing so, we compare our findings with those of Bradach (1992) in the restaurant
sector. We describe whether and to what extent the plural dynamics he has identified also
exist in the pharmacy sector. To clarify the concept of plural dynamics, we have depicted
each plural dynamic in a figure. In these figures a solid line indicates the input of franchise
or company-owned pharmacies to the chain operator’s strategic objectives. A dashed line,
on the other hand, indicates the impact of this input on the franchise or company-owned
side of the chain organization.
4.2
Case study method
A case study is a research strategy which focuses on understanding the dynamics present
within single settings (Eisenhardt, 1989). In other words, a case study is based on a limited
number of “observations.” Therefore, the selection of cases does not represent a “sample”
in the statistical sense of the word.
4.2.1
Why a case study?
There are two reasons that led us to use a case study in this thesis. First, a case study
investigates a phenomenon within its real-life context (Yin, 2003). In this thesis it is
important to understand the contextual conditions as they influence the functioning of
plural chain organizations (i.e. the plural dynamics). Second, a case study can be used for
different purposes and therefore lends itself very well to our various research aims.
Notably, a case study can be used to test emerging theory (Eisenhardt, 1989). As described
in chapter 1, our aim is to investigate whether Bradach’s emerging theory on the benefits of
the plural form can be applied to the Dutch pharmacy sector. In addition, a case study can
be used to generate theory. In chapter 1 we have described that our aim is also to explore
whether the plural form offers any other benefits to the pharmacy sector. By conducting a
case study, we are able to gauge other variables that may be involved.
TITLE
TITLE
research
methodology and results: case study
4.2.2
4.2.2
52
43
52
Case study
study design
design
Case
In this
this thesis
thesis we
we adopted
adopted aa multiple-case
multiple-case design.
design. As
As objects
objects of
of the
the case
case study,
study, two
two
In
pharmacy
chains
were
selected
that
make
use
of
the
plural
form.
The
fact
that
we
studied
pharmacy chains were selected that make use of the plural form. The fact that we studied
two
two cases
cases enabled
enabled us
us to
to verify
verify the
the results
results of
of the
the first
first case
case with
with the
the results
results of
of the
the second
second one.
one.
Although
more
compelling
evidence
would
have
been
provided
with
further
Although more compelling evidence would have been provided with further cases,
cases, the
the
empirical setting
setting of
of this
this thesis,
thesis, the
the Dutch
Dutch pharmacy
pharmacy sector,
sector, did
did not
not enable
enable us
us to
to do
do so.
so. There
There
empirical
were simply
simply no
no additional
additional pharmacy
pharmacy chains
chains that
that had
had implemented
implemented the
the plural
plural form.
form.
were
The
The case
case study
study was
was conducted
conducted from
from early
early 2005
2005 to
to mid
mid 2006.
2006. Most
Most of
of the
the case
case study
study data
data
came
from
interviews
with
employees
from
the
two
pharmacy
chains’
head
quarters
came from interviews with employees from the two pharmacy chains’ head quarters (e.g.
(e.g.
managing directors,
directors, commercial
commercial directors,
directors, and
and field
field workers).
workers). Initially,
Initially, we
we contacted
contacted
managing
management level
level employees.
employees. In
In interviews
interviews with
with these
these employees,
employees, we
we asked
asked which
which of
of their
their
management
colleagues
would
also
have
relevant
information
to
the
case
study.
We
subsequently
colleagues would also have relevant information to the case study. We subsequently
contacted
contacted these
these colleagues.
colleagues. The
The interviews
interviews were
were semi-structured
semi-structured and
and mainly
mainly included
included
questions
regarding
the
strategic
objectives
of
pharmacy
chains,
the
way
in
questions regarding the strategic objectives of pharmacy chains, the way in which
which franchise
franchise
and company-owned
company-owned pharmacies
pharmacies are
are managed
managed and
and organized,
organized, the
the conduct
conduct of
of these
these
and
pharmacies, and
and the
the benefits
benefits of
of having
having both
both types
types of
of pharmacies.
pharmacies. Respondents
Respondents were
were
pharmacies,
stimulated
to
provide
concrete
examples
of
their
claims
during
all
interviews.
Interviews
stimulated to provide concrete examples of their claims during all interviews. Interviews
were
were also
also conducted
conducted with
with people
people who
who worked
worked at
at the
the head
head quarters
quarters of
of pharmacy
pharmacy chains
chains that
that
use
the
pure
form
rather
than
the
plural
form.
These
interviews
provided
use the pure form rather than the plural form. These interviews provided aa better
better
understanding of
of pharmacy
pharmacy chains
chains in
in general
general and
and of
of the
the pharmacy
pharmacy sector.
sector. In
In total,
total,
understanding
approximately 45
45 interviews
interviews were
were conducted
conducted each
each lasting
lasting between
between one
one and
and two-and-a-half
two-and-a-half
approximately
hours.
hours. With
With some
some of
of the
the interviewees,
interviewees, we
we conducted
conducted follow-up
follow-up interviews
interviews to
to ask
ask additional
additional
questions,
to
update
previously
gathered
information,
and
to
clarify
issues.
All
questions, to update previously gathered information, and to clarify issues. All interviews
interviews
were
were tape-recorded
tape-recorded and
and fully
fully transcribed.
transcribed. Subsequently,
Subsequently, the
the interview
interview transcripts
transcripts were
were
analyzed.
In
appendix
A
we
have
listed
the
people
who
were
interviewed.
analyzed. In appendix A we have listed the people who were interviewed.
The
The interview
interview data
data were
were enriched
enriched with
with data
data from
from two
two other
other sources.
sources. First,
First, data
data was
was gathered
gathered
through
observations.
We
joined
field
employees
on
their
visits
to
franchise
and
through observations. We joined field employees on their visits to franchise and companycompanyowned
owned pharmacies
pharmacies on
on several
several occasions.
occasions. These
These visits
visits enabled
enabled us
us to
to observe
observe the
the way
way in
in
which
field
employees
interact
with
pharmacists
in
franchise
and
company-owned
which field employees interact with pharmacists in franchise and company-owned
pharmacies. We
We could
could also
also ask
ask the
the pharmacists
pharmacists questions
questions during
during these
these visits.
visits. Second,
Second, we
we
pharmacies.
reviewed
various
documents
such
as
organization
charts,
franchise
contracts,
sector
studies,
reviewed various documents such as organization charts, franchise contracts, sector studies,
promotional
promotional materials,
materials, and
and minutes
minutes of
of pharmacist
pharmacist meetings.
meetings. Due
Due to
to the
the fact
fact that
that we
we used
used
three
different
data
sources
and
various
informants
in
the
case
study
(i.e.
triangulation),
three different data sources and various informants in the case study (i.e. triangulation), we
we
were
were able
able to
to ensure
ensure the
the validity
validity of
of our
our findings.
findings.
C
HAPTER
Cchapter
HAPTER 1
14
53
53
44
4.3
4.3
Dutch plural
plural pharmacy
pharmacy chains
chains
Dutch
As noted
noted earlier,
earlier, there
there are
are two
two pharmacy
pharmacy chains
chains in
in the
the Netherlands
Netherlands that
that have
have adopted
adopted the
the
As
30
30 and Escura Apotheek
plural
form.
These
chains
are
Kring-apotheek/Alliance
Apotheek
plural form. These chains are Kring-apotheek/Alliance Apotheek and Escura Apotheek
(formerly
(formerly Meditheek).
Meditheek). The
The two
two pharmacy
pharmacy chains
chains use
use different
different strategies
strategies with
with respect
respect to
to the
the
ownership
structure
of
their
company-owned
pharmacies.
Alliance
Apotheek
in
principle
ownership structure of their company-owned pharmacies. Alliance Apotheek in principle
maintains full
full ownership
ownership of
of the
the pharmacies
pharmacies it
it acquires.
acquires. Escura
Escura Apotheek,
Apotheek, on
on the
the other
other hand,
hand,
maintains
initially maintains
maintains full
full ownership
ownership but
but eventually
eventually intends
intends to
to sell
sell aa majority
majority share
share to
to its
its
initially
company
managers.
Once
it
acquires
a
pharmacy,
its
policy
is
to
hand
pharmacy
company managers. Once it acquires a pharmacy, its policy is to hand pharmacy
management
management to
to aa young
young pharmacist.
pharmacist. After
After approximately
approximately two
two years,
years, Escura
Escura Apotheek
Apotheek
enters
into
negotiations
with
the
young
pharmacist
concerning
independence.
enters into negotiations with the young pharmacist concerning independence. Escura
Escura
Apotheek then
then retains
retains about
about 25%
25% of
of the
the shares.
shares. Over
Over aa period
period of
of five
five years,
years, the
the pharmacist
pharmacist
Apotheek
is obliged
obliged to
to purchase
purchase the
the bulk
bulk of
of its
its assortment
assortment from
from Brocacef
Brocacef (the
(the affiliated
affiliated wholesaler).
wholesaler).
is
After
that
period
pharmacies
are
given
the
opportunity
to
purchase
the
remaining
After that period pharmacies are given the opportunity to purchase the remaining 25%
25% of
of
the
shares
from
Escura
Apotheek
and
to
become
100%
owners.
the shares from Escura Apotheek and to become 100% owners.
Alliance Apotheek
Apotheek is
is part
part of
of the
the retail
retail division
division of
of the
the wholesaler
wholesaler Alliance
Alliance Boots
Boots (UK).
(UK).
Alliance
Interpharm, the
the wholesaler
wholesaler from
from which
which Dutch
Dutch Alliance
Alliance pharmacies
pharmacies obtain
obtain their
their assortment,
assortment,
Interpharm,
is
is part
part of
of the
the wholesale
wholesale division
division of
of Alliance
Alliance Boots.
Boots. In
In the
the early
early 90s,
90s, Interpharm
Interpharm set
set up
up the
the
Kring-apotheek
formula.
This
formula
is
currently
a
private
company.
Alliance
Kring-apotheek formula. This formula is currently a private company. Alliance Boots
Boots
Netherlands
Netherlands has
has 51%
51% of
of the
the shares
shares in
in this
this company
company and
and the
the Dutch
Dutch United
United KringKringpharmacists (Verenigde
(Verenigde Kring-apothekers
Kring-apothekers Nederland,
Nederland, VKAN)
VKAN) holds
holds the
the remaining
remaining 49%.
49%.
pharmacists
The VKAN
VKAN is
is an
an association
association of
of independent
independent Kring
Kring pharmacists
pharmacists (i.e.
(i.e. franchisees)
franchisees) that
that looks
looks
The
after
after the
the interests
interests of
of these
these franchisees.
franchisees. Escura
Escura Apotheek
Apotheek (both
(both the
the franchise
franchise side
side and
and the
the
company-owned
side
of
the
chain
organization)
is
part
of
the
retail
division
company-owned side of the chain organization) is part of the retail division of
of the
the
wholesaler
wholesaler Phoenix
Phoenix (Germany).
(Germany). Company-owned
Company-owned pharmacies
pharmacies of
of Escura
Escura Apotheek
Apotheek purchase
purchase
their
assortment
from
the
Dutch
wholesaler
Brocacef.
This
wholesaler
has
their assortment from the Dutch wholesaler Brocacef. This wholesaler has set
set up
up the
the Escura
Escura
Apotheek formula
formula and
and is
is part
part of
of the
the wholesale
wholesale division
division of
of Phoenix.
Phoenix.
Apotheek
4.4
4.4
Unit
Unit growth
growth
As
As described
described in
in the
the introduction
introduction of
of this
this chapter,
chapter, one
one of
of the
the key
key strategic
strategic objectives
objectives of
of
pharmacy
chains
is
growth
in
the
number
of
pharmacy
outlets.
Unit
growth
pharmacy chains is growth in the number of pharmacy outlets. Unit growth in
in pharmacy
pharmacy
chains can
can come
come from
from two
two sources:
sources: adding
adding franchise
franchise outlets
outlets and
and adding
adding company-owned
company-owned
chains
outlets.
Adding
new
outlets
provides
a
number
of
advantages,
one
of
which
outlets. Adding new outlets provides a number of advantages, one of which is
is an
an increase
increase
in
chain
operator
revenues.
If
a
company-owned
pharmacy
is
added,
the
revenues
in chain operator revenues. If a company-owned pharmacy is added, the revenues and
and
30
30
Kring-apotheek
Kring-apotheek is
is the
the name
name of
of the
the franchise
franchise formula.
formula. Alliance
Alliance Apotheek
Apotheek (formerly
(formerly De
De Vier
Vier Vijzels)
Vijzels) is
is the
the
name that
that is
is used
used within
within the
the company
company for
for the
the company-owned
company-owned chain.
chain. All
All Alliance
Alliance pharmacies
pharmacies operate
operate with
with
name
regards
regards to
to the
the outside
outside world
world under
under the
the name
name Kring-apotheek.
Kring-apotheek.
TITLE
research
methodology and results: case study
45
54
profits generated by the pharmacy are directly accrued by the chain operator. Since the
profit margins of pharmacies are high (i.e. EBIT margins of 9%-10%), adding new
pharmacies is especially attractive to chain operators. Chain ownership of pharmacies can
increase these profit margins even further since centralized efforts of the chain can lead to
cost synergies Another important way in which adding company-owned pharmacies leads
to increased revenues (or at least to stabilized revenues) is by guaranteeing chain operators
(if these chain operators are pharmaceutical wholesalers) a market for their products. Since
company-owned pharmacies are obliged to purchase the bulk of their assortment from the
wholesaler with which their chain is affiliated (i.e. tied-in sales), ownership of pharmacies
is a means for these wholesalers to safeguard their sales. Franchise pharmacies are not
required to obtain their assortment from the affiliated wholesaler, but they often do so in
practice. This occurs because the formula organization often closes specific deals with the
wholesaler. For example, if franchisees agree to obtain the bulk of their assortment from the
wholesaler, they receive a guaranteed margin and thus no longer have to negotiate with
pharmaceutical wholesalers.
If a chain operator adds a franchise pharmacy, the revenues and profits of the pharmacy
accumulate to the franchisee rather than the chain operator. Operators of pharmacy chains
charge their franchisees a modest yearly fixed fee (sometimes following a lump sum). In
other sectors (e.g. the restaurant sector), chain operators often charge franchisees a sales
royalty. This is due to the fact that sales are likely to be related to the chain operator’s
efforts to develop a good formula (Dnes, 1993). One of the reasons why pharmacy chains
do not use sales royalties is that pharmacies’ sales are not directly related to their profits.
That is, a pharmacy’s sales may be large because its customer base consists of many people
who use expensive drugs (e.g. HIV medicines), while the margins that can be earned on
such drugs are likely to be low.
Next to a financial return, unit growth also produces some important indirect effects. An
important indirect effect is that chains that consist of a greater number of pharmacies have a
greater appeal to those pharmacists who have not yet joined a chain. Initially, it was very
difficult for operators of pharmacy chains to convince pharmacists to join them. That was
because joining a chain had a negative repute. Pharmacy had always been an independent
profession and this independence was valued highly by pharmacists. One pharmacist said:
“When I joined a franchise formula 12 years ago, I actually did not dare tell it to other
pharmacists. The prevailing opinion was that people that joined a formula were apparently
not able to run a pharmacy by themselves.” Now that more pharmacies have become part of
chain organizations 31 , chain operators can convince pharmacists more easily to join them.
The largest pharmacy chains grow the quickest. Another indirect effect of unit growth is
31
One of the reasons why pharmacists join a chain organization is that a lot of developments take place in the
external environment of pharmacies (e.g. health care reforms, new substitutes, and new competitors). In the
past the environment was more stable and pharmacists therefore saw no real need to join a chain.
Cchapter
HAPTER 1
4
55
46
that it leads to more power towards pharmaceutical manufacturers and health insurers.
Finally, as described by Bradach (1992), unit growth also produces an important indirect
effect in the form of leveraging the trademark to the benefit of new and existing units.
4.4.1
Constraints on unit growth
The process of adding new franchise and company-owned pharmacies is constrained by
different factors. Growth through company-owned pharmacies faces three different
constraints. First, the growth process is limited by a capital constraint. As described in
chapter 3, pharmacy chains usually acquire pharmacies rather than internally develop them.
Existing pharmacies generally have a very loyal customer base and it is therefore difficult
for newly opened pharmacies to gain new customers (except for pharmacies that are
established in AHOED’s or health care centers). The price that has to be paid to acquire a
pharmacy consists for the most part of goodwill. As this goodwill is very high, acquisition
involves a large financial investment for pharmacy chains.
Second, the growth process is also limited by an organizational resource constraint. Adding
company-owned pharmacies requires a large amount of organizational resources. For
example, due diligence research has to be carried out by the chain operator, contracts have
to be closed with pharmacy employees, pharmacies have to be transformed into formula
pharmacies, and management information systems have to be implemented. Once a new
pharmacy is acquired, the chain operator further has to dedicate organizational resources to
a host of other issues. A region manager of a pharmacy chain gave an example of such an
issue: “Buying a new pharmacy is not always a bed of roses. Pharmacy assistants are
sometimes not that happy with the acquisition as they feel taken over. They say that they
are sold. As a consequence, they do not always want to cooperate with us. This makes
supervising the newly acquired pharmacy quite a difficult and time-consuming process.”
Although it may be necessary to grow quickly in order to preempt competitive pharmacy
chains, fast growth is constrained by organizational resources. Fast growth combined with
limited organizational resources can cause a decrease in the quality of the acquisition
process. A region manager of a pharmacy chain shared this perspective: “If you ask me
personally whether I want to grow fast, I say no. Every time we acquire a new pharmacy I
wonder why we have taken on the job. If we need to act very fast, we start making mistakes
and people that work within a pharmacy simply cannot imagine that mistakes are also made
by us.”
Finally, the process of adding company-owned pharmacies is also constrained because the
number of pharmacies is more or less fixed and because the pool of pharmacies from which
can be drawn is shrinking. In 2006, there were approximately 1,800 pharmacies, of which
about 38% had already been sold to a chain organization. This percentage will continue to
increase. A considerable number of pharmacies are expected to remain independent though.
TITLE
research
methodology and results: case study
47
56
As described, pharmacy has been an independent profession for a long time and this
independence is often valued highly by pharmacists. Many pharmacists also fear that if they
sell their pharmacy to a chain they will have to give up too much of their autonomy and
will be forced to concentrate on efficiency. “Pharmacists worry that it is not about
providing pharmaceutical care anymore but about higher profits, fewer personnel, and a
higher substitution level,” said a managing director of a pharmacy chain. As most chain
organizations have not yet reached their desired scale, the competition among them is also
rather fierce. In case a pharmacist is willing to sell his pharmacy to a chain organization, he
may thus ultimately decide to sell it to a competing chain. “We have to wait and see
whether we are the ones that can buy it,” said the managing director of a chain
organization. Not all pharmacies that come on sale are further equally attractive to the chain
operator. For example, a pharmacy may not be attractive in terms of location. From the
interviews it appeared that pharmacy chains strive for national coverage. They all want to
control a substantial part of the market, which is considered to be about 150 to 250
pharmacies. As most pharmacy chains already own a substantial number of pharmacies,
they are currently pursuing a blind spot strategy. In addition, pharmacies may not be
attractive to pharmacy chains in terms of internal organization or relationships with local
stakeholders.
According to Bradach (1992), finding qualified franchisees is the key constraint on growth
through franchise outlets in the restaurant sector. Operators of pharmacy chains, however,
do not consider this much of a constraint. They are not very discerning in selecting
franchisees. Every pharmacist seems welcome. A manager of a pharmacy chain remarked:
“I would not really know what demands to make upon pharmacists. They have all followed
a six-year specialist study, which means that they have already proven their suitability with
respect to pharmaceutical care.” Growth through franchise pharmacies faces two
constraints. First, this type of growth is restricted by the fact that there are 1,800
pharmacies in the Netherlands, and that the number of potential candidates is decreasing.
Each chain operator is fishing in the same pond. As described above, many pharmacies
have been sold to chain organizations and this percentage will increase in the future.
Furthermore, many pharmacies are involved in some form of cooperation agreement (local
agreements, franchise formulas, partnerships, etc.). It is difficult and sometimes impossible
for chain operators to convince these pharmacies to join their franchise formula. Second,
there is intense competition among chain organizations for franchise pharmacies. There are
a number of formulas to choose from, and pharmacists may thus also opt for a competing
one.
Bradach (1992) describes how multi-unit franchising is a very important source of growth
for chain organizations in the restaurant sector. In the pharmacy sector, multi-unit
franchising is a much less common phenomenon. Some pharmacists own two or more
pharmacies but most own a single pharmacy. This is due to several reasons. First, until
1987, pharmacists were simply not allowed to own multiple pharmacies. Second,
Cchapter
HAPTER 1
4
57
48
pharmacists are generally not real entrepreneurs. Their education mainly fosters the
creation of pharmaceutical knowledge and not the creation of entrepreneurial spirit. Most
pharmacists consequently have no desire to expand their business. Business expansion
means less time for pharmaceutical care, and a pharmacist’s education is directed towards
providing this care. The fact that pharmacies enjoy high profit margins and that pharmacists
thus earn good wages from one pharmacy does not stimulate them either to acquire other
pharmacies. Third, young pharmacists who have faced the difficulties of generating enough
money to acquire one pharmacy, most often do not have the money to acquire a second one.
As noted earlier, substantial goodwill must be paid for a pharmacy. As the future earnings
of a pharmacy have become more uncertain due to various health care reforms, it has also
become more doubtful whether this goodwill can be recouped. Therefore, as described in
chapter 3, banks do not provide loans easily anymore. Also, older pharmacists who can
afford the acquisition of a second pharmacy are often not willing to risk losing money
through the goodwill payment.
4.4.2
Plural dynamics: Speeding up the unit growth process
As noted earlier, the competition among pharmacy chains for franchise and companyowned pharmacies is intense. Therefore, it is important for these chains to act quickly. The
plural form can help pharmacy chains in speeding up the unit growth process. This is due to
several reasons (see figure 4.1). First, there are simply two sources of growth rather than
just one: franchise and company-owned pharmacies.
Second, the plural form helps chain organizations to overcome some of the constraints on
unit growth through company-owned and franchise pharmacies. According to Bradach
(1992), the capital and organizational resource constraints that exist on adding companyowned outlets are (partly) overcome by the use of franchise outlets. These outlets require
practically no capital investments and considerably fewer organizational resources than
company-owned pharmacies. Still, pharmacy chains can also be confronted with an
organizational resource constraint in case of franchise pharmacies. The managing director
of a chain provided an example of such a constraint: “At a certain point in time, we
experienced fast growth. To run the franchise organization well, we did not have enough
employees and enough competent employees at head quarters. The employees had joined
the organization at a time in which a kind of “Club Med” feeling prevailed; everything is
fun and we are going to do fun things with pharmacists. They knew all franchisees
personally and were used to calling or talking to them regularly. This is possible with 50
franchisees but when your formula consists of 200 franchisees, different rules start to
apply.” As described in chapter 2, the ownership redirection theory assumes that capital
constraints are an important reason for chain operators to franchise their outlets in the early
stages of their lifecycle. This theory, however, neglects the fact that capital constraints also
cause chain operators to franchise in later stages.
TITLE
research
methodology and results: case study
49
58
In the pharmacy sector, the plural form also helps to overcome another constraint on
growth through company-owned outlets: finding pharmacists who are willing to sell their
pharmacy to a chain organization. As noted earlier, some pharmacists prefer to stay
independent. An increasing number of these pharmacists, however, want to join a
cooperation agreement as they consider the (future) situation too complex to continue
independent operation. By also having a franchise formula, a chain organization can attract
these pharmacists and thus still achieve unit growth. In addition, the plural form sometimes
provides a chain organization a better chance to win the competition for company-owned
pharmacies from other chains. In case franchisees of a plural chain decide to sell their
pharmacy, they are often more inclined to sell to the chain with which they are associated
than to another chain. That is because they are already familiar with this chain and some
things will remain the same. For example, the pharmacy will remain associated with the
same formula and it will continue to be visited by the same account manager.
Finally, the plural form helps to overcome the constraint caused by the increasing number
of pharmacies that are sold to chain organizations. This poses a serious problem in a pure
franchise chain. Unit growth is negatively affected as the pool of potential franchise
pharmacies is shrinking. In the case of a plural chain, on the other hand, the only
implication is that the source of growth shifts from franchise pharmacies to companyowned pharmacies. According to a manager of one of the two pharmacy chains, their main
concern is growth: “For us it is most important to have a substantial part of the market. It
does not really matter whether we grow through franchise or company-owned pharmacies.”
A plural chain thus enables faster growth than a pure franchise chain.
Figure 4.1 Unit growth: plural dynamics
ǿ
ǿǿ
ǿǿǿ
Chain
operator
Chain
operator
Chain
operator
Companyowned
pharmacies
Franchise
pharmacies
Using franchise pharmacies helps to
overcome three constraints on growth
through company-owned pharmacies:
• An organizational resource
constraint
• A capital constraint
• Pharmacists not willing to sell their
pharmacy
Companyowned
pharmacies
Franchise
pharmacies
Franchisees often have a greater
tendency to sell their pharmacy to
the chain with which they are
associated than to another chain.
Companyowned
pharmacies
Franchise
pharmacies
Using company-owned pharmacies
helps to overcome one constraint on
growth through franchise
pharmacies:
• A decreasing number of
independent pharmacies
59
59
C
CHAPTER
HAPTER 1
1
50
chapter
4.5
4.5
4
Local
Local responsiveness
responsiveness
Individual
Individual pharmacies
pharmacies operate
operate in
in diverse
diverse local
local markets.
markets. In
In each
each of
of these
these markets,
markets,
pharmacies
may
face
different
types
of
competitors,
such
as
an
Etos
or
DA
pharmacy
pharmacies may face different types of competitors, such as an Etos or DA pharmacy that
that
opens
opens nearby;
nearby; each
each pharmacy
pharmacy may
may face
face different
different types
types of
of customers,
customers, such
such as
as aa relatively
relatively
large
large number
number of
of young
young people
people that
that are
are served
served by
by aa pharmacy
pharmacy in
in aa Vinex
Vinex location;
location; and
and each
each
pharmacy may
may face
face different
different prescription
prescription policies
policies of
of physicians,
physicians, such
such as
as general
general
pharmacy
practitioners who
who often
often prescribe
prescribe homeopathic
homeopathic medicines.
medicines. Pharmacies
Pharmacies should
should conform
conform to
to
practitioners
these
conditions
as
well
as
possible
since
a
good
market
fit
will
result
in
a
better
these conditions as well as possible since a good market fit will result in a better
competitive
competitive position
position and
and increased
increased revenues.
revenues. Chain
Chain organizations
organizations therefore
therefore attach
attach great
great
importance
to
the
local
responsiveness
of
individual
pharmacies.
importance to the local responsiveness of individual pharmacies.
4.5.1
4.5.1
Pharmacies’
Pharmacies’ limited
limited local
local responsiveness
responsiveness
It
It appeared
appeared from
from the
the interviews
interviews that
that pharmacists
pharmacists are
are often
often of
of their
their own
own accord
accord not
not that
that
locally
responsive.
As
pharmacists
must
run
a
business,
a
certain
degree
of
locally responsive. As pharmacists must run a business, a certain degree of local
local
responsiveness
responsiveness is
is of
of course
course required
required from
from them.
them. They
They must,
must, for
for example,
example, purchase
purchase
medicines,
provide
prescriptions,
answer
clients’
questions,
and
set
prices
medicines, provide prescriptions, answer clients’ questions, and set prices for
for self
self care
care
products. Although
Although exceptions
exceptions exist,
exist, most
most pharmacists
products.
pharmacists do
do not
not seem
seem locally
locally responsive
responsive in
in aa
true
entrepreneurial
sense.
An
example
of
this
lack
of
local
responsiveness
was
provided
true entrepreneurial sense. An example of this lack of local responsiveness was provided by
by
aa manager
manager of
of aa pharmacy
pharmacy chain:
chain: “In
“In Den
Den Bosch
Bosch some
some of
of our
our pharmacies
pharmacies closed
closed at
at
lunchtime.
lunchtime. When
When II asked
asked the
the pharmacy
pharmacy employees
employees why,
why, they
they replied
replied that
that they
they also
also needed
needed
to
to eat
eat and
and that
that they
they simply
simply always
always closed
closed during
during lunchtime.”
lunchtime.” An
An oft-heard
oft-heard comment
comment during
during
the interviews
interviews was
was that
that pharmacists
pharmacists are
are on
on average
average short-term
short-term focused
focused and
and not
not really
really
the
proactive.
The
managing
director
of
a
pharmacy
chain
illustrated
this
limited
proactiveness:
proactive. The managing director of a pharmacy chain illustrated this limited proactiveness:
“A
“A pharmacy
pharmacy in
in Amsterdam
Amsterdam supplied
supplied aa nursing
nursing home.
home. At
At aa given
given moment,
moment, the
the pharmacist
pharmacist
received
a
letter
from
the
nursing
home
stating
that
it
would
be
supplied
received a letter from the nursing home stating that it would be supplied by
by an
an Internet
Internet
pharmacy
pharmacy instead.
instead. The
The pharmacist
pharmacist was
was baffled
baffled by
by this
this news.
news. He
He had
had not
not seen
seen it
it coming
coming as
as
he never
never had
had contact
contact with
with the
the board
board of
of the
the nursing
nursing home.”
home.” Rather
Rather than
than anticipating
anticipating
he
competitive
competitive threats,
threats, pharmacies
pharmacies take
take action
action only
only when
when these
these threats
threats become
become reality.
reality. An
An
example
of
this
reactive
behavior
was
provided
by
the
managing
director
example of this reactive behavior was provided by the managing director of
of another
another
pharmacy
pharmacy chain:
chain: “A
“A lot
lot of
of pharmacies
pharmacies are
are still
still closed
closed on
on Saturdays
Saturdays and
and during
during evenings.
evenings.
Etos
pharmacies
have
more
convenient
opening
hours.
In
those
cities
in
Etos pharmacies have more convenient opening hours. In those cities in which
which Etos
Etos has
has
opened pharmacies,
pharmacies, existing
existing pharmacies
pharmacies have
have also
also started
started to
to expand
expand their
their opening
opening hours.”
hours.”
opened
There
There are
are several
several explanations
explanations for
for the
the rather
rather limited
limited entrepreneurial
entrepreneurial spirit
spirit of
of pharmacists.
pharmacists.
First,
as
noted
earlier
in
this
chapter,
pharmacists
are
not
educated
in
a
way
First, as noted earlier in this chapter, pharmacists are not educated in a way that
that stimulates
stimulates
entrepreneurial
entrepreneurial thinking.
thinking. They
They are
are trained
trained as
as medicine
medicine specialists.
specialists. This
This was
was confirmed
confirmed by
by aa
region manager:
manager: “Pharmacy
“Pharmacy is
is not
not aa very
very creative
creative profession.
profession. Pharmacists
Pharmacists have
have been
been
region
educated
to
follow
protocols.”
During
their
study,
limited
attention
is
paid
to
subjects
educated to follow protocols.” During their study, limited attention is paid to subjects such
such
TITLE
research
methodology and results: case study
51
60
as marketing and management. Hence, pharmacists often lack the knowledge and
competency to generate certain local activities (e.g. local marketing activities).
Second, there has never been a real need for pharmacists to demonstrate entrepreneurship
towards customers. In contrast to other retailers such as supermarkets and drugstores,
pharmacists do not have to put much effort into attracting customers. Some villages only
have a single pharmacy, thus limiting options. However, even when alternatives exist, most
people simply visit the nearest pharmacy. Once registered, customers often patronize the
same pharmacy until moving. As described in chapter 3, one of the reasons for this is that
most people are simply not aware of their choices. This is likely to change in the future,
however. New parties (e.g. drugstore chains and health insurers) have entered the market
and these have started to bring this free choice to people’s attention. Because of their large
and loyal customer base, pharmacists often consider activities to maintain existing
customers and to attract new ones a waste of money. The managing director of a pharmacy
chain illustrated this through an example: “One of our franchisees has a communication
budget of €10,000. Other pharmacists consider this very strange. Whenever he mentions it,
they ask him why he throws his money away like that.”
As described in chapter 3, general practitioners are very important to pharmacies. They are
the decision-makers and not consumers. If pharmacies demonstrate local responsiveness,
this responsiveness therefore tends to focus on general practitioners. Building and
maintaining good relationships with general practitioners has become especially important
with the rise of AHOED’s and health care centers. To take part in such a setting, it is, as
noted earlier, important for pharmacies to be well informed of the future plans of general
practitioners and to be the pharmacy with which these practitioners prefer to cooperate. It
appeared from the interviews that some pharmacists are very active in keeping contacts
with general practitioners. Others are not as active and therefore less likely to be considered
for an AHOED or health care center.
Third, most pharmacists see themselves as care providers and not as entrepreneurs. An
account manager remarked: “For pharmacists entrepreneurship is equal to retailing and
retailing is a very dirty word. The moment you use the word retailing in a conversation with
a pharmacist, his hair stands on end.” Pharmacists associate retailing with commerce, and
this is believed not to go hand in hand with health care. In combination with the fact that
pharmacies do not have to actively attract customers, this has caused pharmacies to rarely
initiate typical retail activities such as advertising and sales promotion. These activities are
gradually becoming more commonplace, however. Chain organizations have a large impact
on this. They develop marketing actions (e.g. advertising campaigns) for their pharmacies
and continuously stress the importance of such actions. As a result, pharmacists are simply
getting more accustomed to these activities.
61
52
Cchapter
HAPTER 1
4
Finally, as described in chapter 3, running a pharmacy is a rather lucrative business. Even
without local responsiveness, pharmacies (still) earn high margins. Since pharmacists can
earn money relatively easily, they are often not very cost conscious. The managing director
of a chain provided an example of this: “The money that pharmacists spend on accountants
is absurd. They hire accountants for everything. They hire them for a bill that they do not
understand or for private matters. Spending €70,000 on accountants is not uncommon.
Because pharmacies’ sales keep going up, they simply consider it not to matter.”
4.5.2
Local responsiveness: Franchise pharmacies vs. company-owned pharmacies
Despite the fact that pharmacies are commonly not that locally responsive, franchise
pharmacies seem to be more sensitive to local conditions than company-owned pharmacies.
There are five reasons for this greater local sensitivity. First, the relationship between the
chain operator and franchise pharmacies is characterized by a lower level of centralization.
Franchise pharmacies simply have greater freedom to adapt to local circumstances. Local
responses are often formulated centrally for company-owned pharmacies. For example,
company-owned pharmacies are required to purchase secondary products such as office
supplies, energy, and cleaning services from centrally assigned suppliers. Franchise
pharmacies, on the other hand, are free to purchase such products from local suppliers.
Second, the level of formalization between the chain operator and franchise pharmacies is
lower. For example, managers of company-owned pharmacies must receive authorization to
proceed if the costs of a local initiative exceed a certain amount. As pharmacy chains have
a strong cost focus, funds available for such initiatives within company-owned pharmacies
are often limited. A pharmacist provided an example: “When I was independent, I
sometimes went out to dinner with the general practitioners in my village. Informal contact
strengthens these relationships. Since I have sold my pharmacy to a chain organization,
however, such things are over and done with.” In contrast with company managers,
franchisees control allocation of resources.
Third, franchisees have stronger financial incentives. Franchisees derive their rewards from
the income generated by their pharmacy, while company managers are mainly rewarded on
the basis of a fixed salary and a small variable bonus payment. Hence, franchisees have a
greater incentive to be locally responsive.
Fourth, the tenure of franchisees in their local market is generally rather long. Once
pharmacists acquire a pharmacy, they usually continue to run it for a long time. The tenure
of company managers, on the other hand, is often much shorter. Therefore, these
pharmacists are less familiar with their local markets. Although the objective of chains is to
limit pharmacist turnover, this is difficult to achieve in practice. The rate of turnover among
company managers is substantial, especially in the first year of employment. One reason for
TITLE
research
methodology and results: case study
53
62
this high turnover is that working for a company-owned pharmacy is not always what
pharmacists expect it to be. Once employed by a chain organization, pharmacists discover
that they have to meet many requirements, and that the chain operator has a cost oriented
approach. Therefore, they are quickly inclined to accept (seemingly better) job offers,
possibly by other chain organizations. Also, some pharmacists consider working for a
company-owned pharmacy simply a step to a future career at an independent pharmacy or a
pharmaceutical company.
Fifth, franchisees more often live in the area in which their pharmacy is located than
company managers. “There are an increasing number of company managers that choose to
drive 60 kilometers back and forth from their place of residence because they are not
willing to move,” said a region manager. Franchisees are therefore more likely to have
intimate knowledge of the situation in their area than company managers and to have closer
relationships with important local stakeholders (e.g. general practitioners and nursing
homes). Especially in villages, franchisees do not only have formal but also informal
contact with general practitioners. This informal contact can range from sports to Rotary
meetings.
It appeared from the interviews that chain operators do attach great importance to the local
responsiveness of their company-owned pharmacies. “Irrespective of whether a pharmacy
is owned by a franchisee or by us, local responsiveness is of utmost importance,” said a
managing director. The main reason for this is that the chain operator simply cannot
centralize all local responses for its company-owned pharmacies. Therefore, Alliance
Apotheek, for example, has recently started to put more emphasis on local responsiveness.
It provides company-owned pharmacies somewhat greater latitude in those areas in which
local responses cannot be centralized. “Our company managers are responsible for the
turnover of their pharmacy. They have to monitor the local environment, talk with
physicians, and undertake action when a competitor establishes itself nearby. If necessary,
we call in specialists to help them. Pharmacists have to pull the strings though,” said the
managing director of this chain.
4.5.3
Plural dynamics: Achieving higher levels of local responsiveness
Plural dynamics can increase the local responsiveness of chain organizations in three ways
(see figure 4.2). The first plural dynamic runs from the franchise side of the business to the
company-owned side. Chain organizations can benefit from the greater local
responsiveness of their franchisees by copying their local responses and implementing
these on a local, regional, or national level in company-owned outlets (Bradach and Eccles,
1989; Bradach, 1992; Dant, et al. 1992). As a consequence, the local responsiveness of
these company-owned outlets increases. During the interviews, some examples of local
initiatives copied from franchise pharmacies were provided. For instance, one pharmacy
63
54
Cchapter
HAPTER 1
4
chain copied a customer loyalty card from a franchise pharmacy. Ultimately, this card was
offered to all other pharmacies. Another example is an in-store concept that was developed
by a Kring franchisee. In designing its own in-store concept, Kring-apotheek/Alliance
Apotheek took the concept of this franchisee into account. Although Kringapotheek/Alliance Apotheek did not copy the concept of the franchisee exactly, it adopted
certain elements of it. Smaller examples also exist such as letters to patients drafted by
pharmacists (e.g. to invite people with a certain disease to the pharmacy). These letters are
sometimes copied by the chain operator and made available to other pharmacists. As
described earlier, pharmacies are generally not very locally responsive. Consequently, there
are also few local responses that can be copied from franchise pharmacies. At this moment
operators of pharmacy chains can thus benefit from this plural dynamic only to a certain
degree.
In practice it often appears that franchise pharmacies replicate local responses produced by
the chain operator. Two factors may explain this pattern of behavior. First, franchisees save
time by copying the chain operator’s local responses. Pharmacists often consider their
regular activities not to leave enough time for certain “extra” activities. “I am very happy
with the formula because it enables me to outsource a lot of things. Recently another
pharmacy has established itself nearby, which has caused me to lose a lot of customers. To
prevent losing more customers, I knew that I had to undertake action. Because it takes me
too much time to initiate local marketing activities, it is great that my formula organization
can help me with that,” remarked a franchisee. Furthermore, this allows pharmacists to
focus on providing pharmaceutical care. Second, as noted above, most pharmacists simply
do not have the competences to generate responses in all local areas.
In the future the local responsiveness of pharmacists is likely to increase though. Namely,
new competitors, new substitutes, and new health care reforms will force pharmacists to
display greater entrepreneurial spirit. Chain organizations further have a positive effect on
the local responsiveness of pharmacists, not only by developing local responses for them,
but also by teaching them how to generate certain local responses themselves. Stimulating
pharmacists to be locally responsive is essential. After all, pharmacists are the actual
operators and are the ones best equipped to identify the local responses most suitable for
their market.
The second plural dynamic also runs from the franchise side of the chain organization to
the company-owned side. As described by Bradach (1992), the fact that franchisees are
often free to choose whether or not to copy the local responses of the chain operator (e.g.
the local promotion package or back office services) adds market pressure. In order to get
franchise outlets to utilize the chain operator’s resources, the chain operator has to be
competitive with the market in terms of quality, service, and price. A manager of a
pharmacy chain provided an example of this contribution of franchise pharmacies: “We
obtain packing material from a sister company. If one of our franchisees purchases packing
TITLE
research
methodology and results: case study
55
64
material from another supplier for a lower price, we go with this price to our sister
company. Our franchisees keep us focused.” Such market pressure is absent in pure
company-owned chains. Hence, staff departments in these chains are likely to be more
bureaucratic and less responsive to the demands of individual pharmacies than staff
departments of plural form chains (Bradach, 1992).
The third plural dynamic runs in the opposite direction, from the company-owned to the
franchise side of the chain organization. In contrast with franchise pharmacies, companyowned pharmacies are usually not free to choose whether or not to adopt the local
responses of the chain operator. They are required to copy these responses and thus are
supposed to provide a stable base of demand. A stable base of demand results in economies
of scale. As described by Bradach (1992), chain operators can offer products and services
to franchise outlets for lower prices due to these economies of scale. Chain operators are
therefore in a better position to obtain the business of these outlets. It appeared from the
interviews, however, that price differences do not always influence where franchisees
obtain their products and services. In buying non-pharmaceutical products, many
franchisees choose to remain loyal to their local suppliers. An area manager explained why:
“Since pharmacists are local shopkeepers, they often grant their business to other local
shopkeepers. This is a way for them to keep good contacts with their local environment.” In
buying pharmaceutical products (e.g. medicines), price differences do play a greater role.
Larger price differences can be realized for these products and they cannot be obtained
locally. As explained below, company-owned pharmacies do not always obey the
requirement to adopt the local responses of their chain operator. At a given point in time,
not all of them may have adopted a certain local response. Nevertheless, company-owned
pharmacies usually provide a more stable base of demand than franchise pharmacies.
Because of this, greater economies of scale can be achieved than when pharmacy chains
consist only of franchise pharmacies.
Cchapter
HAPTER 1
4
65
56
Figure 4.2 Local responsiveness: plural dynamics
Companyowned
pharmacies
ǿ
ǿǿ
ǿǿǿ
Chain
operator
Chain
operator
Chain
operator
Franchise
pharmacies
By copying the local responses of
franchise pharmacies and
implementing these on a local,
regional, or national level, the local
responsiveness of company-owned
pharmacies increases.
Companyowned
pharmacies
In order not to lose franchise
pharmacies’ business to external
suppliers, the chain operator is forced
to be competitive in terms of price,
quality, and service.
Barrier:
Pharmacists are generally not that
locally responsive.
4.6
Franchise
pharmacies
Companyowned
pharmacies
Franchise
pharmacies
Company-owned pharmacies’ stable
base of demand enables the chain
operator to enjoy scale advantages
and thus to charge lower prices. This
makes the chain operator better
positioned to obtain franchisees’
business.
Barrier:
Price differences do not always
influence franchisees’ choice.
Creating uniformity
The third strategic objective of pharmacy chains is to create uniformity among pharmacies.
There are several reasons that uniformity is a key strategic objective. First of all, uniformity
enables chain organizations to achieve economies of scale. Uniformity with respect to
pharmacies’ assortment, for example, enables chains to increase their bargaining power
towards wholesalers and manufacturers. Another reason for the importance attached to
uniformity is that chain operators expect uniform pharmacies to attract more customers. As
mentioned earlier, people rarely switch pharmacies. Many people simply do not realize that
they are allowed to switch. Also, many perceive little differentiation to exist among
pharmacies. Their choice of pharmacy is usually based solely on proximity. In order to
change this, chain organizations have begun to communicate the added value of their
pharmacies to customers. The hope is that since their pharmacies operate under the same
trademark, one that provides people with the assurance of a consistent level of quality and
service, people will ultimately make a deliberate choice for one of their pharmacies
(Duijvis et al., 2007), even if it means traveling farther.
Chain organizations are currently still in the midst of creating more uniformity. Little
uniformity existed across pharmacies belonging to the same chain in the past. Franchise
formulas had a soft character and franchise pharmacies consequently had considerable
freedom with respect to essential management decisions. Chain operators did not use hard-
TITLE
research
methodology and results: case study
57
66
franchising as this would have discouraged pharmacists. As pharmacists were used to
operating alone, chain operators already had a hard time convincing pharmacists to join a
soft-franchising formula. Nowadays, joining a franchise formula has become more common
and the cooperation between chain operators and franchise pharmacies has become less
informal. Chain operators have drafted new contracts 32 , which impose more obligations on
their franchisees. Examples of territories covered by these contracts are education, quality
management, and the exterior of the pharmacy. The contracts do not (yet) cover all
territories of pharmacy management. For example, no rules and regulations exist with
respect to purchasing and pharmaceutical working-methods (e.g. pharmacy routing and
own preparations).
Similar to franchise pharmacies, company-owned pharmacies also had a large degree of
freedom in the past. The focus of most chain operators was not so much on creating
uniformity among company-owned pharmacies but on fast unit growth and on controlling
the problems that attended this growth. Now that pharmacy chains have reached a
considerable scale and have settled their internal organization, more attention is being paid
to creating uniformity. A region manager described this change: “Initially, our company
managers were supposed to manage their pharmacies themselves. As long as the results
were fine, nobody cared. Nowadays, however, company managers receive a large pack of
instructions that describes everything they have to do.” In order to raise efficiency, chain
operators have started to extract an increasing number of back office activities from
company-owned pharmacies and to organize these on a central level. Examples of back
office activities for which rules and regulations are drawn up are salary and financial
administration, purchasing, contract negotiations with health insurers, personnel
management, and own preparations.
The fact that pharmacy chains strive for uniformity and local responsiveness at the same
time can lead to difficulties in practice. Pharmacies sometimes deviate from a uniform
standard in order to better meet local demands. Finding the right balance between
uniformity and local responsiveness is one of the most difficult management issues faced
by chain operators (Bradach, 1992; Kaufmann and Eroglu, 1998). Chain operators face a
constant trade-off between the large-scale economies derived from system standardization
and the small-scale economies derived from local market adaptation.
As described in the introduction of this chapter, we conceptualize the process of creating
uniformity to be composed of four different stages: (1) generating ideas, (2) testing and
evaluating ideas, (3) decision-making, and (4) implementation. In each of these stages, the
32
The duration of franchise contracts used by pharmacy chains is relatively flexible. For example, although the
franchise contract used by Kring-apotheek is for an indefinite time period, franchisees only have a three
months term of notice. In contrast, the duration of franchise contracts used by operators of restaurant chains is
between 15 to 20 years without a term of notice (Bradach, 1992).
Cchapter
HAPTER 1
4
67
58
plural form can lead to certain dynamics, which positively affect the uniformity creating
process.
4.6.1
Generating ideas
Pharmacists help the chain operator in generating ideas for new uniform standards by
proposing actions for their local pharmacies. As noted earlier, chain operators sometimes
copy these actions and implement them on a system wide scale. As described, an example
of this is the customer loyalty card that was developed by a franchisee and then
implemented by the chain operator on a national level. Another example is the idea for a
private label. This idea was generated by a number of pharmacists, developed by the chain
operator, and then offered to other pharmacies. Due to the greater local responsiveness of
franchise pharmacies, ideas for new standards more often come from these pharmacies than
from company-owned pharmacies. As described, the fact that company-owned pharmacies
do not have as much local freedom as franchise pharmacies is one of the most important
reasons for these pharmacies to be less locally responsive and thus to generate fewer ideas.
An account manager remarked: “Pharmacists that start working for a company-owned
pharmacy do have some ideas. However, as they have to obey a lot of rules, their spirit with
respect to generating ideas often breaks down after a while. There simply is not that much
room for creative thinking anymore.” Another reason why franchisees more often generate
ideas for new uniform standards than company managers is that their relationship with the
chain operator is characterized by a higher level of participation. Franchisees more often
have the feeling that their ideas are welcome and appreciated. Because of this, franchisees
have a greater tendency to share ideas with the chain operator.
Chain operators collect ideas from pharmacists in different ways. For example, ideas are
gathered through formula managers and region managers. Due to their regular visits to
pharmacies, these managers are well informed as to the local responses and ideas of these
pharmacies. Ideas are also gathered through regular regional meetings among people of
headquarters, franchisees, and company managers. These regional meetings are both a
venue for the chain operator to accumulate ideas from pharmacists and to convey
information regarding the chain organization. From the interviews it further appeared that
regional meetings are a way to create a “club-feeling” among pharmacists. A manager
explained the importance of such a feeling: “A club-feeling is necessary to create
uniformity.” If pharmacists feel part of the same group, they are more likely to adopt the
uniform elements that characterize that group. By organizing meetings for both franchisees
and company managers, chain operators try to create more interaction among these
pharmacists. Interaction is considered important as it often leads to an exchange of
experiences and ideas between franchisees and company managers, as well as a better
understanding of one another. This may also positively affect uniformity as will be
explained later.
TITLE
research
methodology and results: case study
59
68
Although pharmacists do generate ideas for new uniform standards, from the interviews it
appeared that many ideas originate from the chain operator. This idea generation is
certainly part of the benefits offered to franchisees. The chain operator complements
franchisees by generating ideas in areas in which pharmacists are less knowledgeable such
as marketing. Ideas of the chain operator also differ from those of pharmacists in that the
chain operator’s ideas are of a more strategic nature. A managing director confirmed this
difference: “The ideas that pharmacists generate are usually locally inclined and focused on
the short term. Their ideas are relevant for their pharmacy at that specific moment. Our
ideas, on the other hand, are more far-reaching.”
4.6.2
Plural dynamics: Generating more ideas and more varied ideas
According to Bradach (1992), chains that have adopted the plural form generate more ideas
since these ideas come from two sources rather than one: the chain operator and
franchisees. Due to their greater local responsiveness and higher level of participation,
franchise pharmacies are, as described, a greater source of ideas than company-owned
pharmacies. The expectation is therefore that chain organizations that consist (also) of
franchise pharmacies generate more ideas than chain organizations that only consist of
company-owned pharmacies. Bradach (1992) explains that franchisees also affect the
generation of new ideas by applying pressure on the chain operator to develop new
products and services. It indeed appeared from the interviews that in the pharmacy sector
franchisees more often ask the chain operator to generate new products and services than
company managers. “Franchisees ask absolutely more than company managers,” said the
managing director of a pharmacy chain. Next to the fact that franchisees financially benefit
from new products and services, asking for these products and services is also convenient.
“Often, franchisees consider developing new things troublesome and ask us to do it for
them,” said a managing director. This demand for new products and services keeps
operators of pharmacy chains focused and leads to the generation of a greater number of
ideas.
The presence of company-owned pharmacies also appeared to contribute to the generation
of ideas. One of the main objectives of chain operators is to organize their company-owned
pharmacies as efficiently as possible. Consequently, chain operators are constantly
searching for ways in which to enhance this efficiency. Franchise pharmacies are often
organized far less efficiently than company-owned pharmacies. In order to combat this,
chain operators have started to offer some of the efficiency-enhancing tools used by
company-owned pharmacies to franchise pharmacies. A managing director provided an
example of a tool that will be offered to franchise pharmacies: “We have developed a
software model that determines pharmacies’ performance on a number of indicators. Every
month company managers receive feedback on how their pharmacy performs in
comparison to others. In case they are not doing well, the model exactly shows them what
Cchapter
HAPTER 1
4
69
60
is going wrong.” Efficiency has a lower priority in pure franchise chains, and ideas for such
tools are therefore less likely to be generated in these chains.
Figure 4.3 Generating ideas: plural dynamics
Companyowned
pharmacies
ǿ
ǿǿ
ǿǿǿ
Chain
operator
Chain
operator
Chain
operator
Franchise
pharmacies
Franchise pharmacies are more
locally responsive than companyowned pharmacies, and they are
therefore a richer source of ideas
for uniform standards.
4.6.3
Companyowned
pharmacies
Franchise
pharmacies
Franchisees have a positive influence
on the number of ideas being
generated as they regularly ask the
chain operator to come up with new
products and services.
Companyowned
pharmacies
Franchise
pharmacies
Due to company-owned pharmacies,
more ideas are generated regarding
the improvement of pharmacy
efficiency.
Testing and evaluating ideas
Before new ideas are implemented on a system-wide scale, the chain operator often tests
these ideas in one or a few pharmacies. During the interviews three reasons were provided
for using company-owned pharmacies as test sites rather than franchise pharmacies. First,
as also described by Bradach (1992), automated management information systems (MIS) in
company-owned outlets allow the chain operator to analyze the results of new ideas more
thoroughly. For example, the effect of a new routing system on the productivity of
pharmacy assistants can be determined through MIS. Franchise pharmacies are not
integrated in these MIS. Generally, little detailed operating data flows between franchise
pharmacies and the chain operator. This is due in part to the fact that most franchisees
cannot retrieve this information from their information systems. In contrast with company
managers, franchisees often simply do not know how to find this information. According to
the managing director of a pharmacy chain, this is because franchisees are simply not
interested in this data. If franchisees are able to retrieve operating data, they generally do
not want to share this with the chain operator as they consider their economics to be “none
of the chain operator’s business.” Second, company managers receive a fixed salary and do
not bear the costs of a (failed) test themselves. Franchise pharmacies do and therefore it can
be more difficult to initiate a test in these pharmacies. Third, because of the greater level of
centralization in company-owned pharmacies, using these pharmacies as test sites provides
more flexibility. A managing director provided an example of this: “If we find out that
something does not work in a company-owned pharmacy after a month, it is easy for us to
call the pilot off. To a franchisee, however, you cannot do that.”
TITLE
research
methodology and results: case study
61
70
According to Bradach (1992), franchisees rarely participate in the testing process in the
restaurant sector. In the pharmacy sector, however, it appeared that new ideas are often also
tested in franchise pharmacies despite the above reasons. As described, it can be more
difficult for operators of pharmacy chains to test ideas in franchise pharmacies since
franchisees carry the cost of failed tests themselves. However, if franchisees have a good
feeling about the new idea, they are usually willing to incur the associated risks and directly
implement the idea. From the interviews it appeared that chain operators actually prefer to
test new ideas in both company-owned and franchise pharmacies. This way, it becomes
easier for them to create support for the idea among other company managers and
franchisees during the decision-making and implementation phase.
Both franchisees and company managers play a role in the evaluation process of new ideas.
If the chain operator develops a new idea, this idea is often put to a soundboard group first.
Soundboard groups consist of a combination of franchisees and company managers. The
task of the soundboard group is to critically evaluate the idea. In addition, the soundboard
group has to identify resistance to the idea among other pharmacists, and it has to create
support for the idea. Preferably, those pharmacists therefore take part in soundboard groups
that have a lot of influence in their region. Based on the comments of the soundboard
group, the chain operator further refines the idea.
4.6.4
Plural dynamics: A more thorough testing process
As described above, both franchise and company-owned pharmacies sometimes serve as
test sites for the chain operator. When a pharmacy chain adopts the plural form rather than
a pure form, there is a greater chance that pharmacies are available for the testing of new
ideas. If no franchisee is willing to volunteer, company-owned pharmacies can be used as
test sites. In addition, as described by Bradach (1992), the quality of the testing process is
likely to increase. That is, MIS in company-owned pharmacies provide data which enable
detailed analyses of proposed ideas. This data would not be available when the chain
consists only of franchise pharmacies.
Cchapter
HAPTER 1
4
71
62
Companyowned
pharmacies
ǿǿ
Chain
operator
Chain
operator
Franchise
pharmacies
By using both franchise pharmacies
and company-owned pharmacies,
there is a greater chance that there are
pharmacies that can be used as test
sites.
4.6.5
Companyowned
pharmacies
63
72
vice president of a restaurant chain who confirmed this: “We essentially have a military
organization in company-owned outlets. We tell them and they do it.” There are five factors
that explain the noncompliant behavior of pharmacists.
Figure 4.4 Testing ideas: plural dynamics
ǿ
TITLE
research
methodology and results: case study
Franchise
pharmacies
MIS in company-owned pharmacies
provide data which enable detailed
analyses of proposed products and
services.
Decision-making
In franchise pharmacies decisions are mainly made in a decentralized way. Especially in the
past when franchise formulas had a soft character, franchisees exercised great autonomy in
decision-making. Chain operators were forced to persuade franchisees to implement an
offering. By providing good arguments, chain operators tried to convince franchisees of the
offering’s added value. As noted earlier, franchise formulas do not have such a soft
character anymore. Franchisees now face more contractual obligations. Persuasion,
however, still plays a very important role. When chain operators require their franchisees to
do something without convincing them of the benefits, it simply does not always happen.
Persuasion is especially important since many pharmacists fear that they will lose too much
independence by conforming to the franchise formula.
In company-owned pharmacies, on the other hand, decision-making is mainly centralized.
Chain operators have adopted a hierarchical structure in which company managers report to
region managers who in turn report to the director of operations. These superiors and not
the pharmacists decide whether to implement a certain course of action. Pharmacists are
required to follow their lead instantly. Despite this top down approach, it appears that
company managers do not always follow the directions of their superiors in practice. In
case they have to implement something new, they sometimes apply so-called “delaying
techniques.” Every month they say they will implement the course of action next month. Or
they implement the new idea in a very limited manner. “It is a constant struggle to get our
company managers on board,” said a region manager. This seems in contrast to the
behavior of managers of company-owned restaurants. According to Bradach (1992), the
response of these managers is consistent with the source of influence that is exercised by
the chain operator, that is to say, company managers comply. Bradach cites an executive
First, pharmacists are professionals. They all have a university degree and therefore
frequently challenge the decision-making authority of their superiors. “Pharmacists always
think they know it better,” said a manager of a pharmacy chain. Bradach (1992; p.153), on
the other hand, explains that managers of company-owned restaurants are usually (just)
high school graduates. Pharmacists who continue to manage their pharmacy after they have
sold it to the chain operator especially seem pig-headed. As they are used to operating
independently, they often do not accept their superiors’ authority easily.
Second, company managers can afford to behave in a noncompliant way as a pharmacist
shortage exists. If their behavior is not tolerated by the chain operator, they can easily find a
job at another chain organization. Since finding replacements is relatively difficult for chain
organizations, this disproportionately increases pharmacists’ power.
Third, compliant behavior is only rewarded by chain operators to a limited extent. As noted
earlier, the compensation of company managers is comprised of a fixed salary plus a small
bonus component. The bonus is approximately 5-10% of the pharmacist’s net salary and is
based on operational and financial targets. As the bonus is small, there are no significant
financial incentives to achieve good results. Increasing the bonus without changing its setup
may give pharmacists too much of an incentive to maximize their results though. This may
lead to a compromise of uniformity in other areas (e.g. customer service). Bradach (1992)
describes that operators of restaurant chains often use promotion as a main reward. If
managers of company-owned restaurants perform well and comply with the standards, they
are promoted to higher hierarchical positions at head quarters. In the case of pharmacists,
vertical promotions are only effective to a limited degree. That is, the goal of many
pharmacists is only to be promoted from second pharmacist to managing pharmacist. They
do not aspire to a position at headquarters. After all, they studied pharmacy. A region
manager illustrated the unpopularity of working at head quarters: “This year we recruited
multiple region managers. In the first instance, our goal was to let company managers fulfill
some of these vacancies. None of our company managers responded, however.” Horizontal
promotions are more effective than vertical promotions to reward pharmacists. Company
managers are sometimes promoted from small to large pharmacies. However, this is not
always possible as both pharmacy chains do not have national coverage. In Groningen, for
example, the chain operator may only have a small number of pharmacies. If a Groningenbased pharmacist is promoted to a larger pharmacy, this pharmacy is likely to be located
within another province. Not all pharmacists are willing to make such a move. Company
managers of Alliance Apotheek are sometimes horizontally promoted to a franchise
pharmacy (an advantage of the plural form). Company managers, who are believed to
possess entrepreneurial spirit, are sometimes offered the possibility to purchase a majority
73
64
Cchapter
HAPTER 1
4
share in an independent pharmacy and to become a franchisee. Up until this moment, this
has happened infrequently and in a somewhat unstructured way. In the future it is expected
to occur more often. By offering this possibility, Alliance Apotheek is able to reward those
pharmacists who demonstrate compliant behavior. It can not use this reward system for all
company managers, however. That is, not every pharmacist wants to own a pharmacy. An
increasing number of pharmacists are women nowadays. Women more often than men
prefer to be on the pay-roll as this allows them to work part time.
74
65
74
TITLE
TITLE
research
methodology and results: case study
4.6.6
4.6.6
Plural
Plural dynamics:
dynamics: Persuading
Persuading franchisees
franchisees and
and pre-decision
pre-decision learning
learning
Fifth, it appeared from the interviews that company managers often feel as if they do not
have enough time to conform to all requirements of the chain operator. In addition to their
regular activities of processing prescriptions, they are obliged to carry out many other
activities (monthly reporting, FPZ projects, etc.). As pharmacy chains want to save on
personnel costs, these activities also often have to be carried out with fewer pharmacy
assistants. Company managers do not always consider it easy to make time for these
“extra” activities.
Bradach
Bradach (1992)
(1992) describes
describes that
that each
each arrangement
arrangement has
has an
an effect
effect on
on the
the functioning
functioning of
of the
the
other
arrangement
in
the
decision-making
phase
(see
figure
4.5).
The
first
plural
dynamic
other arrangement in the decision-making phase (see figure 4.5). The first plural dynamic
runs
runs from
from the
the company-owned
company-owned side
side of
of the
the chain
chain organization
organization to
to the
the franchise
franchise side.
side. Chain
Chain
operators
can
persuade
franchisees
more
easily
to
adopt
a
new
idea
by
implementing
operators can persuade franchisees more easily to adopt a new idea by implementing it
it in
in
their own
own outlets.
outlets. This
This way,
way, chain
chain operators
operators signal
signal their
their commitment
commitment to
their
to the
the new
new idea,
idea,
which convinces
convinces franchisees
franchisees that
that it
it is
is aa good
good idea.
idea. Consequently,
Consequently, franchisees
franchisees implement
implement
which
new
ideas
more
quickly.
The
existence
of
this
plural
dynamic
was
not
really
confirmed
new ideas more quickly. The existence of this plural dynamic was not really confirmed by
by
our
our interviewees,
interviewees, however.
however. They
They claimed
claimed that
that aa positive
positive effect
effect runs
runs from
from franchise
franchise
pharmacies
pharmacies to
to franchise
franchise pharmacies
pharmacies but
but not
not necessarily
necessarily from
from company-owned
company-owned pharmacies
pharmacies
to franchise
franchise pharmacies.
pharmacies. That
That is,
is, it
it is
is easier
easier to
to persuade
persuade franchisees
franchisees to
to adopt
adopt aa new
new idea
idea
to
when it
it has
has also
also been
been adopted
adopted by
by other
other franchisees.
franchisees. “If
“If only
only two
two franchisees
franchisees have
have
when
implemented
implemented aa new
new idea,
idea, other
other franchisees
franchisees are
are more
more likely
likely to
to come
come across
across as
as well.
well. On
On the
the
other
hand,
if
the
idea
is
adopted
by
all
company-owned
pharmacies,
you
still
do
not
other hand, if the idea is adopted by all company-owned pharmacies, you still do not know
know
whether
whether franchisees
franchisees will
will adopt
adopt it
it too,”
too,” said
said aa manager
manager of
of aa pharmacy
pharmacy chain.
chain. A
A reason
reason for
for
this is
is that
that franchisees
franchisees often
often have
have aa somewhat
somewhat negative
negative bias
bias towards
towards the
the company-owned
company-owned
this
side of
of the
the chain
chain organization.
organization. They
They believe
believe that
that company-owned
company-owned pharmacies
pharmacies are
are mainly
mainly
side
focused
on
sales
and
costs
and
not,
like
independent
pharmacies,
on
pharmaceutical
focused on sales and costs and not, like independent pharmacies, on pharmaceutical care.
care.
Therefore,
Therefore, they
they do
do not
not automatically
automatically consider
consider ideas
ideas implemented
implemented in
in company-owned
company-owned
pharmacies
pharmacies to
to be
be of
of interest
interest to
to them.
them.
In summary, it is thus not a matter of simply laying obligations on company managers. To
create full commitment, these managers must first understand the meaning of a new idea.
Similar to franchisees, company managers thus also have to be persuaded. “All pharmacy
chains have come to the realization that just charging company managers with something is
not effective. If you keep pushing, you will simply run your head against a wall,” said a
business development director. Bradach (1992), on the other hand, describes that in the
restaurant sector franchisees are the only ones who must be persuaded. He refers to an
industry adage that he often heard during his interviews with restaurant chains: “You can
tell company people, but you have to sell franchisees.” The fact that company managers
have to be persuaded in the pharmacy sector explains why chain operators involve
company managers in soundboard groups. These pharmacists have to create support for
new ideas among other company managers. A difference between franchisees and company
managers is that the latter can be more easily persuaded. After all, company managers do
not carry the costs of implementations themselves. A manager confirmed this: “As the
chain operator takes responsibility for the consequences, company managers have a greater
tendency to implement ideas. They often say that they will see how it works out.”
The
The second
second plural
plural dynamic
dynamic in
in the
the decision-making
decision-making stage
stage runs
runs the
the other
other way:
way: from
from the
the
franchise
side
of
the
chain
to
the
company-owned
side.
Franchisees
provide
reality
checks
franchise side of the chain to the company-owned side. Franchisees provide reality checks
on
on decisions
decisions (Bradach,
(Bradach, 1992;
1992; Lafontaine
Lafontaine and
and Kaufmann,
Kaufmann, 1994).
1994). In
In contrast
contrast to
to company
company
managers,
franchisees
challenge
the
assumptions
and
business
logic
of
decisions
managers, franchisees challenge the assumptions and business logic of decisions proposed
proposed
by the
the chain
chain operator.
operator. This
This feedback
feedback by
by franchisees
franchisees provides
provides new
by
new insights
insights to
to the
the chain
chain
operator, which
which in
in turn
turn allows
allows the
the chain
chain operator
operator to
to make
make more
more sound
sound decisions.
decisions. It
operator,
It indeed
indeed
appeared
appeared from
from the
the interviews
interviews that
that in
in the
the pharmacy
pharmacy sector
sector franchisees
franchisees are
are more
more assertive
assertive and
and
more
critical
of
new
ideas
proposed
by
the
chain
operator
than
company
managers.
more critical of new ideas proposed by the chain operator than company managers. A
A
managing
managing director
director provided
provided an
an example
example of
of franchisee
franchisee feedback
feedback that
that had
had helped
helped his
his chain
chain to
to
make aa better
better decision:
decision: “Last
“Last year
year we
we decided
decided to
to open
open up
up our
our formula
formula to
to dispensing
dispensing
make
doctors. This,
This, however,
however, encountered
encountered large
large opposition
opposition from
from our
our franchisees
franchisees and
and ultimately
ultimately
doctors.
we
made
the
decision
not
to
go
through
with
it.
Although
I
still
think
it
is
a
good
we made the decision not to go through with it. Although I still think it is a good idea,
idea, it
it
probably
would
have
caused
a
lot
of
drama
within
the
group
of
franchisees.
Apparently,
probably would have caused a lot of drama within the group of franchisees. Apparently, we
we
have
have to
to wait
wait aa little
little longer.”
longer.” The
The fact
fact that
that franchisees
franchisees are
are critical
critical of
of new
new ideas
ideas also
also forces
forces
the chain
chain operator
operator to
to articulate
articulate fully
fully the
the rationale
rationale behind
behind these
these ideas.
ideas. This
This makes
makes the
the testing
testing
the
and evaluation
evaluation stage
stage more
more thorough
thorough (Bradach,
(Bradach, 1992).
1992).
and
Fourth, company managers did not have many obligations in the past. Therefore, they have
become accustomed to a considerable degree of local freedom. Directives restricting this
freedom are logically met with resistance. Pharmacists who have joined a company-owned
chain recently seem to accept obligations more easily as they have only experienced current
conditions.
There
There are
are
managers.
managers.
three
three
First,
First,
reasons
reasons why
why franchisees
franchisees
franchisees
franchisees face
face aa higher
higher
are
are more
more motivated
motivated
level
level of
of participation
participation
to
to
in
in
speak
speak than
than company
company
decision-making
decision-making than
than
Cchapter
HAPTER 1
4
75
66
company managers. Franchisees more often have the feeling, as noted earlier, that they are
being listened to and that they can exert influence on decisions.
Second, although company managers do not always implement new ideas right away, they
are aware of their position as employees. They realize that not they but the chain operator
ultimately makes the decisions. Therefore, they often have the feeling that their opinion
does not matter anyway. Rather than challenging decisions openly, company managers
demonstrate a sort of passive resistance. “They often grumble about decisions but they do
not always communicate this to their superiors,” said a manager of a pharmacy chain.
Third, because of their high-powered incentives, franchisees are more directly influenced
by the outcomes of decisions than company managers. Decisions can directly affect the
economics of their pharmacies. “The only question that franchisees ask us is what is in it
for them. We have to answer that question over and over,” said an account manager. In
addition, franchisees pay the franchise fee themselves, while company managers do not. A
manager of a pharmacy chain remarked: “Franchisees want to make sure that their money is
well spent.”
Figure 4.5 Decision-making: plural dynamics
Companyowned
pharmacies
ǿ
ǿǿ
Chain
operator
Chain
operator
Franchise
pharmacies
By implementing new products and
services in company-owned
pharmacies, the chain operator
demonstrates commitment to these
products and services, which makes it
easier to persuade franchisees.
Barrier:
Franchisees sometimes have a
negative bias towards the companyowned side of the chain organization.
4.6.7
Companyowned
pharmacies
TITLE
research
methodology and results: case study
franchisees and company managers who have been involved in soundboard groups to
persuade their peers. As noted earlier, these pharmacists are expected to create support for
new ideas. During regional meetings, for example, franchisees and company managers are
sometimes deployed as ambassadors. The reason for using pharmacists in the persuasion
process is that other pharmacists more easily seem to accept something from them than
from the chain operator. Pharmacists are considered to be more objective.
As noted earlier, although decisions made by chain operators regarding the implementation
of new ideas in company-owned pharmacies are non-negotiable in essence, sometimes
company managers do not implement ideas right away or put little effort into the
implementation process. This puts region managers of company-owned chains in difficult
positions. On the one hand, region managers are instructed to rapidly implement new ideas
in company-owned pharmacies. On the other hand, they must not antagonize pharmacists
by just imposing something on them. Region managers have to find the right balance
between these two. A manager of a pharmacy chain agreed on the difficult position of
region managers: “I do not envy region managers at all. I think they have one of the most
frustrating positions within the organization.”
4.6.8
Franchise
pharmacies
Franchisees are more critical of
proposed products and services. Their
feedback enables the chain operator to
make better decisions.
Implementation
As in the previous phase, chain operators also have to persuade franchisees (and sometimes
also company managers) to implement new ideas in this phase. Chain operators often use
67
76
Plural dynamics: Persuading franchisees and post-decision learning
The plural dynamics in this stage are mainly an extension of the dynamics in the decisionmaking stage. Three plural dynamics can be distinguished in the implementation stage (see
figure 4.6). The first effect runs from the company-owned side of the chain organization to
the franchise side. Bradach (1992) explains that operators of restaurant chains use the
implementation of new ideas in company-owned outlets to demonstrate the economic and
operational viability of these ideas to franchisees. They may do this through data acquired
from MIS or customer satisfaction research. If the viability of new ideas can be
demonstrated, it becomes easier to persuade franchisees. The existence of this effect was
partly confirmed by the interviewees. A manager of a pharmacy chain remarked: “If a new
idea is successfully implemented in company-owned pharmacies, it gives franchisees more
certainty that it will also be a success in their pharmacy. Uncertainty about the effect of a
new idea is often the main reason for them not to adopt it.” It, however, also appeared from
the interviews that franchisees’ somewhat negative bias towards the company-owned side
of the organization plays a role in this phase. Because of the fact that franchisees perceive
their focus to be different than that of the company-owned side, they believe that new ideas
which are implemented in company-owned pharmacies are sometimes only useful for these
pharmacies, even if the viability of these ideas can be demonstrated.
In the pharmacy sector, the implementation of new ideas in company-owned pharmacies
does not just have an effect on the adoption of these ideas by franchise pharmacies through
the chain operator but also through peer-to-peer contact. Since pharmacists have all
77
68
Cchapter
HAPTER 1
4
followed the same course of education, most consider each other colleagues. If a franchisee
finds out from a company manager that a certain idea is useful, he sometimes adopts it
more quickly. An example of this was provided during the interviews by a director of a
pharmacy chain. “As we attach considerable importance to retailing within our companyowned pharmacies, company managers are used to retail related activities such as category
management. For most franchisees, on the other hand, category management is something
completely new and they are hesitant towards it. If company managers explain the
relevance of it, this reduces franchisees’ hesitancy.” This usually has more impact than
when the chain operator does the same. As noted earlier, other pharmacists are seen as
more objective. Limited peer-to-peer contact currently exists between franchisees and
company managers, however. Chain operators realize the importance of this contact and try
to stimulate it through regional meetings and other activities. It should be noted that peerto-peer contact can also be counterproductive at times. If a company manager is negative to
a franchisee about a new idea, it becomes even more difficult for the chain operator to
persuade this franchisee to implement it. Also, certain franchisees do not look very
favorable upon company managers. They consider company managers to be too passive,
among other things. These franchisees are less likely to accept something from company
managers.
In the implementation stage, the third plural dynamic runs from the franchise side of the
chain to the company-owned side. Bradach (1992) calls this plural dynamic the “postdecision learning effect.” He explains that even if the chain operator makes a decision,
franchisees continue to study and evaluate it. In contrast, the discussion ends once the
decision is made on the company-owned side. The existence of this plural dynamic was
confirmed during the interviews. A manager of a pharmacy chain provided an example of
the difference between franchisees and company managers: “Recently, we have introduced
a new line of vitamin products under our private label. The only reactions we received
came from our franchisees. They either loved it or hated it. Most company managers, on the
other hand, considered it useless to react as the decision to implement the new line was
already made for them.” This post-decision feedback of franchisees keeps the chain
operator sharp and serves as a check on newly implemented products and services.
TITLE
research
methodology and results: case study
69
78
Figure 4.6 Implementation: plural dynamics
Companyowned
pharmacies
ǿ
ǿǿ
ǿǿǿ
Chain
operator
Chain
operator
Chain
operator
Franchise
pharmacies
By implementing new products and
services in company-owned
pharmacies, the chain operator can
demonstrate the viability of these
products and services to franchisees,
which makes it easier to persuade
them.
Barrier:
Franchisees sometimes have a
negative bias towards the companyowned side of the chain
organization.
4.7
Companyowned
pharmacies
Franchise
pharmacies
Peer-to-peer contact between
company managers and franchisees
positively influences franchisees’
adoption rate of new products and
services.
Companyowned
pharmacies
Franchise
pharmacies
Franchisees remain critical of new
products and services once these are
implemented. Their feedback serves
as a post-decision check.
Barriers:
Limited peer-to-peer contact exists
between the two parties.
Franchisees sometimes have a
negative bias towards company
managers.
Maintaining uniformity
Company managers have weaker financial incentives than franchisees. As described in
chapter 2, company managers therefore pose a greater risk of shirking. They may reduce
their efforts and in doing so may harm the chain organization’s uniform standards. To
maintain uniformity, the chain operator subjects company managers to more operational
control than franchisees. It indeed appeared from our interviews that company-owned
pharmacies experience less operational flexibility.
First of all, company-owned pharmacies are visited by two different people from chain
operator headquarters, while franchise pharmacies are just visited by one person. Franchise
and company-owned pharmacies are both visited by formula managers (also called area
managers). Formula managers are responsible for everything that concerns the formula.
They assist pharmacies in implementing and maintaining the formula. In addition to these
formula managers, region managers also visit company-owned pharmacies. A vacancy ad
in a newspaper clarified the role of region managers: “A region manager is responsible for
the maximization of the profit of company-owned pharmacies and the optimization of the
operational processes within these pharmacies.” The difference between the role of region
managers and that of company managers was described by a region manager as follows: “I
am the owner of the pharmacy so to speak. The pharmacist is responsible for the
79
70
Cchapter
HAPTER 1
4
pharmaceutical management of the pharmacy, while I have to make sure that, for instance,
personnel matters are well arranged.” Region manager thus have a greater supervising role
than formula managers.
Bradach (1992) describes that in the restaurant sector franchise and company-owned outlets
are visited by different people. Franchise restaurants are visited by formula managers, while
company-owned restaurants are only visited by region managers. The region manager is
also responsible for implementation and maintenance of the formula. Restaurant chains
consider different skills to be required when dealing with franchisees and company
managers. Bradach explains that formula managers have to “work with” franchisees, while
region managers have to “manage” company managers. Although company-owned
pharmacies are of course also visited by region managers, there does not seem to be much
difference in the way in which formula managers handle franchise and company-owned
pharmacies. The reason for this lack of difference is that it is usually, as described, not just
a matter of laying obligations on company managers. Similar to franchisees, formula
managers often have to persuade company managers and thus must work with them.
Second, as noted earlier, chain operators have implemented MIS in their company-owned
pharmacies. By means of MIS, chain operators collect profit and loss information and a
wide variety of operating data (e.g. number of prescription rules per full time pharmacy
assistant, substitution percentage, and percentage of parallel import). The MIS data is
gathered monthly and compared to targets that are set for each company-owned pharmacy.
If a pharmacy does not meet its target, region managers investigate the cause and if
necessary undertake corrective action. A region manager provided an example: “A
pharmacy may be below its substitution target because a general practitioner in its local
environment has a preference for branded drugs. To get this pharmacy to meet its target, I
will visit the general practitioner together with the company manager and try to convince
him to change his prescription behavior.” Chain operators also internally benchmark the
MIS data of their company-owned pharmacies. For example, they compare this data on a
national and a regional level. The benchmark results are made available to all companyowned pharmacies. One pharmacy chain publicizes its key benchmark results on the
Intranet monthly. According to the interviewees, this stimulates competition between
pharmacies and ultimately enhances overall performance. A managing director described
how seriously the benchmark results were taken by pharmacists: “Some pharmacists treat
their employees to cake if they outperform the best listed pharmacy.”
Bradach (1992) describes that operators of restaurant chains also use field audits and
mystery shopping audits to maintain uniformity. Because of the potential of shirking, these
audits are conducted more often in company-owned restaurants than in franchise
restaurants. When we conducted the case study, operators of pharmacy chains either did not
use these mechanisms or used them occasionally or informally. One pharmacy chain did
carry out field audits but only once a year in both franchise and company-owned
TITLE
research
methodology and results: case study
71
80
pharmacies. Through a point system formula managers investigated whether pharmacies
satisfied the different (soft) requirements that were set with respect to the formula. If a
pharmacy did not receive enough points, it was visited by an examination committee
consisting of pharmacists. This committee determined what the pharmacy needed to do in
order to pass the test. The other plural pharmacy chain had tried to set up field auditing but
this initiative had died a premature death. A formula manager explained why: “It was
simply not the right time to lay obligations on pharmacists. They were not yet ready for it.”
As far as mystery shopping was concerned, one of the two pharmacy chains did conduct
mystery shopping audits but in a very informal way. As part of a yearly event, pharmacies
could indicate whether they wanted to participate in a mystery shopping program. If visited
by a mystery guest, it was, for example, tested whether a pharmacy assistant asked the right
questions in case of a first dispensing.
Now that pharmacy chains have implemented more uniform standards in their pharmacies,
they have also adopted a more systemized and official approach to test whether pharmacies
adhere to their uniform standards. They have set up formal field audit and mystery
shopping programs. In addition, one pharmacy chain has implemented a peer monitoring
system. Under this system two pharmacy assistants from one pharmacy visit another
pharmacy and determine through a survey the degree to which this pharmacy meets a
number of uniform standards (i.e. standards related to management and cooperation within
the pharmacy). There is no difference in the frequency with which these mechanisms are
used for franchise and company-owned pharmacies.
4.7.1
Plural dynamics: Achieving higher levels of uniformity
According to Bradach (1992), as far as maintaining uniformity is concerned, a plural
dynamic runs from the franchise side to the company-owned side of the chain organization
and vice versa. He refers to this dynamic as the “ratcheting effect.” This effect is set in
motion because franchise and company-owned restaurants share several performance
measures (Bradach, 1997) such as mystery shopping and field audit scores. It works as
follows. If franchise restaurants outperform company-owned restaurants on these measures,
the chain operator applies pressure to the latter to increase their performance. Once the
performance level of company-owned restaurants has surpassed that of franchise
restaurants, the chain operator starts to put more pressure on franchise restaurants to
increase their performance. As a consequence, the level of uniformity within the system
increases (and becomes equal). An important factor that helps make the ratcheting effect
work is that people in restaurant chains often identify strongly with their “side” of the chain
organization (i.e. the franchise or the company-owned side). This identification is fertile
ground for inter-group dynamics, including intense competition (Bradach, 1997). As
described, when we carried out the case study, operators of pharmacy chains did not yet
conduct mystery shopping and field audits or conducted them infrequently. A ratcheting
Cchapter
HAPTER 1
4
81
72
effect thus did not exist either. Now that operators of pharmacy chains have implemented
formal mystery shopping and field audit programs, the ratcheting effect seems to be
emerging. The managing director of a pharmacy chain described how the performance of
franchise pharmacies positively influences that of company-owned ones: “During a yearly
event we announced the 30 pharmacies that performed best. No company-owned pharmacy
was part of this top 30. People from the company-owned side at headquarters have made it
very clear that next year they want their pharmacies to belong with the best ones also.”
Figure 4.7 Maintaining uniformity: plural dynamics
ǿ
Chain
operator
Companyowned
pharmacies
Franchise
pharmacies
By using both franchise pharmacies
and company-owned pharmacies, a
ratcheting effect is set in motion.
Barrier:
When the case study was conducted,
franchise and company-owned
pharmacies did not share performance
measures, and therefore no ratcheting
effect existed.
4.8
Conclusions
In this chapter the findings of our case study were presented. We described the differences
in the way in which operators of plural chains organize and manage franchise and
company-owned pharmacies (e.g. differences in incentive structures and centralization). It
was demonstrated that because of these differences franchise and company-owned
pharmacies often behave in different ways and make different contributions to the chain’s
strategic objectives. According to the interviewees, for instance, franchise pharmacies are
more locally responsive than company-owned pharmacies. It appeared that these
differences in the contributions of franchise and company-owned pharmacies lead to certain
plural dynamics. Chain operators, for example, sometimes copy the local responses of
franchise pharmacies and implement them in their company-owned pharmacies. As a
consequence, the local responsiveness of these latter pharmacies increases. Such plural
dynamics enable plural pharmacy chains to better meet their three strategic objectives of
unit growth, local responsiveness, and uniformity. In case of unit growth, plural dynamics
TITLE
research
methodology and results: case study
73
82
are not so much the result of differences in the behavior of franchise and company-owned
pharmacies but the result of differences in the constraints that exist upon both sources of
growth. In this chapter we compared our findings to those of Bradach (1992) in the
restaurant sector. Pharmacy chains do not seem to (fully) benefit currently from all the
plural dynamics that he identified. For example, it is not necessarily easier for operators of
pharmacy chains to persuade franchisees to adopt a new idea when it is also implemented
in company-owned pharmacies. On the other hand, we also found some new plural
dynamics to exist in the pharmacy sector. For example, in persuading franchisees to
implement new ideas, peer-to-peer contact between franchisees and company managers
seems to play an important role.
C
1
CHAPTER
HAPTER 1
83
83
Chapter
Chapter 5
5
5.1
5.1
Conceptual
Conceptual framework
framework and
and hypotheses
hypotheses
Introduction
Introduction
In this
this chapter
chapter we
we present
present our
our conceptual
conceptual frameworks
frameworks and
and hypotheses.
hypotheses. We
We have
have constructed
constructed
In
five
different
conceptual
frameworks
rather
than
a
single
one.
These
five
frameworks
five different 33conceptual frameworks rather than a single one. These five frameworks are
are
based
of the
the three
three strategic
strategic objectives
objectives of
of pharmacy
pharmacy chains:
chains: local
local responsiveness
responsiveness
based on
on two
two 33 of
and
and uniformity
uniformity (i.e.
(i.e. the
the different
different stages
stages within
within the
the uniformity
uniformity creating
creating process).
process). As
As noted
noted in
in
chapter
4,
the
first
stage
in
the
uniformity
creating
process
is
generating
ideas
for
chapter 4, the first stage in the uniformity creating process is generating ideas for uniform
uniform
standards. These
These ideas
ideas originate
originate from
from two
two sources:
sources: pharmacies’
pharmacies’ local
local responses
responses and
and the
the
standards.
chain
operator.
In
the
consecutive
phase,
the
chain
operator
tests
the
most
promising
ideas.
chain operator. In the consecutive phase, the chain operator tests the most promising ideas.
Often,
Often, pharmacies
pharmacies are
are used
used as
as test
test sites.
sites. Thereafter,
Thereafter, the
the chain
chain operator
operator and
and pharmacists
pharmacists
decide
whether
to
implement
the
new
product
or
service.
Finally,
in
case
decide whether to implement the new product or service. Finally, in case of
of positive
positive
decisions,
the
products
and
services
are
actually
implemented.
The
more
decisions, the products and services are actually implemented. The more pharmacies
pharmacies
implement the
the chain
chain operator’s
operator’s products
products and
and services,
services, the
the greater
greater the
the level
level of
of uniformity
uniformity
implement
within
the
chain.
Based
on
the
SCP
paradigm,
we
have
linked
structure,
conduct,
within the chain. Based on the SCP paradigm, we have linked 34structure, conduct, and
and
performance
performance to
to one
one another
another in
in the
the different
different conceptual
conceptual frameworks
frameworks 34 ..
This
This chapter
chapter is
is organized
organized as
as follows.
follows. First,
First, we
we present
present our
our hypotheses
hypotheses regarding
regarding the
the
differences in
in the
the structural
structural characteristics
characteristics of
of franchise
franchise and
and company-owned
company-owned pharmacies.
pharmacies.
differences
Then,
Then, we
we present
present our
our five
five conceptual
conceptual frameworks
frameworks and
and the
the related
related hypotheses.
hypotheses. In
In the
the next
next
paragraph,
we
set
out
the
hypotheses
with
respect
to
the
differences
in
the
conduct
paragraph, we set out the hypotheses with respect to the differences in the conduct of
of
franchise
franchise and
and company-owned
company-owned pharmacies.
pharmacies. Finally,
Finally, we
we formulate
formulate aa number
number of
of hypotheses
hypotheses
regarding
regarding the
the differences
differences in
in the
the performance
performance of
of plural
plural and
and pure
pure pharmacy
pharmacy chains
chains and
and the
the
performance of
of plural
plural chain
chain and
and pure
pure chain
chain pharmacies.
pharmacies.
performance
33
33
34
34
Unit
Unit growth
growth is
is left
left out
out of
of consideration
consideration since
since the
the dynamics
dynamics that
that enable
enable plural
plural pharmacy
pharmacy chains
chains to
to better
better meet
meet
this
strategic
objective
are,
as
described,
not
the
result
of
differences
in
the
conduct
of
franchise
and
this strategic objective are, as described, not the result of differences in the conduct of franchise and companycompanyowned
owned pharmacies
pharmacies but
but of
of differences
differences in
in the
the constraints
constraints that
that exist
exist upon
upon unit
unit growth
growth through
through franchise
franchise and
and
company-owned
pharmacies.
In
the
conceptual
frameworks,
we
investigate
the
relationship
among
company-owned pharmacies. In the conceptual frameworks, we investigate the relationship among structure,
structure,
conduct,
conduct, and
and performance.
performance.
Our
conceptual
Our conceptual frameworks
frameworks contain
contain most
most but
but not
not all
all of
of the
the plural
plural dynamics
dynamics that
that were
were described
described in
in the
the
previous
previous chapter.
chapter. They
They contain
contain the
the plural
plural dynamics
dynamics to
to which
which Bradach
Bradach (1992)
(1992) has
has paid
paid most
most attention
attention and
and
those
those that
that we
we considered
considered relevant
relevant in
in this
this stage
stage of
of aa pharmacy
pharmacy chain’s
chain’s life
life cycle.
cycle. Otherwise,
Otherwise, these
these frameworks
frameworks
simply
simply would
would have
have contained
contained too
too many
many variables
variables and
and relationships.
relationships.
TITLE
76
5.2
chapter84
5
Structural characteristics: Franchise pharmacies vs. companyowned pharmacies
CHAPTER77
1
85
conceptual
framework and hypotheses
5.3.1
Conceptual framework 1: Local responsiveness
Figure 5.1 Conceptual framework 1: Local responsiveness35
In our theoretical framework, we described that franchise and company-owned outlets
typically differ from each other with respect to their structural characteristics. Franchisees
have stronger incentives and their relationship with the chain operator is characterized by a
higher level of participation and a lower level of centralization, formalization, and
operational control. The case study confirmed these differences. We expect the survey to
confirm these differences also. Therefore, our hypotheses are as follows:
H1a
Market intelligence
generation
Centralization
Franchisees’ compensation is more incentive-based than that of pharmacists in
company-owned pharmacies.
H1b
Franchise pharmacies experience lower levels of centralized chain operator authority
than company-owned pharmacies.
H1c
Franchise pharmacies experience lower levels of formalization in their relationship
with the chain operator than company-owned pharmacies.
H1d
Franchise pharmacies experience higher levels of participation in chain operator
decision-making than company-owned pharmacies.
H1e
Franchise pharmacies’ operations are controlled less intensively than companyowned pharmacies’ operations.
5.3
Incentives
Conceptual frameworks
In this paragraph we elaborate on the five conceptual frameworks we have constructed and
the related hypotheses. As described above, structure, conduct, and performance are linked
to one another in these conceptual frameworks. We have colored the structure variables
white, the conduct variables light grey, and the performance variables dark grey. The plural
dynamics are indicated with a dotted line. The conceptual frameworks are presented in the
following order: local responsiveness, generating ideas, testing ideas, decision-making, and
implementation.
Local
responsiveness
Formalization
Contribution to
idea generation
CO contribution
to local
responsiveness
Pharmacy
performance
Participation
The effect of structural characteristics on local responsiveness
As described in chapter 4, local responsiveness is the extent to which firms anticipate and
react to conditions in their local environment. In the conceptual framework, we define local
responsiveness as the degree to which pharmacies are locally responsive on their own
initiative. Local responses generated with the help of the chain operator are left out of
consideration. If these latter responses would also be included, the true effects of, for
example, a pharmacy’s incentives on its local responsiveness could not be determined.
Based on the case study, we posit that three structural factors influence the level of local
responsiveness displayed by a pharmacy. First, the strength of a pharmacist’s incentives
affects a pharmacy’s local responsiveness. Pharmacists whose rewards are more incentivebased are likely to demonstrate a higher level of local responsiveness. As their rewards are
more dependent on their pharmacy’s financial performance, they are more motivated to
initiate local actions that ultimately lead to a maximization of this performance. Second,
local responsiveness is negatively influenced by the level of centralization that
characterizes the relationship between the chain operator and the pharmacy. It appeared
from the case study that chain operators often formulate local responses for companyowned pharmacies centrally. As a consequence, these pharmacies are simply not left much
freedom to adapt to local circumstances. Third, the level of formalization between the chain
35
CO is the abbreviation of chain operator.
TITLE
78
chapter86
5
87
conceptual
framework and hypotheses
CHAPTER79
1
operator and the pharmacy impacts a pharmacy’s local responsiveness. In chapter 4 we
described that company-owned pharmacies have to obey more rules and regulations in
generating local responses. For example, they must receive authorization to proceed if the
costs of a local initiative exceed a certain amount. These pharmacies are therefore less
quickly inclined to deploy such initiatives. Consequently, our hypotheses are as follows:
H4a
The more incentive-based pharmacists’ compensation, the more marketing
intelligence pharmacies generate.
H4b
The lower the level of centralized chain operator authority experienced by
pharmacies, the more marketing intelligence they generate.
H2a
The more incentive-based pharmacists’ compensation, the greater pharmacies’ level
of local responsiveness.
H4c
The lower the level of formalization experienced by pharmacies in their relationship
with the chain operator, the more marketing intelligence they generate.
H2b
The lower the level of centralized chain operator authority experienced by
pharmacies, the greater their level of local responsiveness.
H2c
The lower the level of formalization experienced by pharmacies in their relationship
with the chain operator, the greater their level of local responsiveness.
The effect of local responsiveness on contribution to idea generation
In chapter 4 we described that operators of pharmacy chains benefit from the local
responsiveness of pharmacies by adopting promising local responses, developing these
responses further if necessary, and eventually implementing them in other pharmacies. If
this happens, pharmacies thus contribute to the chain operator’s idea generating process.
Our expectation is that the degree of a pharmacy’s local responsiveness has a positive
influence on this contribution. Hence:
The effect of market intelligence generation on local responsiveness
A new variable that we add to the conceptual framework is market intelligence generation.
The generation of market intelligence pertains to monitoring customers’ needs and
preferences. In addition, it includes environmental scanning activities such as analyzing
competitors, technology, and government regulations (Kohli and Jaworski, 1990).
According to Kohli and Jaworksi, market intelligence is an antecedent of a firm’s
responsiveness. They define responsiveness as the action taken in response to the market
intelligence that is generated. Therefore, we assume that next to structural characteristics,
market intelligence generation plays an important role in a pharmacy’s local
responsiveness. Similar to local responsiveness, we define market intelligence generation as
the degree to which pharmacies generate market intelligence on their own initiative. We
hypothesize that:
H3
The more market intelligence generated by pharmacies, the greater their level of
local responsiveness.
The effect of structural characteristics on market intelligence generation
The three structural characteristics that were hypothesized to influence a pharmacy’s local
responsiveness are also hypothesized to be related to its generation of market intelligence.
Pharmacists whose compensation is more incentive-based are posited to be more motivated
to gather the information necessary to generate effective local responses. Furthermore,
pharmacies that face lower levels of centralization and formalization are expected to
generate more market intelligence as they have greater freedom in deciding whether, how,
and what kind of intelligence they will generate, and they have fewer rules to restrict them
in generating that intelligence. Incentives, centralization, and formalization thus all have an
indirect effect on local responsiveness through market intelligence generation and a direct
effect. Our hypotheses are as follows:
H5
The greater pharmacies’ level of local responsiveness, the greater their contribution
to idea generation.
The effect of participation on contribution to idea generation
In addition to local responsiveness, we also expect that the degree to which a pharmacy
participates in the chain operator’s decision-making influences its contribution to the idea
generating process. As described in chapter 4, if a pharmacist has the feeling that his ideas
are welcomed and appreciated by the chain operator, he is more willing to share his local
responses with the chain operator. Therefore, we hypothesize that:
H6
The higher the level of participation in chain operator decision-making experienced
by pharmacies, the greater their contribution to idea generation.
The effect of contribution to idea generation on chain operator contribution to local
responsiveness
As described, chain operators sometimes copy pharmacies’ local responses, offer them to
other pharmacies, and as a consequence the local responsiveness of these latter pharmacies
increases. To determine the degree to which pharmacies are locally responsive through the
help of the chain operator (and thus not on their own initiative), we use the construct
“chain operator contribution to local responsiveness” in the conceptual framework. We
assume that a greater contribution by the chain operator to pharmacies’ local
responsiveness means that pharmacies also demonstrate a greater overall level of local
responsiveness. Chain operator contribution to local responsiveness is thus an indirect
measurement of the chain’s effectiveness in achieving its second strategic objective: local
responsiveness (i.e. the performance of the chain operator). We hypothesize that the effect
TITLE
80
chapter88
5
of pharmacies’ local responsiveness on the chain operator’s contribution to local
responsiveness runs through pharmacies’ contribution to the idea generating process.
Pharmacies can be highly locally responsive but if they do not share their local responses
with the chain operator (which is, as described, influenced by the level of participation), the
chain operator will not be able to offer these local responses to other pharmacies. Hence,
we expect that:
H7
The greater pharmacies’ contribution to idea generation, the greater the chain
operator’s contribution to pharmacies’ local responsiveness.
The effect of chain operator contribution to local responsiveness on pharmacy performance
We further expect that the chain operator’s contribution to local responsiveness is related to
the performance of pharmacies. Namely, if the chain operator’s products and services
enable pharmacies to better respond to local conditions, these pharmacies will be able to
create stronger positions in their local environment. Hence, their performance increases.
For example, pharmacies will be more likely to achieve high levels of customer satisfaction
and subsequently, to attain the desired profit margins.
H8
The greater the chain operator’s contribution to pharmacies’ local responsiveness,
the better the performance of these pharmacies.
The effect of local responsiveness on pharmacy performance
Next to the fact that we expect pharmacies’ performance to increase due to chain operator
products and services that permit pharmacies to be more locally responsive, we also expect
that the performance of pharmacies is positively influenced by the local responses that they
initiate without the help of the chain operator. Therefore, we hypothesize that:
H9
The greater pharmacies’ level of local responsiveness, the better their performance.
5.3.2
Conceptual framework 2: Generating ideas
89
conceptual
framework and hypotheses
The effect of structural characteristics on demand for chain operator initiated innovation
As described in chapter 4, next to ideas for uniform standards that emanate from
pharmacies, a lot of these ideas emanate from the chain operator. It appeared from the case
study that pharmacies contribute to the chain operator’s idea generating process by asking
the chain operator to come up with ideas for innovations. This demand for innovation is
hypothesized to be related to a pharmacist’s incentives. Pharmacists whose compensation is
more incentive-based have greater interest in chain operator innovations as their
compensation more strongly depends on what occurs at the interface between their
pharmacy and the market. Therefore, they are likely to demonstrate a greater demand for
these innovations. Hence:
H10
Incentives
Demand for CO
initiated innovation
CO idea generating
proficiency
Contribution to
idea generation
CO contribution
to general
performance
Pharmacy
performance
The more incentive-based pharmacists’ compensation, the greater pharmacies’
demand for chain operator initiated innovation.
The effect of demand for chain operator initiated innovation on chain operator idea
generating proficiency
We posit that pharmacies’ demand for chain operator initiated innovation is related to the
chain operator’s proficiency in generating ideas. By pushing the chain operator to come up
with new products and services, pharmacies positively influence the proficiency of the
chain operator to generate ideas. Thus, we hypothesize that:
H11
The greater pharmacies’ demand for chain operator initiated innovation, the greater
the chain operator’s idea generating proficiency.
The effect of contribution to idea generation on chain operator idea generating proficiency
In addition to the fact that pharmacies contribute to the chain operator’s idea generation by
asking for ideas for innovations, they also contribute in another way. As described in the
previous paragraph, pharmacies contribute to the idea generating process by proposing
local actions for their pharmacies, which are then copied by the chain operator. Therefore,
we hypothesize that:
H12
Figure 5.2 Conceptual framework 2: Generating ideas
CHAPTER81
1
The greater pharmacies’ contribution to idea generation, the greater the chain
operator’s idea generating proficiency.
The effect of chain operator idea generating proficiency on chain operator contribution to
general performance
We further expect that the chain operator’s proficiency in generating ideas is positively
related to its contribution to pharmacies’ general performance. We included this latter
construct in the survey as we considered it relevant to determine the added value of the
chain operator’s products and services in general. If the chain operator is very competent in
generating ideas for new products and services (e.g. the chain operator generates useful or
TITLE
82
chapter90
5
original ideas), then we expect that this ultimately leads to products and services that
positively contribute to the general performance of pharmacies. Therefore:
H13
The greater the chain operator’s idea generating proficiency, the greater its
contribution to pharmacies’ general performance.
The effect of chain operator contribution to general performance on pharmacy
performance
As illustrated in figure 5.2, we also assume a relationship exists between the chain
operator’s contribution to the general performance of pharmacies and the actual
performance of these pharmacies. If the products and services of the chain operator
positively contribute to the general performance of pharmacies, then it is of course likely
that this positively influences the actual performance of these pharmacies as well.
H14
The greater the chain operator’s contribution to pharmacies’ general performance,
the better the performance of these pharmacies.
The relationship between chain operator contribution to general performance and pharmacy
performance is also part of conceptual framework 3 and conceptual framework 4.
5.3.3
Conceptual framework 3: Testing ideas
91
conceptual
framework and hypotheses
the field. Based on the case study, we hypothesize that the degree to which pharmacies
participate in these tests depends on three structural characteristics. First, participation
depends on a pharmacist’s incentives. In chapter 4 we described that one of the reasons for
chain operators to use company-owned pharmacies as test sites rather than franchise
pharmacies is that company managers have fixed incomes and therefore do not bear the
financial consequences of failed tests themselves. On the other hand, we also described that
if franchisees expect an idea to be successful, they often want to implement it right way,
which is a sign of real entrepreneurial behavior. As company managers have low-powered
incentives, they are more indifferent towards these tests. Overall, under the assumption that
chain operators generate successful ideas, we expect incentives to have a positive effect on
a pharmacy’s participation in field testing. Second, pharmacies’ participation in field
testing is influenced by the level of centralization that characterizes their relationship with
the chain operator. If the level of centralization is high, pharmacies participate more often
in field tests. In that case pharmacies have less freedom in deciding whether to participate
in field tests and the chain operator has greater flexibility in making adaptations to these
tests. Third, participation in pilots is influenced by the degree to which a pharmacy’s
operations are controlled by the chain operator. If the chain operator monitors the
performance of the pharmacy closely, the implications of the piloted product or service can
be better and more easily evaluated. Hence, the chain operator will be inclined to use those
pharmacies as test sites that are controlled more intensively. We formulate the following
hypotheses:
H15a
The more incentive-based pharmacists’ compensation, the more often pharmacies
participate in field testing.
H15b
The higher the level of centralized chain operator authority experienced by
pharmacies, the more often they participate in field testing.
H15c
The more intensively pharmacies’ operations are controlled, the more they
participate in field testing.
Figure 5.3 Conceptual framework 3: Testing ideas
Incentives
Centralization
Participation in
field testing
CO contribution
to general
performance
Pharmacy
performance
Operational control
The effect of structural characteristics on participation in field testing
As described, ideas for uniform standards come from two sources: ideas generated by the
chain operator and ideas generated by pharmacies in the form of local responses. Once
ideas are generated, the next step usually taken by the chain operator is to test these ideas in
CHAPTER83
1
The effect of participation in field testing on chain operator contribution to general
performance
We further assume a relationship to exist between pharmacies’ participation in field testing
and the chain operator’s contribution to general performance. When new products and
services are tested in a number of pharmacies, possible flaws can be removed before they
are implemented in other pharmacies. Therefore, we expect that field testing ultimately
leads to products and services that more positively contribute to the general performance of
pharmacies.
H16
Participation in field testing has a positive effect on the chain operator’s contribution
to pharmacies’ general performance.
TITLE
84
chapter92
5
5.3.4
Conceptual framework 4: Decision-making
H17c
Figure 5.4 Conceptual framework 4: Decision-making
Incentives
Centralization
Critique of CO
decisions
CO contribution
to general
performance
93
conceptual
framework and hypotheses
Pharmacy
performance
H18
H17a
The more incentive-based pharmacists’ compensation, the more critique pharmacies
give on chain operator decisions.
H17b
The lower the level of centralized chain operator authority experienced by
pharmacies, the more critique they give on chain operator decisions.
The higher the level of participation in chain operator decision-making experienced
by pharmacies, the more critique they give on chain operator decisions.
The effect of critique of chain operator decisions on chain operator contribution to general
performance
We expect pharmacies’ critique of the chain operator’s decisions to be an important
antecedent of the chain operator’s contribution to the general performance of pharmacies. It
appeared from the case study that the critique from pharmacies has a positive influence on
decision-making as it provides chain operators new insights and therefore enables them to
make more sound decisions. Eventually, this results in well-thought out products and
services that positively affect the general performance of pharmacies. Hence, we
hypothesize that:
Participation
The effect of structural characteristics on critique of chain operator decisions
Based on the outcomes of the field test, the chain operator makes a decision whether or not
to implement the idea in other pharmacies. As described in chapter 4, pharmacists regularly
provide feedback on the chain operator’s decisions. They challenge the ideas and decisions
and ask the chain operator to explain to them the rationale behind these decisions. Based on
the case study, we posit that the degree to which a pharmacist is critical of the chain
operator’s decisions depends on three structural features. First, the level of critique is
influenced by pharmacists’ incentives. In case pharmacists have stronger incentives, they
are more influenced by the outcomes of decisions, and therefore they are more inclined to
study and evaluate these decisions. Second, critique of chain operator decisions is
influenced by the level of centralization. A high level of centralization implies that the
pharmacist generally is not the one to decide whether to implement a new idea. Rather, the
chain operator makes the decision for him, and therefore the pharmacist feels less
motivated to challenge the decision. Third, critique of chain operator decisions is
influenced by the level of participation. As described, pharmacists are more likely to
comment on the chain operator’s decisions if they are listened to and if their comments are
taken seriously. So, we posit a positive relationship to exist between participation and the
pharmacist’s critique of the decisions of the chain operator. We hypothesize that:
CHAPTER85
1
5.3.5
The more critique pharmacies give on chain operator decisions, the greater the chain
operator’s contribution to pharmacies’ general performance.
Conceptual framework 5: Implementation
Figure 5.5 Conceptual framework 5: Implementation
Centralization
Speed of
implementation
Formalization
Adherence to
uniform standards
Pharmacy
performance
Operational control
The effect of structural characteristics on adherence to uniform standards
Once the chain operator has decided to implement a uniform standard, the next step is to
actually implement it. As the number of pharmacies implementing the standard increases,
so to increases the uniformity that exists within the chain. It appeared from the case study
that the degree to which pharmacies adhere to the chain’s uniform standards is influenced
by three structural features. First, it is influenced by the level of centralized chain operator
authority. In case of a higher level of centralization, a pharmacy exercises less autonomy in
deciding whether to implement new standards and thus demonstrates greater adherence to
TITLE
86
chapter94
5
uniform standards. Second, adherence to uniform standards is affected by the level of
formalization in the relationship between the chain operator and the pharmacy. The more
rules and regulations the chain operator has drawn up with respect to, for example, the
exterior of the pharmacy, budgets, and targets, the more uniformity a pharmacy
demonstrates. Third, adherence to uniform standards is also impacted by the level of
operational control. The more intensively the chain operator monitors whether pharmacies
adhere to system wide standards, the more likely it is that pharmacies actually adhere to
these standards. Our hypotheses are therefore as follows:
H19a
The higher the level of centralized chain operator authority experienced by
pharmacies, the more they adhere to uniform standards.
H19b
The higher the level of formalization experienced by pharmacies in their relationship
with the chain operator, the more they adhere to uniform standards.
H19c
The more intensively pharmacies’ operations are controlled, the more they adhere to
uniform standards.
The effect of speed of implementation on adherence to uniform standards
In chapter 4 we referred to the speed with which pharmacies implement new standards.
Hence, we include this construct in the conceptual framework. We posit that the speed of
implementation is related to a pharmacy’s adherence to uniform standards. Logically, faster
implementation of uniform standards leads a pharmacy to display greater uniformity.
Hence:
H20
The higher the speed with which pharmacies implement uniform standards, the more
they adhere to uniform standards.
The effect of structural characteristics on speed of implementation
One structural characteristic that was posited to impact a pharmacy’s adherence to uniform
standards is also posited to be related to the speed with which pharmacies implement
uniform standards. Pharmacies that face higher levels of centralization are expected to
implement uniform standards more rapidly. These pharmacies generally have less freedom
in deciding whether and when to implement new standards. We thus expect that
centralization has an indirect effect on adherence to uniform standards through speed of
implementation and a direct effect. Our hypothesis is as follows:
H21
The higher the level of centralized chain operator authority experienced by
pharmacies, the higher the speed with which they implement uniform standards.
95
conceptual
framework and hypotheses
CHAPTER87
1
The effect of adherence to uniform standards on performance
Finally, we posit that uniformity impacts the performance of a pharmacy. That is, if a
pharmacy demonstrates greater adherence to uniform standards, for example, if it
implements all visual markings and uniform procedures of the chain, we expect this to lead
to more satisfaction among customers and other stakeholders and to better financial and
operational performance. Therefore, we hypothesize that:
H22
5.4
The more pharmacies adhere to uniform standards, the better their performance.
Conduct: Franchise pharmacies vs. company-owned pharmacies
In this paragraph we describe the expected differences between franchise and companyowned pharmacies with respect to their contribution (conduct) to the chain’s strategic
objectives.
Market intelligence generation
In paragraph 5.3 we explained that we expect market intelligence generation to be
positively affected by a pharmacist’s incentives and negatively affected by the level of
centralization and formalization. Furthermore, we described that we assume franchisees to
have stronger incentives and to face a lower level of centralization and formalization. Our
expectation is therefore that franchise pharmacies generate more market intelligence than
company-owned pharmacies. Thus, we hypothesize that:
H23
Franchise pharmacies generate more market intelligence than company-owned
pharmacies.
Local responsiveness
Similar to market intelligence generation, we also posit local responsiveness to be
positively related to incentives and negatively related to centralization and formalization.
Moreover, we posit local responsiveness to be positively affected by market intelligence
generation. As franchisees are expected to have stronger incentives, to generate more
market intelligence, and to face a lower level of centralization and formalization, we
assume that franchise pharmacies are more locally responsive than company-owned
pharmacies. Hence, our hypothesis is as follows:
H24
Franchise pharmacies display a greater level of local responsiveness than companyowned pharmacies.
Contribution to idea generation
We assume, as noted earlier, that a pharmacy’s contribution to idea generation is positively
influenced by participation and local responsiveness. As described, we assume franchise
TITLE
88
chapter96
5
pharmacies to experience higher levels of participation than company-owned pharmacies.
In combination with the fact that franchise pharmacies are expected to be more locally
responsive, this leads us to formulate the following hypothesis:
H25
Franchise pharmacies make a greater contribution to idea generation than companyowned pharmacies.
Demand for chain operator initiated innovation
As noted earlier, we hypothesize a positive relationship to exist between the incentives of
pharmacists and pharmacies’ demand for chain operator initiated innovation. Because
franchisees’ compensation is expected to be more incentive-based than that of company
managers, we hypothesize that:
H26
Franchise pharmacies display a greater demand for chain operator initiated
innovation than company-owned pharmacies.
Participation in field testing
In the previous paragraph, we indicated that the degree to which pharmacies participate in
field tests is positively influenced by a pharmacist’s incentives, the degree of centralization
that characterizes the relationship between the pharmacy and the chain operator, and the
degree of operational control. We also described that we expect franchisees to have
stronger incentives than company managers and that franchise pharmacies face a lower
level of centralization and operational control. If we would only take incentives into
account, we would assume franchise pharmacies to participate more often in field testing.
On the other hand, if we would only consider centralization and operational control, we
would expect company-owned pharmacies to participate more often in field testing.
Overall, as two of the three structural characteristics are “in favor” of company-owned
pharmacies, we expect these pharmacies to participate most often in field tests 36 . Therefore,
we hypothesize that:
H27
Franchise pharmacies participate less often in field testing than company-owned
pharmacies.
Critique of chain operator decisions
We also described that we expect pharmacies’ critique of chain operator decisions to be
positively influenced by incentives and participation and to be negatively influenced by
centralization. As franchisees are assumed to have stronger incentives and to face a higher
level of participation and a lower level of centralization than company managers, we
hypothesize that:
36
We assume that the impact of the three structural characteristics is equal.
97
conceptual
framework and hypotheses
H28
CHAPTER89
1
Franchise pharmacies give more critique on chain operator decisions than companyowned pharmacies.
Speed of implementation
As noted earlier, we expect speed of implementation to be positively related to
centralization. In addition, we expect franchise pharmacies to face a lower level of
centralization in their relationship with the chain operator than company-owned
pharmacies. Hence, we hypothesize that:
H29
Franchise pharmacies implement uniform standards less quickly than companyowned pharmacies.
Adherence to uniform standards
Finally, as explained, we assume centralization, formalization, and operational control to be
positively related to adherence to uniform standards. In addition, we expect a positive
relationship to exist between speed of implementation and adherence to uniform standards.
Because we believe that franchise pharmacies implement uniform standards less quickly
and experience lower levels of centralization, formalization, and operational control, our
hypothesis is as follows:
H30
Franchise pharmacies adhere less to uniform standards than company-owned
pharmacies.
5.5
Performance: Plural pharmacy chains vs. pure pharmacy chains
As described in chapter 1, we make a distinction between two types of performance: the
performance of the chain operator and the performance of the pharmacy. We expect plural
pharmacy chains to demonstrate greater effectiveness in meeting their strategic objectives
than pure pharmacy chains and to contribute more to pharmacy performance. This is due to
the fact that franchise and company-owned pharmacies both make different contributions to
the chain operator’s strategic objectives (e.g. franchise pharmacies’ critique of chain
operator decisions), and because the contribution of franchise pharmacies sometimes
positively affects the contribution of company-owned pharmacies (e.g. local
responsiveness) and vice versa.
Chain operator contribution to local responsiveness
As explained in paragraph 5.4, we expect franchise pharmacies to make a greater
contribution to idea generation than company-owned pharmacies. In addition, we expect a
positive relationship to exist between contribution to idea generation and a chain operator’s
contribution to local responsiveness. Consequently, we expect that operators of chains that
(also) consist of franchise pharmacies (i.e. operators of plural chains and operators of pure
TITLE
90
chapter98
5
franchise chains) contribute more to the local responsiveness of their pharmacies than
operators of chains that consist only of company-owned pharmacies. Therefore, we
hypothesize that:
H31
The chain operator’s contribution to pharmacies’ local responsiveness is greater in a
plural chain and in a pure franchise chain than in a pure company-owned chain.
Chain operator idea generating proficiency
In addition to the fact that we expect franchise pharmacies to make a greater contribution to
idea generation than company-owned pharmacies, we also expect franchise pharmacies to
display a greater demand for chain operator initiated innovation. In combination with the
fact that we hypothesize a positive relationship to exist between these two variables and the
chain operator’s idea generating proficiency, this leads us to expect that operators of chains
that (also) include franchise pharmacies (i.e. operators of plural chains and operators of
pure franchise chains) are more proficient in idea generation than operators of chains that
include only company-owned pharmacies. Hence, we hypothesize:
H32
The chain operator’s idea generating proficiency is greater in a plural chain and in a
pure franchise chain than in a pure company-owned chain.
Chain operator contribution to general performance
As described in the previous paragraph, we assume company-owned pharmacies to
participate more often in field testing than franchise pharmacies, while we expect franchise
pharmacies to provide more critique on chain operator decisions. We further assume that a
chain operator’s contribution to the general performance of pharmacies is positively
influenced by both field testing and critique of decisions and by a chain operator’s idea
generating proficiency. The fact that franchise pharmacies give more critique on chain
operator decisions in combination with the fact that operators of plural chains and pure
franchise chains are more proficient in idea generation than operators of pure companyowned chains, leads us to expect that operators of plural chains and pure franchise chains
contribute more to pharmacies’ general performance than operators of pure companyowned pharmacies. At the same time, however, we expect operators of plural chains and of
pure company-owned chains to contribute more to pharmacies’ general performance than
operators of pure franchise chains because of the differences in participation in field testing
between franchise and company-owned pharmacies. Moreover, as described in chapter 4,
one of the main objectives of operators of pharmacy chains is to organize their companyowned pharmacies as efficiently as possible. Operators of plural chains have recently
started to offer some of the efficiency enhancing tools used by company-owned pharmacies
to franchise pharmacies. We thus expect operators of pure company-owned chains and of
plural chains to contribute more to pharmacies’ general performance with respect to
efficiency than operators of pure franchise chains. Based on the above, we formulate the
following hypothesis:
99
conceptual
framework and hypotheses
H33
CHAPTER91
1
The chain operator’s contribution to pharmacies’ general performance is greater in
a plural chain than in a pure chain.
Adherence to uniform standards
As described in chapter 4, franchisees may be persuaded more easily to implement uniform
standards when these standards are implemented in company-owned pharmacies. That is,
by implementing the standards in company-owned pharmacies, chain operators are
sometimes able to demonstrate the economic and operational viability to franchisees. At the
same time, franchisees may hear from company managers that it is beneficial to adopt a
new uniform standard. As a result, we expect that franchise pharmacies in plural chains
display greater adherence to uniform standards than franchise pharmacies in pure chains.
We thus hypothesize that:
H34
5.6
Franchise pharmacies that are part of a plural chain adhere more to uniform
standards than franchise pharmacies that are part of a pure chain.
Performance: Plural chain pharmacies vs. pure chain
pharmacies
As described, in addition to the performance of the chain operator, we distinguish the
performance of the pharmacy. In the previous paragraph, we explained that we expect the
chain operator’s contribution to local responsiveness to be greater in a plural chain and in a
pure franchise chain than in a pure company-owned chain, the chain operator’s contribution
to general performance to be greater in a plural chain than in a pure chain, and franchise
pharmacies of plural chains to adhere more to uniform standards than franchise pharmacies
of pure chains. At the same time, we assume a positive relationship to exist between chain
operator contribution to local responsiveness, chain operator contribution to general
performance, and adherence to uniform standards, on the one hand, and pharmacy
performance, on the other hand. Overall, our expectation is therefore that franchise and
company-owned pharmacies of plural chains outperform franchise and company-owned
pharmacies of pure chains. Hence, we hypothesize that:
H35
5.7
Pharmacies that are part of a plural chain perform better than pharmacies that are
part of a pure chain.
Conclusions
In this chapter we have presented five different conceptual frameworks and related
hypotheses. The conceptual frameworks are based on two key strategic objectives of
pharmacy chains: local responsiveness and creating uniformity. In the frameworks we have
TITLE
92
chapter100
5
linked structure, conduct, and performance to one another. That is due to our expectation
that pharmacies’ structural characteristics (e.g. incentives) influence their conduct with
respect to the chain’s strategic objectives (e.g. pharmacies’ local responsiveness).
Moreover, we expect this conduct to influence pharmacies’ performance either directly or
indirectly through the chain operator’s contribution to pharmacy performance. In this
chapter we have also presented a number of hypotheses regarding the differences in the
structure and conduct of franchise and company-owned pharmacies. As described, we
expect such differences to lead to plural dynamics among the chain operator, franchise
pharmacies, and company-owned pharmacies. Finally, we have formulated several
hypotheses in this chapter on the differences in the performance of plural and pure
pharmacy chains and the performance of plural chain and pure chain pharmacies. Because
of the existence of plural dynamics, we expect plural pharmacy chains to perform better
than pure pharmacy chains and plural chain pharmacies to outperform pure chain
pharmacies.
C
1
CHAPTER
HAPTER 1
101
101
Chapter
Chapter 6
6
6.1
6.1
Research
Research methodology:
methodology: Survey
Survey
Introduction
Introduction
This chapter
chapter elaborates
elaborates on
on the
the second
second research
research method
method that
that we
we used
used in
in this
this thesis:
thesis: the
the
This
survey.
In
paragraph
6.2,
we
describe
why
we
used
this
method.
In
paragraph
6.3,
survey. In paragraph 6.2, we describe why we used this method. In paragraph 6.3, we
we
specify
specify our
our sampling
sampling frame.
frame. Subsequently,
Subsequently, in
in the
the next
next two
two paragraphs,
paragraphs, we
we describe
describe our
our
pretest
pretest and
and the
the way
way in
in which
which we
we collected
collected the
the survey
survey data.
data. Paragraph
Paragraph 6.6
6.6 clarifies
clarifies the
the setup
setup
of
the
survey.
Finally,
in
the
last
paragraph,
we
explain
the
scales
that
we
used
to
of the survey. Finally, in the last paragraph, we explain the scales that we used to measure
measure
the different
different constructs.
constructs.
the
6.2
6.2
Why
Why aa survey?
survey?
In
In the
the second
second part
part of
of our
our empirical
empirical research,
research, we
we adopted
adopted aa more
more deductive
deductive research
research
approach:
the
survey
method.
By
means
of
this
method,
we
are
able
to
approach: the survey method. By means of this method, we are able to test
test the
the hypotheses
hypotheses
that
that we
we formulated
formulated in
in chapter
chapter 5.
5. Where
Where aa case
case study
study sacrifices
sacrifices breadth
breadth for
for depth
depth (Gill
(Gill and
and
Butler,
2003),
a
survey
permits
generalizations
to
larger
populations.
The
survey
enables
Butler, 2003), a survey permits generalizations to larger populations. The survey enables us
us
to
to establish
establish generalizable
generalizable relationships
relationships among
among structure,
structure, conduct,
conduct, and
and performance.
performance. To
To
establish
establish these
these relationships,
relationships, aa large
large sample
sample is
is required
required to
to reduce
reduce the
the risk
risk that
that findings
findings are
are
the
result
of
idiosyncratic
confounding
elements.
the result of idiosyncratic confounding elements.
6.3
6.3
Sampling
Sampling frame
frame
Our
Our sampling
sampling frame
frame consisted
consisted of
of pharmacies
pharmacies of
of plural
plural chains
chains and
and pharmacies
pharmacies of
of pure
pure
chains.
As
described
in
chapter
1,
we
also
included
pharmacies
of
pure
chains
because
chains. As described in chapter 1, we also included pharmacies of pure chains because this
this
allows
allows us
us to
to determine
determine whether
whether significant
significant differences
differences indeed
indeed exist
exist between
between these
these two
two types
types
of
of pharmacies.
pharmacies. As
As far
far as
as the
the pure
pure chains
chains are
are concerned,
concerned, we
we selected
selected the
the three
three largest
largest ones
ones in
in
the
Netherlands:
Mediveen,
Lloyds
(both
only
company-owned
pharmacies),
and
Service
the Netherlands: Mediveen, Lloyds (both only company-owned pharmacies), and Service
Apotheek
Apotheek (only
(only franchise
franchise pharmacies).
pharmacies). All
All three
three pharmacy
pharmacy chains
chains have
have more
more than
than 50
50
outlets.
The
two
plural
chains
that
were
the
object
of
the
case
study,
outlets. The two plural chains that were the object of the case study, KringKringapotheek/Alliance
apotheek/Alliance Apotheek
Apotheek and
and Escura
Escura Apotheek,
Apotheek, were
were also
also selected
selected for
for the
the survey.
survey. Both
Both
pharmacy
chains
have
more
than
75
outlets.
As
described
in
chapter
4,
Escura
pharmacy chains have more than 75 outlets. As described in chapter 4, Escura Apotheek
Apotheek
holds
holds majority
majority shares
shares (100%)
(100%) and
and minority
minority shares
shares in
in its
its pharmacies.
pharmacies. We
We only
only sent
sent the
the
survey
to
those
pharmacies
that
are
fully
owned
by
Escura
Apotheek.
This
is
due
to
survey to those pharmacies that are fully owned by Escura Apotheek. This is due to the
the fact
fact
that
that pharmacies
pharmacies in
in which
which Escura
Escura Apotheek
Apotheek has
has aa minority
minority share
share are
are not
not obliged
obliged to
to join
join the
the
Escura
Apotheek
formula,
and
therefore
are
not
always
members
of
this
formula.
We
Escura Apotheek formula, and therefore are not always members of this formula. We chose
chose
to
to send
send the
the survey
survey to
to managing
managing pharmacists.
pharmacists. A
A managing
managing pharmacist
pharmacist is
is the
the one
one who
who is
is daily
daily
TITLE
94
chapter102
6
in charge of the pharmacy. We expected these pharmacists to be best able to answer our
questions.
6.4
Pretest
The survey was reviewed by several academics to assess its quality. They checked the
survey for redundant questions, unclear instructions, question ambiguity, the layout, and so
forth. This led to a number of changes. The survey was further personally submitted to nine
pharmacists with the request to fill it out as a pretest. Among these nine pharmacists, there
was at least one pharmacist of each “pharmacist group” (a franchisee and a company
manager of each of the two plural chains and a pharmacist of each of the three pure chains).
While answering the questions, the pharmacists were asked to think aloud. This helped us
to identify problems with items and instructions and to determine how the respondents
arrived at their answers. Based on this pretest, a number of further improvements were
made. Finally, the survey was distributed to three managers of different pharmacy chains
who were requested to check it for relevance and clarity. Their comments led to some
minor alterations.
6.5
Data collection
In May 2006, the survey was sent to 794 pharmacies by mail. Pharmacists needed
approximately 30 minutes to complete the survey. In addition to the survey, the respondents
received a personally addressed cover letter in which the purpose of the study was
explained and a postage-paid return envelope. We stated in the cover letter that the survey
was anonymous and that the respondent’s information would be treated as strictly
confidential. We also stated that the research was not carried out by order of a chain
organization and that it concerned independent scientific research. This way, we tried to
overcome pharmacists’ reluctance to provide financial information about their pharmacy.
To enhance the response rate, we provided several incentives. First, we promised to send
pharmacists a summary of the findings. Second, we promised to invite them for an
interactive session at Nyenrode Business Universiteit for which we had applied for
accreditation 37 . One pharmacy chain (284 pharmacies) further allowed us to post a message
in its weekly pharmacy newsletter in which we informed pharmacists upfront about the
survey. Initially, 79 pharmacists returned the survey. In order to enhance the response rate,
we called approximately 300 pharmacists after three weeks with the request to fill out the
survey. All these efforts eventually resulted in 159 usable surveys (19.8%). This is an
acceptable response rate considering the length of the survey. An important reason for not
37
To maintain their registration as a pharmacist, pharmacists need to participate in six accredited post graduate
course days annually.
103
research
methodology: survey
CHAPTER95
1
having a higher response rate is that the pharmacy chain Mediveen directed its pharmacists
on the day on which pharmacists received the survey not to fill it out. The reason for this
was that the survey contained some questions regarding the financial performance of
pharmacies. Despite our promise to Mediveen that the financial information would only be
used for scientific research and that it would not be disclosed, they were not willing to
cooperate. As this pharmacy chain consists of more than 200 pharmacies, this summons
had considerable consequences for the response rate. That is, the response rate could have
been much higher.
6.6
Structure of the survey
The survey consisted of four different parts (the survey and the cover letter can be found in
appendix B 38 ). The first part of the survey contained various general questions. The
objective of these general questions was to identify the pharmacy and the respondent. For
example, we asked to which chain the respondent belonged, how many years the pharmacy
had been a part of the chain, and how many years the respondent had been working as a
pharmacist. The second part of the survey contained a variety of statements. These
statements concerned the structural characteristics of pharmacies, their conduct within the
chain organization, and the chain operator’s contribution to pharmacies’ performance. The
third part consisted of questions about the performance of the pharmacy. Finally, similar to
the first part, the fourth part of the survey also contained a number of identification
questions. By means of these questions, we tried to identify the pharmacy and the
respondent in somewhat greater detail and to ascertain the environment of the pharmacy.
For instance, we asked questions about the number of employees and customers, the
intensity of the competition within the local environment, and the kind of area in which the
pharmacy was located.
6.7
Scales
In this paragraph we explain the operationalization of the different constructs that were
addressed in chapter 5. Whenever possible, we used items from existing scales. However,
no scales were available in the existing literature for most of the constructs. In those cases
we generated the scale items ourselves, thereby using the input of other academics and
practitioners.
38
The survey is translated from Dutch. In the pharmacy business, the term “chain” is only used for the
company-owned side of the chain organization and not for the franchise side. Therefore, whenever we used
this term in the survey, we meant the company-owned side.
TITLE
96
chapter104
6
Structure
In the survey we made a distinction among three different structural characteristics of
pharmacies: incentives, decision-making (centralization, formalization, and participation),
and operational control. These characteristics were described in chapter 2. To measure
pharmacists’ incentives, we used a one-dimensional 5-point Likert scale ranging from
completely fixed to completely variable. Centralization, formalization, participation, and
operational control, on the other hand, were each measured by a multi-item 7-point Likert
scale ranging from strongly agree to strongly disagree. As far as the centralization scale
was concerned, the second item (i.e. permission for major decisions) was obtained from
Dwyer and Oh (1988). A small modification in the wording of this item was made. The rest
of the centralization scale consisted of self-generated items. With respect to the
formalization scale, the first and fourth item of this scale (i.e. rules and procedures) were
adapted from John (1984) and the second item (i.e. specification of responsibilities) from
Spekman and Stern (1979). We developed the other formalization items ourselves. The
participation scale also included some previously generated items. The first item (i.e.
encouragement of ideas) and the fifth item (i.e. consulting before making decisions) of this
scale were customized from Spekman and Stern (1979). Similar to the previous two scales,
the participation scale also included some self-generated items. Finally, with respect to the
operational control scale, we developed all the items ourselves.
Conduct
To determine a pharmacy’s conduct, we used eight different constructs. The first two
constructs were related to implementation/uniformity: speed of implementation and
adherence to uniform standards. Both constructs were measured by means of multi-item 7point Likert scales. We developed the items of these constructs ourselves. The speed of
implementation construct consisted of four items. The last two items were only meant for
franchise pharmacies that were part of a plural chain. We wanted to examine whether the
speed with which these pharmacies implement standards is influenced by the
implementation in company-owned pharmacies. With respect to some of the items of the
adherence to uniform standards construct, we gave respondents the possibility to choose the
answer option “not applicable.” That was because some of the uniform standards had not
(yet) been introduced by all chain organizations. In addition, during the pretest of the
survey, it appeared that even if a chain organization had introduced a specific uniform
standard, some pharmacists were not aware of it and therefore did not know what to answer
(or chose the answer option 4).
With respect to the second strategic objective of pharmacy chains, local responsiveness, we
used two different constructs to determine pharmacies’ conduct: market intelligence
generation and local responsiveness. We measured both constructs through multi-item 7point Likert scales. Although a market intelligence scale had already been developed
(Jaworski and Kohli, 1993), we generated our own indicators. This was due to the fact that
the existing scale seemed especially appropriate for larger firms and for firms that are more
105
research
methodology: survey
CHAPTER97
1
advanced in generating market intelligence than pharmacies. If we would have used this
scale, we expected almost every pharmacist to achieve a very low score. We also developed
the items of the local responsiveness construct ourselves. We explained in the survey that
the items of both the market intelligence generation and the local responsiveness construct
concerned the market intelligence respectively the local responses that pharmacies generate
on their own initiative.
As described in chapter 4, the first stage within a pharmacy chain’s uniformity creating
process is generating ideas. To determine the behavior of pharmacies within this stage, we
used two different constructs: contribution to idea generation and demand for chain
operator initiated innovation. Both constructs were measured on 7-point Likert scales. We
developed the items for each of the two constructs ourselves. The conduct of pharmacies
within the second stage of the uniformity creating process, testing ideas, was determined by
means of the construct participation in field testing. This construct was measured on a onedimensional ratio scale. Finally, to determine pharmacies’ conduct within the decisionmaking phase we used the construct critique of chain operator decisions. We measured this
construct through a 7-point Likert scale and developed the items ourselves.
Performance
In the survey we made a distinction between two types of performance: the performance of
the chain operator and the performance of the pharmacy. The chain operator’s performance
was measured by means of three constructs: chain operator idea generating proficiency, chain
operator contribution to local responsiveness, and chain operator contribution to general
performance. We measured all three constructs on 7-point Likert scales. As there were no
existing scales available in the literature, we developed the items of these scales ourselves.
To measure a pharmacy’s performance, we utilized subjective, self-reported measures.
Subjective measures were used due to two reasons. First, objective measures (i.e. certifiable
by a third party) are virtually impossible to obtain from privately held firms (Dess and
Robinson, 1984). Second, subjective measures have been shown to be correlated to
objective measures of performance (Dess and Robinson, 1984; Slater and Narver, 1994). In
an attempt to be as comprehensive as possible, we used multiple performance indicators
and measurement scales. First, we selected a number of financial and operational
performance indicators (e.g. gross margin, number of prescription rules, etc.) and asked
respondents to report their performance in the past year. Because the financial and
operational performance of pharmacies may be subject to short-term (i.e. one-year)
fluctuations and therefore may not be representative of their long-term results, we also
asked respondents to report the percent increase in their performance over the past three
years 39 . Second, we asked respondents to rate the financial and operational performance of
39
As far as a pharmacy’s sales was concerned, we only asked respondents for the percent increase over the past
three years and not for their sales in the past year. As described in chapter 4, sales as such do not say much
about a pharmacy’s performance.
TITLE
98
chapter106
6
their pharmacy relative to the average pharmacy in the Netherlands. The relative
performance of pharmacies was measured on a 5-point Likert scale. We asked for the
relative performance due to three reasons. First, it appeared from our qualitative research
that pharmacists are very sensitive about releasing financial performance data 40 . Second,
during the pilot tests, some pharmacists were not able to specify their financial performance
but were able to rate their performance relative to others. Third, we expected pharmacies of
plural pharmacy chains to perform better than other pharmacies. In the existing literature,
performance is usually measured relative to relevant competitors. However, it appeared
from the pilot interviews that pharmacists generally have little insight into the performance
of other pharmacies in their local environment. Because pharmacists are often aware of the
performance of the average pharmacy in the Netherlands 41 , we used the average pharmacy
rather than competitive pharmacies. In addition to relative financial and operational
indicators, we also used indicators such as relative customer and employee satisfaction.
6.8
Conclusions
In this chapter we elaborated on the survey method. We explained why we used this
method in the second part of our empirical research. In addition, we described our survey
sampling frame, which consisted of pharmacies of plural chains as well as pharmacies of
pure chains, and the way in which the quality of the survey was assessed and the survey
data collected. Finally, we delineated the operationalization of the constructs related to
structure, conduct, and performance. Whenever possible, we adapted or used items from
existing scales. However, for most constructs, no existing scales were available in the
literature. Therefore, in these cases we generated the scale items ourselves. As described, in
doing this, we used the input of other academics and practitioners.
Chapter
Chapter 7
7
7.1
7.1
41
Pharmacists fear that they will have to hand in too much of their purchase benefits when this information will
be made public.
The Foundation for Pharmaceutical Statistics (Stichting Farmaceutische Kengetallen, SFK) publishes
information on the performance of the average pharmacy in the Netherlands every year.
Research
Research results:
results: Survey
Survey
Introduction
Introduction
In this
this chapter
chapter we
we test
test the
the hypotheses
hypotheses that
that we
we formulated
formulated in
in chapter
chapter 5.
5. We
We make
make use
use of
of
In
Structural
Equation
Modeling
(SEM)
by
means
of
the
software
package
LISREL
8.52
Structural Equation Modeling (SEM) by means of the software package LISREL 8.52
(Jöreskog
(Jöreskog and
and Sörbom,
Sörbom, 1998)
1998) to
to test
test the
the hypotheses.
hypotheses. SEM
SEM is
is aa statistical
statistical technique
technique which
which
enables
researchers
to
simultaneously
estimate
a
series
of
separate,
but
enables researchers to simultaneously estimate a series of separate, but interdependent,
interdependent,
multiple
multiple regression
regression equations.
equations. In
In addition,
addition, SEM
SEM enables
enables researchers
researchers to
to estimate
estimate
relationships between
between multi-item
multi-item constructs.
constructs. When
When applying
applying SEM,
SEM, many
many researchers
researchers
relationships
propose
propose aa two-stage
two-stage process
process (e.g.
(e.g. Hair
Hair et
et al.,
al., 2006;
2006; Kline,
Kline, 2005).
2005). In
In stage
stage one
one the
the
measurement
model
is
estimated.
In
a
measurement
model,
latent
(unobservable)
constructs
measurement model is estimated. In a measurement model, latent (unobservable) constructs
are
are linked
linked to
to the
the items
items (measures)
(measures) that
that indicate
indicate them.
them. To
To test
test the
the measurement
measurement model,
model, the
the
construct
validity
of
the
model
is
assessed.
Based
on
this
assessment,
if
necessary,
construct validity of the model is assessed. Based on this assessment, if necessary, the
the
measurement model
model is
is modified.
modified. In
In stage
stage two
two the
the structural
structural model
model is
is estimated
estimated using
using the
the
measurement
(modified)
model.
In
a
structural
model,
the
hypothesized
causal
relationships
between
the
(modified) model. In a structural model, the hypothesized causal relationships between the
constructs
constructs are
are specified.
specified. To
To test
test the
the structural
structural model,
model, the
the overall
overall model
model fit
fit and
and the
the size,
size,
direction,
and
significance
of
the
structural
parameter
estimates
are
examined.
direction, and significance of the structural parameter estimates are examined.
The structure
structure of
of this
this chapter
chapter is
is as
as follows.
follows. In
In paragraph
paragraph 7.2
7.2 we
we examine
examine whether
whether the
the
The
response
to
our
survey
is
representative
of
the
research
population.
In
the
next
paragraph,
response to our survey is representative of the research population. In the next paragraph,
we
we estimate
estimate the
the measurement
measurement model,
model, and
and we
we assess
assess the
the construct
construct validity
validity of
of this
this model.
model. In
In
chapter
5
we
formulated
a
number
of
hypotheses
regarding
the
differences
in
the
chapter 5 we formulated a number of hypotheses regarding the differences in the structural
structural
characteristics
characteristics of
of franchise
franchise and
and company-owned
company-owned pharmacies.
pharmacies. In
In paragraph
paragraph 7.4
7.4 we
we test
test these
these
hypotheses. Subsequently,
Subsequently, in
in paragraph
paragraph 7.5
7.5 we
we present
present the
the structural
structural models.
models. We
We start
start by
by
hypotheses.
assessing
the
fit
of
these
models
through
a
number
of
Goodness-of-Fit
statistics.
Moreover,
assessing the fit of these models through a number of Goodness-of-Fit statistics. Moreover,
we
we test
test the
the hypotheses
hypotheses related
related to
to our
our conceptual
conceptual frameworks.
frameworks. Finally,
Finally, in
in the
the last
last three
three
paragraphs,
we
test
the
hypotheses
that
we
formulated
with
respect
to
the
differences
paragraphs, we test the hypotheses that we formulated with respect to the differences in
in the
the
conduct
conduct of
of franchise
franchise and
and company-owned
company-owned pharmacies,
pharmacies, the
the differences
differences in
in the
the performance
performance
of
of plural
plural and
and pure
pure chains,
chains, and
and the
the differences
differences in
in the
the performance
performance of
of pharmacies
pharmacies that
that belong
belong
to
plural
chains
and
those
that
belong
to
pure
chains.
to plural chains and those that belong to pure chains.
7.2
7.2
40
C
1
CHAPTER
HAPTER 1
107
107
Correspondence
Correspondence between
between the
the observed
observed and
and the
the actual
actual
distribution
distribution
Before
Before we
we estimated
estimated the
the measurement
measurement and
and the
the structural
structural model,
model, we
we conducted
conducted aa response
response
bias
check.
The
objective
of
this
check
is
to
determine
whether
the
response
bias check. The objective of this check is to determine whether the response that
that we
we
obtained
actually
reflects
the
research
population.
In
table
7.1
we
compare
the
distribution
obtained actually reflects the research population. In table 7.1 we compare the distribution
TITLE
100
chapter108
7
in terms of percentages of the different types of pharmacies within the research population
with the distribution in terms of percentages that is observed. As described in chapter 6, our
response consisted of 159 surveys. To determine whether a significant difference exists
between the actual distribution and the observed distribution of the different types of
pharmacies, we carried out a chi-square test (Buijs, 1998). It appears from this test that with
a tail-end probability of 0.05, we cannot accept the null hypothesis (F2 = 13.10; d.f. = 3).
Table 7.1 demonstrates that the group consisting of company-owned pharmacies of pure
chains is underrepresented. This is due to the fact that, as described in chapter 6, Mediveen,
a pharmacy chain that consists of more than 200 company-owned pharmacies, directed its
pharmacists not to fill out the survey. As a consequence, only nine Mediveen pharmacists
returned the survey. We checked as to whether or not the answers of Mediveen pharmacists
differ from those of company managers of the other pure chain (who are comparatively
overrepresented in the group consisting of company-owned pharmacies of pure chains). It
appears that their answers are approximately the same as those of Mediveen pharmacists.
We thus have no reason to believe that our response is not representative of the research
population.
Table 7.1
Distribution of respondents according to the type of pharmacy where they work
Type of pharmacy
Research population 42
Response percentages
Franchise pharmacies of plural chains
30.3%
35.2%
Franchise pharmacies of pure chains
16.8%
22.0%
Company-owned pharmacies of plural chains
14.7%
26.4%
Company-owned pharmacies of pure chains
38.2%
16.4%
We also compared the distribution in terms of percentages of the number of years that
pharmacists within the research population have been working as pharmacists with the
distribution in terms of percentages that is observed. This comparison is depicted in table
7.2. To determine whether the observed distribution reflects the actual distribution, we
again conducted a chi-square test. It appears that with a tail-end probability of 0.05, we can
accept the null hypothesis (F2 = 2.26; d.f. = 4). The observed distribution of the number of
years that pharmacists have been working as pharmacists is thus representative of the
distribution within the research population.
42
Distribution of the research population at the moment we sent the survey.
CHAPTER
1
101
109
research
results: survey
Table 7.2
Distribution of respondents according to the number of years they have been working as a pharmacist
Number of years working as pharmacist
Research population 43
Response percentages
Less than 6 years
18.0%
22.6%
6 - 10
16.5%
21.4%
11 - 15
19.0%
13.9%
16 - 20
20.0%
19.5%
More than 20 years
26.5%
22.6%
Appendix C contains more descriptive statistics about the respondents.
7.3
The measurement model: Confirmatory factor analysis
In chapter 5 and 6, we defined the different constructs that represent our conceptual
frameworks. In addition, we specified the items (measures) that indicate these constructs
(see appendix B). After examining the data, we discovered that some items that were
expected to load on the same factor load on different factors in practice (see table 7.3 for an
overview of the constructs that are represented by different factors). With respect to the
construct operational control, items related to the control of service quality and the control
of conformation to rules and procedures have low correlation with the items related to the
control of financial and operational results. Apparently, pharmacists perceive these items
differently. The empirical data test also demonstrates that the items of the construct market
intelligence generation do not load on a single factor. In fact, the items load on three
different factors. The items related to generating customer intelligence load on the first
factor. The item that is related to the generation of intelligence about the developments in
the market loads on the second one. Finally, the items that concern the generation of
competitor and other stakeholder intelligence load on the third factor. The construct local
responsiveness cannot be represented by a single factor either. The data demonstrates that
the questions regarding responsiveness towards customers and the question regarding
responsiveness towards competitors differ from the questions regarding responsiveness
towards other local stakeholders and towards the situation in the local environment. The
fact that the questions related to responsiveness to the situation in the local environment
and those related to responsiveness towards other local stakeholders load on the same factor
illustrates that for pharmacists being responsive to the situation in the local environment is
similar to being responsive to other local stakeholders (and not similar to being responsive
to customers and competitors). Another construct of which some of the items have little
correlation with each other is adherence to uniform standards. The items that concern the
front office of the pharmacy are not considered to be the same as the items that concern the
back office of the pharmacy. Indeed, it seems plausible that adherence to front office
43
Number of years that pharmacists in the Netherlands have been working as pharmacist (SBA, 2006).
TITLE
102
chapter110
7
standards differs from adherence to back office standards. A fifth construct of which the
items are demonstrated to load on separate factors is the construct chain operator
contribution to general performance. Pharmacists perceive items related to the chain
operator’s contribution to the effectiveness of pharmacies to be different than items related
to the contribution to the efficiency of pharmacies. Finally, after examining the data, we
discovered that the items of the construct pharmacy performance do not load on the same
factor. Items related to pharmacies’ absolute performance differ from those related to
pharmacies’ relative performance. The items related to pharmacies’ relative performance in
turn load on three different factors. The items related to stakeholder satisfaction load on the
first factor, the items related to growth on the second, and the items related to profit margin
on the third.
Table 7.3
Constructs represented by different factors 44
Original constructs
New constructs
Operational control
x
Rule conformation control
x
Performance control
x
Customer intelligence generation
x
Market development intelligence generation
x
Other stakeholder intelligence generation
x
Customer responsiveness
x
Other stakeholder responsiveness
x
Adherence to uniform front office standards
x
Adherence to uniform back office standards
x
CO contribution to effectiveness
x
CO contribution to efficiency
x
Absolute pharmacy performance
x
Relative pharmacy performance: stakeholder satisfaction
x
Relative pharmacy performance: growth
x
Relative pharmacy performance: profit margin
Market intelligence generation
Local responsiveness
Adherence to uniform standards
CO contribution to general performance
Pharmacy performance
7.3.1
Construct validity
In a measurement model, constructs are linked to the items that indicate them. Testing a
measurement model means assessing its construct validity. This type of validity pertains to
the degree of correspondence between constructs and their measures (Peter, 1981). Two
important components of construct validity are discriminant validity and convergent
validity. Discriminant validity is the degree to which the items of different constructs are
44
In giving names to the new constructs, we left those items out of consideration that had to be removed because
of too low factor loadings and other reasons (see paragraph on construct validity).
111
research
results: survey
CHAPTER
1
103
distinct (Bagozzi et al., 1991). To assess discriminant validity, the correlations among items
that represent different constructs can be examined. In case these correlations are lower
than 0.90, no discriminant validity problem is considered to exist. The correlations between
any pair of items of different constructs do not exceed this criterion, which implies that
there is no problem with discriminant validity.
Convergent validity is the degree to which the items that indicate a specific construct share
a high proportion of variance (Hair et al., 2006). The amount of convergent validity can be
assessed in three different ways. First, convergent validity can be determined by the size of
the factor loading for each item. The higher the factor loading, the more important an item
is considered to be in indicating the construct. Ideally, factor loadings should have a value
of 0.7 or higher (Hair et al., 2006). Except for two items (item 7d and 7e), we removed all
items (item 2d, 2e, 3e, 4c, 5b, 6c, 6d, 8b, 8f, 9a, 12a, 12f, and 15e) that do not meet this
criterion out of the model. Item 7d and 7e, which have factor loadings of 0.59 and 0.63
respectively, were not removed because they are simply the only two items that represent
the construct other stakeholder intelligence generation. Second, the amount of convergent
validity can be assessed by the average variance extracted (AVE). Fornell and Larcker
(1981) judge a variance extracted of 0.5 or higher to be adequate. If the AVE is less than
0.5, the variance captured by the construct is smaller than the variance due to measurement
error. For each of the multi-item constructs, we calculated the AVE. All constructs have an
AVE of more than 0.5. Third, convergent validity is also determined by the reliability of a
construct. Reliability refers to the extent to which items of the same construct are consistent
with one another. To assess the extent of reliability, we calculated Cronbach’s alpha for
each of the multi-item constructs. According to Hair et al. (2006), the lower limit for
Cronbach’s alpha is 0.7. All multi-item constructs exceed this recommended value, except
for the construct other stakeholder intelligence generation. This is logical since the factor
loadings of the two items that represent this construct, as described, are lower than 0.7. To
evaluate the degree of reliability, we also estimated the item-to-total correlation for each of
the multi-item constructs. The item-to-total correlation measures the relationship between
an item score and the total scale score. We used a cut-off value of 0.3 for this statistic
(Ghosh and John, 2005). No items have item-to-total correlations below this value (except
for item 7d and 7e). Appendix D provides a detailed overview of the test-statistics of each
multi-item construct.
In addition to the items that were removed because of too low factor loadings, we also
removed some items due to other reasons. We removed three items because they are the
only ones to load on a second or third factor (item 6i, 11d, and 12e). Further, we removed
one item because, on reflection, too many respondents had to mark off “not applicable”
(item 6g). Another item was removed since too many respondents appeared to interpret it
incorrectly (some respondents marked off “not applicable” when they should have marked
off a number and others marked off a number when they should have marked off “not
applicable”) (item 6j). On second thought, one item appeared not that relevant with respect
TITLE
104
chapter112
7
to content (item 16c). Finally, we removed a number of items related to the financial
performance of pharmacies because they have too many missing values (item 16d, 16e, 16f,
and 16g). This is due to the fact that a lot of respondents were either not willing to provide
information about their financial performance, or they did not know this performance (e.g.
the operational profit margin). Appendix E explicates which items were removed.
7.4
Structural characteristics: Franchise pharmacies vs. companyowned pharmacies
In chapter 5 we formulated our hypotheses with respect to the differences in the structural
characteristics of franchise and company-owned pharmacies. We hypothesized that
franchisees have stronger incentives than company managers, that the relationship between
franchise pharmacies and the chain operator is characterized by a lower level of
centralization and formalization and a higher level of participation, and that franchise
pharmacies’ operations are less intensively controlled by the chain operator. Table 7.4
depicts the mean factor scores of franchise and company-owned pharmacies for each of the
structural characteristics 45 and the p-values of the differences 46 . The mean factor scores in
this table illustrate that the differences between franchise and company-owned pharmacies
with respect to their structural characteristics are similar to expected scores. As the p-values
of the differences are all well below 0.01, the differences between the two types of
pharmacies are also highly significant. H1a, H1b, H1c, and H1d are thus supported.
Table 7.4
Structural characteristics: Mean factor scores (MFS) of franchise pharmacies and company-owned
pharmacies and p-values of the differences
MFS company-owned
' p-value
3.01
1.85
0.000
Centralization
-0.70
0.94
0.000
Formalization
-0.54
0.71
0.000
Participation
0.23
-0.32
0.000
Rule conformation control
-0.24
0.33
0.000
Performance control
-0.76
1.03
0.000
Incentives
45
46
7.5
The items in the formalization scale, the participation scale, and the operational control scale are negatively
formulated (i.e. marking off number 7, strongly disagree, indicates a low level of formalization, participation,
and operational control). In table 7.4 we reversed the sign of the mean factor scores for these three constructs.
If not, it would seem as if the relationship between franchise pharmacies and the chain operator is
characterized by a higher level of formalization and operational control and a lower level of participation than
that between company-owned pharmacies and the chain operator.
We used mean factor scores to test the differences between franchise and company-owned pharmacies rather
than means because mean factor scores are based on the weighted average of scale items. Nevertheless, as
described by Hair et al. (2006), the two measures are essentially identical from an empirical perspective.
The structural model
In chapter 5 we presented five conceptual models. These conceptual models were split up
into 16 different structural models 47 . Although we would have preferred to use only five
structural models, this was not feasible. Considering our sample size, these five structural
models would have consisted of too many constructs and items (and consequently of too
many unknown model parameters) so as to generate unique parameter estimates (i.e. to
attain model identification). In the structural models, the non-significant relationships are
indicated by a dotted line.
7.5.1
Assessing overall structural model fit
To test the structural models, it is necessary to determine how well each specified structural
model accounts for (fits) the actual input matrix (i.e. the similarity of the estimated and the
observed covariance matrix). Since model fit is a multifaceted concept, researchers
recommend the use of various so-called Goodness-of-Fit (GOF) statistics to assess this fit
(e.g. Hair et al., 2006; Hartwick and Barki, 1994). In this thesis we employ six common
GOF statistics. For each of these fit statistics, cut-off values for optimal fit have been
suggested in the literature (e.g. Chau, 1997; Segars and Grover, 1993). In table 7.5 we
depict the six different fit statistics together with the recommended cut-off values for
optimal fit. For the sixth GOF statistic, the RMSEA, this table also depicts the cut-off value
that has been suggested in the literature for adequate fit (e.g. Brown and Cudeck, 1993).
Table 7.5
MFS franchise
CHAPTER
1
105
113
research
results: survey
Goodness-of-Fit statistics and recommended values
Goodness-of-Fit Statistics
Chi-square/degrees of freedom
47
Recommended value:
Recommended value:
optimal fit
adequate fit
” 3.0
Goodness-of-Fit Index (GFI)
• 0.90
Adjusted Goodness-of-Fit Index (AGFI)
• 0.80
Normed Fit Index (NFI)
• 0.90
Comparative Fit Index (CFI)
• 0.90
Root Mean Square Error of Approximation (RMSEA)
” 0.05
” 0.08
The items in four of our scales are positively formulated (i.e. the incentives scale, the centralization scale, the
participation in field testing scale, and the absolute performance with respect to growth scale). The items in
the rest of the scales are negatively formulated. To avoid confusion, in the structural models that are depicted
in this chapter, we reversed the signs of the relationships between constructs with positively formulated scales
and those with negatively formulated scales.
TITLE
106
chapter114
7
To illustrate the overall model fit, we depicted the actual values of the GOF statistics
underneath each of the structural models (see below). Eight of our structural models have at
least five GOF statistics that meet the recommended values. On the other hand, the other
eight structural models have two or more GOF statistics that are (just) below or above the
recommended values. For these models we conducted additional analyses 48 . By means of
SPSS, we calculated the regression equations. The objective of these calculations is to
verify whether the results obtained by means of LISREL are confirmed. The difference
between LISREL and SPSS is that LISREL examines regression equations simultaneously,
while SPSS examines these equations separately. The SPSS results are depicted in tables
underneath the eight structural models (see below). With two exceptions, the SPSS results
support the LISREL results. As not all GOF statistics indicate good fit between model and
data, our results must be interpreted with caution though. To increase the overall model fit,
perhaps we should have added other constructs to our models. As demonstrated by the
SPSS results, the R2 values of the regression equations are often low. This indicates that
other constructs may also be important in explaining the dependent variables. A suggestion
for further research is therefore to include these other constructs in the models. Another
way to increase the overall model fit may have been to estimate the structural models for
each pharmacy group (i.e. franchise pharmacies of plural chains, franchise pharmacies of
pure chains, company-owned pharmacies of plural chains, and company-owned pharmacies
of pure chains) separately. The sample size of these groups is not large enough to produce
trustworthy results, however.
7.5.2
Local responsiveness: Relationships among structure, conduct, and
performance
Conceptual framework 1 was divided into seven different structural models. As described
in paragraph 7.3, the items of the constructs market intelligence generation and local
responsiveness load on different factors. We constructed one structural model that contains
the variables incentives, centralization, formalization, customer intelligence generation, and
customer responsiveness. The second structural model consists of the same structural
characteristics but includes market development intelligence generation, other stakeholder
intelligence generation, and other stakeholder responsiveness instead of customer
intelligence generation and customer responsiveness. We constructed two separate models
because we expect customer intelligence generation to be an important antecedent of
customer responsiveness, and because we expect market development intelligence
generation and other stakeholder intelligence generation to be antecedents of other
stakeholder responsiveness. The third model includes both other stakeholder responsiveness
48
Our decision not to conduct additional analyses for those structural models of which one GOF statistic did not
meet the recommended value is based on the fact that other scientists also consider the fit of such models to
be satisfactory (e.g. Ramani and Kumar, 2008; Zheng Zhou et al., 2005).
115
research
results: survey
CHAPTER
1
107
and customer responsiveness. In addition, it includes the variables participation,
contribution to idea generation, and chain operator contribution to local responsiveness. As
described, the construct pharmacy performance was split up into four different
subconstructs. We constructed one structural model that encompasses the variables chain
operator contribution to local responsiveness and absolute performance and a similar model
that includes the three different relative performance constructs rather than the absolute
performance construct. Finally, the sixth structural model contains the variables local
responsiveness and absolute performance and the seventh model the variables local
responsiveness and relative performance.
7.5.3
Testing hypotheses
The effect of structural characteristics on local responsiveness
In chapter 5 we hypothesized that a pharmacist’s incentives are positively related to the
local responsiveness of the pharmacy. The results, however, do not support this
relationship. Figure 7.1.1 and 7.1.2 demonstrate that for both customer responsiveness and
other stakeholder responsiveness there is no relationship with incentives. Apparently, the
strength of pharmacists’ incentives does not affect the degree to which pharmacies conduct
local activities. We thus reject H2a. The second structural characteristic, centralization,
appears not to be related to customer responsiveness and other stakeholder responsiveness
either. A lower level of centralized chain operator authority does not cause pharmacies to
be more locally responsive. This leads us to reject H2b. Finally, as the two figures illustrate,
formalization does have a significant and negative impact on customer responsiveness. This
is in support of H2c. However, contrary to expectations, no significant direct relationship
exists between formalization and other stakeholder responsiveness.
In chapter 4 we described that in addition to incentives, centralization, and formalization,
local responsiveness is also influenced by pharmacists’ tenure in their local market and by
whether or not pharmacists are living in the local area in which their pharmacy is located.
No statistical support is, however, provided for the relationships between these two
variables and local responsiveness.
The effect of market intelligence generation on local responsiveness
As hypothesized, a significant relationship exists between market intelligence generation
and local responsiveness. The results demonstrate that customer intelligence generation is
positively related to customer responsiveness. Moreover, market development intelligence
generation and other stakeholder intelligence generation are both positively related to other
stakeholder responsiveness. Thus, the more market intelligence a pharmacy generates, the
more local actions it initiates. We accept H3.
TITLE
108
chapter116
7
The effect of structural characteristics on market intelligence generation
The results provide partial support for H4a. No support is found for the relationship between
incentives and customer intelligence generation and between incentives and other
stakeholder intelligence generation. However, incentives do have a significant positive
effect on market development intelligence generation. Partial support is also provided for
H4b. The structural model does not indicate a relationship between centralization and
market development intelligence generation and between centralization and other
stakeholder intelligence generation. Centralization only has a significant relationship with
customer intelligence generation. The lower the level of centralized chain operator
authority, the more information a pharmacy generates about customers. As figure 7.1.1
illustrates, centralization thus has a negative effect on customer responsiveness through
customer intelligence generation. In contrast to H4c, formalization appears not to be related
to customer intelligence generation, market development intelligence generation, and other
stakeholder intelligence generation.
Figure 7.1.1 Local responsiveness: Relationships between structure and conduct (customer responsiveness)
CHAPTER
1
109
117
research
results: survey
Figure 7.1.2 Local responsiveness: Relationships between structure and conduct (other stakeholder
responsiveness)
Incentives
0.18**
-0.07
Market develop.
intelligence
generation
0.03
-0.05
Centralization
Other stakeholder
intelligence
generation
-0.16
-0.06
0.16
Formalization
-0.05
0.17***
1.28***
0.08
Other stakeholder
responsiveness
*p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F2/d.f.=3.36; GFI=0.84; AGFI=0.77; NFI=0.86; CFI=0.90; RMSEA=0.10
0.02
Incentives
-0.01
-0.27***
Centralization
Regression equations in SPSS
0.38***
0.13
Other stakeh.
Customer
responsiveness
0.05
Formalization
Table 7.7
Customer
intelligence
generation
Market develop.
Fit statistics: F2/d.f.=2.42; GFI=0.88; AGFI=0.81; NFI=0.91; CFI=0.95; RMSEA: 0.09
Regression equations in SPSS
Customer intelligence
Incentives
Centralization
-0.003
0.10
Formalization
R2
generation
0.32***
-0.18*
0.117
0.01
0.144
responsiveness
generation
stakeh. intel.
generation
generation
0.10**
0.53***
0.02
Centralization
Formalization
R2
0.07
-0.07
0.365
0.23**
-0.04
0.07
0.033
0.01
-0.12
-0.09
0.037
intel. generation
*p < 0.10, ** p < 0.05, *** p < 0.01
Customer intelligence
develop. intel.
Incentives
intel. generation
-0.14***
Customer
Other
responsiveness
Other stakeh.
Table 7.6
Market
0.06
-0.35***
The effect of local responsiveness on contribution to idea generation
The data demonstrate mixed results for the hypothesized relationship between local
responsiveness and contribution to idea generation (H5). As figure 7.2 illustrates, other
stakeholder responsiveness has a positive and significant relationship with contribution to
the chain’s idea generation. On the other hand, no relationship is found to exist between
customer responsiveness and contribution to idea generation. We also estimated the model
without the construct other stakeholder responsiveness. In that case the relationship
between customer responsiveness and contribution to idea generation is significant (at the
10% level).
TITLE
110
chapter118
7
The effect of participation on contribution to idea generation
Participation is, as expected, positively related to contribution to idea generation. This
supports the expectation that those pharmacies that are encouraged by the chain operator to
generate ideas and feel that they are taken seriously and are being listened to are more
likely to share their innovations with the chain operator and thus to contribute to the chain’s
idea generation. Consequently, we accept H6.
The effect of contribution to idea generation on chain operator contribution to local
responsiveness
The results reported in figure 7.2 provide strong support for the hypothesized effect of
contribution to idea generation on chain operator contribution to local responsiveness.
Apparently, the more often chain operators copy products and services from their
pharmacies (and thus the more pharmacies contribute to idea generation), the greater the
contribution of chain operator products and services to the local responsiveness of
pharmacies. Hence, we accept H7.
CHAPTER
1
111
119
research
results: survey
satisfaction, on the one hand, and between chain operator contribution to local
responsiveness and profit margin, on the other hand. It is interesting to note that the
relationship with stakeholder satisfaction is positive, while the relationship with profit
margin is negative. Apparently, by offering products and services that increase pharmacies’
local responsiveness, the chain operator positively influences the satisfaction of customers,
employees, and other local stakeholders, but it negatively influences pharmacies’ profit
margin. Finally, similar to the relationship between chain operator contribution to local
responsiveness and pharmacies’ absolute performance with respect to growth, no support is
provided for the relationship between chain operator contribution to local responsiveness
and pharmacies’ relative performance with respect to growth.
Figure 7.3.1 Local responsiveness: Relationships
Figure 7.3.2 Local responsiveness: Relationships
between CO performance and pharmacy
between CO performance and
performance (absolute)
pharmacy performance (relative)
Figure 7.2 Local responsiveness: Relationships among structure, conduct, and CO performance
Other stakeholder
responsiveness
Customer
responsiveness
0.28***
CO contribution
to local
responsiveness
0.004
CO contribution
to local
responsiveness
Abs. pharmacy perf:
growth
-0.05
-0.003
0.53***
Contribution to
idea generation
Rel. pharmacy perf:
growth
0.14*
-0.26***
Participation
Rel. pharmacy perf:
stakeh. satisfaction
1.20*** CO contribution to
local responsiveness
* p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F2/d.f.=1.59; GFI=0.86; AGFI=0.81; NFI=0.93; CFI=0.97; RMSEA=0.06
The effect of chain operator contribution to local responsiveness on pharmacy performance
As noted earlier, the construct performance had to be split up into four different
subconstructs. Limited support is provided for the relationship between the chain operator’s
contribution to local responsiveness and these four subconstructs (H8). As figure 7.3.1
illustrates, the data do not confirm a relationship between chain operator contribution to
local responsiveness and the absolute performance of pharmacies with respect to growth.
As far as pharmacies’ relative performance is concerned, a significant relationship is found
to exist between chain operator contribution to local responsiveness and stakeholder
* p < 0.10, ** p < 0.05, *** p < 0.01
* p < 0.10, ** p < 0.05, *** p < 0.01
2
Fit statistics: F /d.f.=1.17; GFI=0.97; AGFI=0.93;
NFI=0.98; CFI=1.00; RMSEA=0.04
Table 7.8
Rel. pharmacy perf:
profit margin
Fit statistics: F2/d.f.=7.62; GFI=0.84; AGFI=0.70;
NFI=0.79; CFI=0.81; RMSEA=0.14
Regression equations in SPSS (figure 7.3.2)
Chain operator contribution to local
R2
responsiveness
Relative pharmacy performance:
0.29***
0.086
0.01
0.000
stakeh. satisfaction
Relative pharmacy performance:
growth
Relative pharmacy performance:
profit margin
-0.24***
0.053
TITLE
112
chapter120
7
The effect of local responsiveness on pharmacy performance
The results indicate that local responsiveness has no significant direct relationship with
absolute pharmacy performance with respect to growth. Both customer responsiveness and
other stakeholder responsiveness do not seem to affect this performance. On the other hand,
a significant relationship is found to exist between local responsiveness and pharmacies’
relative performance with respect to stakeholder satisfaction. Responsiveness towards
customers and other stakeholders positively influences pharmacies’ relative stakeholder
satisfaction. Partial support is found for the relationship between local responsiveness and
pharmacies’ relative growth performance. The data reveals that other stakeholder
responsiveness does have a positive and significant effect on pharmacies’ relative growth
performance, while customer responsiveness does not have an effect on this performance.
Finally, figure 7.4.2 illustrates that local responsiveness is related to pharmacies’ relative
performance with respect to profit margin. As expected, customer responsiveness has a
significant and positive effect on pharmacies’ relative profit margin. Other stakeholder
responsiveness, however, has a significant but negative effect on this variable. In summary,
partial support is only provided for H9.
Figure 7.4.1 Local responsiveness: Relationships
Figure 7.4.2 Local responsiveness: Relationships
between conduct and pharmacy
between conduct and pharmacy
performance (absolute)
performance (relative)
0.14*
Customer
responsiveness
Customer
responsiveness
0.11
0.32***
-0.08
Rel. pharmacy perf:
growth
Abs. pharmacy perf:
growth
Other stakeholder
responsiveness
0.02
Rel. pharmacy perf:
stakeh. satisfaction
0.39***
Other stakeholder
responsiveness
0.17*
-0.21***
Rel. pharmacy perf:
profit margin
* p < 0.10, ** p < 0.05, *** p < 0.01
* p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F /d.f.=1.29; GFI=0.97; AGFI=0.93;
NFI=0.98; CFI=1.00; RMSEA=0.04
Fit statistics: F2/d.f.=2.70; GFI=0.90; AGFI=0.81;
NFI=0.92; CFI=0.95; RMSEA=0.09
2
7.5.4
Generating ideas: Relationships among structure, conduct, and performance
Conceptual framework 2 was divided into three different structural models. The first model
contains the following constructs: incentives, demand for chain operator initiated
innovation, contribution to idea generation, chain operator idea generation proficiency,
121
research
results: survey
CHAPTER
1
113
chain operator contribution to effectiveness, and chain operator contribution to efficiency.
The second structural model contains the constructs chain operator contribution to
effectiveness, chain operator contribution to efficiency, and absolute pharmacy
performance. Finally, the third model has come to consist of the constructs chain operator
contribution to effectiveness, chain operator contribution to efficiency, and relative
pharmacy performance.
7.5.5
Testing hypotheses
The effect of structural characteristics on demand for chain operator initiated innovation
In chapter 5 we hypothesized that a pharmacist’s incentives are positively related to a
pharmacy’s demand for chain operator initiated innovation. As figure 7.5 illustrates, a
significant relationship does indeed exist between incentives and demand for chain operator
initiated innovation, but this relationship is negative rather than positive. Having a variable
rather than a fixed income thus causes pharmacists to exert less pressure on the chain
operator to come up with innovations that can help them in maximizing this income. H 10 is
thus rejected.
The effect of demand for chain operator initiated innovation on chain operator idea
generating proficiency
Contrary to expectations, there is no statistical support for the relationship between
pharmacies’ demand for chain operator initiated innovation and the proficiency of the chain
operator in generating ideas for these innovations. Apparently, in case pharmacies exert
pressure on the chain operator to come up with innovations, this does not lead the chain
operator to generate more ideas and more valuable ideas for new products and services. We
thus have to reject H11.
The effect of contribution to idea generation on chain operator idea generating proficiency
As expected, a strong significant relationship exists between pharmacies’ contribution to
idea generation and chain operator idea generating proficiency. The more pharmacies
contribute to idea generation, the greater the chain operator’s idea generating proficiency.
This leads us to accept H12.
The effect of chain operator idea generating proficiency on chain operator contribution to
general performance
Partial support is provided for H13. A strong positive relationship exists between the chain
operator’s idea generating proficiency and its contribution to the effectiveness of
pharmacies. The empirical results, however, do not demonstrate a relationship to exist
between the chain operator’s idea generating proficiency and its contribution to the
efficiency of pharmacies. Seemingly, if the chain operator generates more ideas and more
valuable ideas, this does result in chain operator products and services that help pharmacies
TITLE
114
chapter122
7
to be more effective but this does not result in products and services that help pharmacies to
be more efficient.
Figure 7.5 Idea generation: Relationships among structure, conduct, and CO performance
Incentives
-0.16**
Demand for CO
initiated innovation
-0.15
0.26***
Contribution to
idea generation
CO idea generating
proficiency
0.78***
CO contribution
to effectiveness
-0.07
CO contribution
to efficiency
CHAPTER
1
115
123
research
results: survey
relationship. No significant relationship exists between chain operator contribution to
general performance and pharmacies’ absolute and relative performance with respect to
growth. Both the chain operator’s contribution to effectiveness and its contribution to
efficiency do not result in better pharmacy performance with respect to growth. The data do
demonstrate a relationship between chain operator contribution to general performance and
pharmacies’ relative performance with respect to stakeholder satisfaction and profit margin.
Chain operator contribution to effectiveness is significantly and positively related to
pharmacies’ relative performance with respect to stakeholder satisfaction, while it is
significantly and negatively related to pharmacies’ relative performance with respect to
profit margin. Interestingly, as far as chain operator contribution to efficiency is concerned,
the results are exactly the opposite. Chain operator contribution to efficiency has a negative
effect on pharmacies’ relative performance with respect to stakeholder satisfaction, but a
positive effect on pharmacies’ relative performance with respect to profit margin.
Figure 7.6.1 Idea generation: Relationships
Figure 7.6.2 Idea generation: Relationships
between CO performance and
between CO performance and
pharmacy performance (absolute)
pharmacy performance (relative)
* p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F2/d.f.=2.38; GFI=0.83; AGFI=0.77; NFI=0.91; CFI=0.95; RMSEA=0.09
Table 7.9
0.16**
CO contribution
to effectiveness
Regression equations in SPSS
CO contribution
CO idea
Demand for CO
Contribution to
generating
initiated
idea generation
proficiency
innovation
Incentives
0.71***
R2
0.495
CO contribution to
effectiveness
0.04
0.02
to effectiveness
CO contribution
-0.09
-0.44***
-0.09
Abs. pharmacy perf:
growth
CO contribution
to efficiency
Rel. pharmacy perf:
growth
-0.01
CO contribution to
efficiency
-0.13*
0.28***
0.003
Rel. pharmacy perf:
stakeh. satisfaction
Rel. pharmacy perf:
profit margin
to efficiency
CO idea
-0.13
0.21**
0.036
generating
proficiency
Demand for CO
-0.10*
0.018
initiated
innovation
The effect of chain operator contribution to general performance on pharmacy
performance
The final part of conceptual framework 2 consists of the relationship between chain
operator contribution to pharmacies’ general performance and pharmacies’ actual
performance (H14). As the figures below illustrate, mixed support is provided for this
* p < 0.10, ** p < 0.05, *** p < 0.01
* p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F2/d.f.=1.34; GFI=0.97; AGFI=0.93;
NFI=0.98; CFI=0.99; RMSEA=0.05
Fit statistics: F2/d.f.=3.61; GFI=0.87; AGFI=0.77;
NFI=0.89; CFI=0.91; RMSEA=0.11
TITLE
116
chapter124
7
Table 7.10 Regression equations in SPSS (figure 7.6.2)
Relative pharmacy performance:
R2
CO contribution to
CO contribution to
effectiveness
efficiency
0.33***
-0.18***
0.221
-0.05
0.005
CHAPTER
1
117
125
research
results: survey
On the other hand, a significant and positive relationship appears to exist between
participation in field testing and chain operator contribution to efficiency. Partial support is
thus only provided for H16.
Figure 7.7 Testing ideas: Relationships among structure, conduct, and CO performance
stakeh. satisfaction
Relative pharmacy performance:
-0.002
Incentives
growth
Relative pharmacy performance:
-0.21**
0.14**
0.12*
0.113
profit margin
7.5.6
Testing ideas: Relationships among structure, conduct, and performance
Conceptual framework 3 only consists of one structural model. This model includes the
following constructs: incentives, centralization, performance control, participation in field
testing, chain operator contribution to effectiveness, and chain operator contribution to
efficiency. As illustrated in chapter 5, pharmacy performance is also a part of conceptual
framework 3. However, the relationship between chain operator contribution to general
performance and pharmacy performance has already been described in the previous
paragraph.
Centralization
Participation in
field testing
0.44***
Performance control
-0.88***
CO contribution to
effectiveness
0.37***
CO contribution
to efficiency
* p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F2/d.f.=2.32; GFI=0.87; AGFI=0.81; NFI=0.94; CFI=0.97; RMSEA=0.08
7.5.8
7.5.7
0.26**
Decision-making: Relationships among structure, conduct, and performance
Testing hypotheses
The effect of structural characteristics on participation in field testing
In chapter 5 we described that we expect a pharmacist’s incentives to have a positive effect
on a pharmacy’s participation in field testing. As figure 7.7 illustrates, a positive
relationship indeed appears to exist between these two constructs. Therefore, we accept
H15a. The data analysis also indicates a significant relationship between centralization and
participation in field testing. The higher the level of centralization that characterizes the
relationship between the pharmacy and the chain operator, the more often the pharmacy
participates in field tests. We thus accept H15b. Finally, as expected, a significant and
positive relationship exists between performance control and participation in field testing.
Consequently, we also accept H15c.
The effect of participation in field testing on chain operator contribution to general
performance
We further hypothesized participation in field testing to have a positive relationship with
chain operator contribution to general performance. As figure 7.7 illustrates, the data
demonstrate a relationship between participation in field testing and chain operator
contribution to effectiveness. Interestingly, this relationship is negative rather than positive.
Conceptual framework 4 also consists of one structural model. This model includes the
constructs incentives, centralization, participation, critique of chain operator decisions,
chain operator contribution to effectiveness, and chain operator contribution to efficiency.
The relationship between chain operator contribution to general performance and pharmacy
performance, which was part of the original conceptual framework, has already been
discussed in paragraph 7.5.5.
7.5.9
Testing hypotheses
The effect of structural characteristics on critique of chain operator decisions
The data analysis illustrates that pharmacists’ incentives are an antecedent of their critique
of the chain operator’s decisions. The stronger pharmacists’ incentives, the more critical
pharmacies are towards these decisions. The results thus confirm H17a. The relationship
between centralization and critique of chain operator decisions is significant, but
interestingly enough the direction of the sign is reversed. Contrary to what was
hypothesized, a higher rather than a lower level of centralization leads to more critique of
the chain operator’s decisions. H17b is thus rejected. Finally, figure 7.8 illustrates that the
TITLE
118
chapter126
7
degree to which pharmacies participate in the chain operator’s decision-making does not
impact their critique of the chain operator. We thus have to reject H17c.
The effect of critique of chain operator decisions on chain operator contribution to general
performance
The results demonstrate only partial support for the relationship between critique of chain
operator decisions and the contribution of the chain operator to pharmacies’ general
performance (H18). A significant and negative rather than a positive relationship exists
between critique of chain operator decisions and the chain operator’s contribution to the
effectiveness of pharmacies. On the other hand, critique of chain operator decisions
positively impacts the contribution of the chain operator to the efficiency of pharmacies. In
summary, the more critique pharmacies give on chain operator decisions, the smaller the
chain operator’s contribution to effectiveness, but the greater its contribution to efficiency.
Figure 7.8 Decision-making: Relationships among structure, conduct, and CO performance
Incentives
127
research
results: survey
7.5.10
0.14*
0.15**
Critique of CO
decisions
-0.09
-0.17*
CO contribution to
effectiveness
0.19**
CO contribution to
efficiency
Participation
* p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F2/d.f.=3.10; GFI=0.80; AGFI=0.73; NFI=0.88; CFI=0.91; RMSEA=0.10
Table 7.11 Regression equations in SPSS
Critique of CO
Incentives
Centralization
Participation
R2
decisions
CO contribution
-0.14*
0.018
0.20*
0.017
to effectiveness
CO contribution
to efficiency
Critique of CO
decisions
Implementation: Relationships among structure, conduct, and performance
As described in paragraph 7.3, the items of the construct adherence to uniform standards
load on two different factors: adherence to uniform front office standards and adherence to
uniform back office standards. For each of these factors, we constructed a separate
structural model. The first model contains the constructs centralization, formalization, rule
conformation control, speed of implementation, and adherence to uniform front office
standards. The second model encompasses the same constructs as the first model but
contains adherence to uniform back office standards rather than adherence to uniform front
office standards. In addition, this model includes the construct performance control. We did
not include this construct in the first model as we do not expect more intensive monitoring
of a pharmacy’s financial and operational performance to affect its implementation of
uniform front office standards. The third model contains the constructs adherence to
uniform front office standards, adherence to uniform back office standards, and absolute
pharmacy performance. Finally, the fourth model contains the same constructs as the third
model but includes relative pharmacy performance instead of absolute pharmacy
performance.
7.5.11
Centralization
CHAPTER
1
119
0.14**
0.23**
0.03
0.047
Testing hypotheses
The effect of structural characteristics on adherence to uniform standards
As hypothesized, a significant relationship exists between the level of centralization and the
adherence of a pharmacy to the chain’s uniform front office standards. The sign of the
relationship is reversed, however. Rather than a positive effect, centralization has a
negative effect on a pharmacy’s front office uniformity. Centralization also has an effect on
a pharmacy’s adherence to uniform back office standards. As expected, the higher the level
of centralized chain operator authority, the more pharmacies adhere to these standards.
Partial support is thus only provided for H19a. As figure 7.9.1 illustrates, the results provide
support for the relationship between formalization and a pharmacy’s adherence to uniform
front office standards. Similar to the relationship between centralization and adherence to
uniform front office standards, the sign of the relationship is reversed. Interestingly, more
rules and procedures thus cause pharmacies to adhere less to uniform front office standards.
In addition, the results demonstrate that formalization does not impact a pharmacy’s
adherence to uniform back office standards. This leads us to reject H19b. As hypothesized,
operational control impacts a pharmacy’s adherence to uniform standards (H19c). The
results demonstrate that rule conformation control has a significant and positive
relationship with adherence to uniform front office standards. Furthermore, rule
conformation control also has a significant relationship with adherence to uniform back
office standards, but the sign of the relationship is negative rather than positive. As far as
this relationship is concerned, the LISREL results are, however, not in line with the SPSS
results. As illustrated in table 7.12, the regression equation in SPSS does not confirm a
TITLE
120
chapter128
7
significant relationship between these two variables. Because the structural model does not
indicate optimal fit either, we cannot be sure that a relationship indeed exists between rule
conformation control and adherence to uniform back office standards. Finally, a significant
and positive relationship appears to exist between performance control and adherence to
uniform back office standards. This is according to expectations.
Figure 7.9.1 Implementation: Relationships
The effect of structural characteristics on speed of implementation
Both figure 7.9.1 and 7.9.2 illustrate a significant relationship between centralization and
speed of implementation. As hypothesized, the level of centralized chain operator authority
positively influences the speed with which pharmacies implement uniform standards.
Consequently, H21 is accepted. Centralization thus has a positive indirect effect and a
negative direct effect on adherence to uniform front office standards and only a positive
direct effect on adherence to uniform back office standards (as we do not consider a
relationship to exist between speed of implementation and adherence to uniform back office
standards).
Figure 7.9.2 Implementation: Relationships
between structure and conduct
between structure and conduct
(front office standards)
(back office standards)
Centralization
The effect of speed of implementation on adherence to uniform standards
Consistent with our expectations, speed of implementation is significantly related to
adherence to uniform front office standards. The more rapidly a pharmacy implements new
standards, the more uniformity it demonstrates with respect to its front office. Figure 7.9.2
illustrates that a significant and positive relationship also exists between speed of
implementation and adherence to uniform back office standards. The regression equation in
table 7.12 does not demonstrate a relationship to exist between these variables though,
which means that the SPSS results do not confirm the LISREL results. Consequently, we
cannot be certain that speed of implementation indeed positively affects adherence to
uniform back office standards. Partial support is thus only provided for H20.
CHAPTER
1
121
129
research
results: survey
0.34***
Speed of
implementation
0.23***
-0.33***
Formalization
-0.30***
0.35***
Centralization
Speed of
implementation
0.10**
0.14*
Adherence to
uniform front office
standards
-0.10
Formalization
0.33***
Adherence to
uniform back office
standards
-0.14**
Rule conformation
control
Rule conformation
control
0.42***
Performance
control
* p < 0.10, ** p < 0.05, *** p < 0.01
* p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F /d.f.=2.47; GFI=0.92; AGFI=0.83;
NFI=0.94; CFI=0.96; RMSEA=0.09
Fit statistics: F2/d.f.=3.01; GFI=0.86; AGFI=0.78;
NFI=0.93; CFI=0.95; RMSEA=0.09
2
Table 7.12 Regression equations in SPSS (figure 7.9.2)
Speed of
Centralization
Formalization
implem.
Rule
Performance
conformation
control
R2
control
Adherence to
0.02
0.22*
-0.12
-0.07
0.36***
0.216
uniform back
office standards
Speed of
0.43***
0.103
implementation
The effect of adherence to uniform standards on pharmacy performance
We hypothesized a positive relationship to exist between adherence to uniform standards
and the performance of pharmacies. The results do not provide support for the relationship
between adherence to uniform standards (front office and back office) and a pharmacy’s
absolute performance with respect to growth. Apparently, greater uniformity does not lead
to an increase in sales and number of prescription rules. As figure 7.10.2 illustrates,
TITLE
122
chapter130
7
adherence to uniform standards is significantly related to some of the relative performance
constructs. A significant and positive relationship exists between adherence to uniform
front office standards and a pharmacy’s relative performance with respect to stakeholder
satisfaction. Interestingly, the relationship between adherence to uniform back office
standards and a pharmacy’s relative performance with respect to stakeholder satisfaction is
also significant, but the sign is negative rather than positive. Furthermore, adherence to
uniform front office and uniform back office standards does not impact a pharmacy’s
relative performance with respect to growth. Finally, the results do also provide support for
the positive relationship between adherence to uniform back office standards and a
pharmacy’s relative performance regarding profit margin. On the other hand, the
relationship between adherence to uniform front office standards and a pharmacy’s relative
performance regarding profit margin appears to be negative rather than positive. In
summary, if a pharmacy adheres more to a chain’s back office standards, this leads to a
higher profit margin relative to the average Dutch pharmacy, but if it adheres more to a
chain’s front office standards, this lead a lower relative profit margin.
Figure 7.10.1 Implementation: Relationships
Figure 7.10.2 Implementation: Relationships
between conduct and pharmacy
between conduct and pharmacy
performance (absolute)
performance (relative)
0.36***
Adherence to
uniform front office
standards
Adherence to
uniform front office
standards
-0.07
-0.50***
0.10
Abs. pharmacy perf:
growth
Adherence to
uniform back office
standards
0.02
Rel. pharmacy perf:
growth
Adherence to
uniform back office
standards
0.06
-0.15**
0.17**
* p < 0.10, ** p < 0.05, *** p < 0.01
2
Fit statistics: F /d.f.=1.30; GFI=0.98; AGFI=0.94;
NFI=0.97; CFI=0.99; RMSEA=0.04
Rel. pharmacy perf:
stakeh satisfaction
Rel. pharmacy perf:
profit margin
*p < 0.10, ** p < 0.05, *** p < 0.01
Fit statistics: F2/d.f.= 6.19; GFI=0.83; AGFI=0.69;
NFI=0.76; CFI=0.79; RMSEA=0.15
CHAPTER
1
123
131
research
results: survey
Table 7.13 Regression equations in SPSS (figure 7.10.2)
Relative pharmacy performance:
Adherence to uniform
Adherence to uniform
front office standards
back office standards
0.21**
-0.19**
R2
0.084
stakeh. satisfaction
Relative pharmacy performance:
0.09
0.09
0.017
0.19**
0.070
growth
Relative pharmacy performance:
-0.16*
profit margin
7.6
Conduct: Franchise pharmacies vs. company-owned pharmacies
In chapter 5 we formulated hypotheses regarding the differences in the contribution of
franchise and company-owned pharmacies to the chain’s strategic objectives. As described,
we expect franchise and company-owned pharmacies to differ in their contribution because
of differences in their structural characteristics. In table 7.14 the mean factor scores of
franchise and company-owned pharmacies for each of the different types of conduct 49 as
well as the p-values of the differences are depicted.
Market intelligence generation
A significant difference appears to exist between franchise and company-owned
pharmacies with respect to customer intelligence generation. As hypothesized, franchise
pharmacies generate more of this type of intelligence than company-owned pharmacies.
Although franchise pharmacies do also generate more market development intelligence and
other stakeholder intelligence than company-owned pharmacies, the differences are not
significant. In summary, only partial support is thus provided for H23.
Local responsiveness
As far as local responsiveness is concerned, table 7.14 illustrates that there are no clear
differences between franchise and company-owned pharmacies. Franchise pharmacies do,
as expected, score higher on customer responsiveness as well as on other stakeholder
responsiveness, but these differences are not significant. Therefore, we have to reject H24.
Contribution to idea generation
With respect to contribution to idea generation, the scores of franchise and company-owned
pharmacies do not differ significantly from each other either. We thus reject H25. In contrast
49
The scales of the constructs depicted in table 7.14 are all negatively formulated (except for the participation in
field testing scale). For the same reasons described earlier, we reversed the signs of the mean factor scores for
each of the constructs with negatively formulated scales.
TITLE
124
chapter132
7
to what was expected, company-owned pharmacies actually seem to make a somewhat
greater contribution than franchise pharmacies.
Demand for chain operator initiated innovation
As far as demand for chain operator initiated innovation is concerned, we hypothesized that
franchise pharmacies display a greater demand than company-owned pharmacies.
Interestingly, the data illustrate exactly the opposite. Company-owned pharmacies score
significantly higher on demand for chain operator initiated innovation than franchise
pharmacies. Consequently, we reject H26.
does exist between these two types of pharmacies. As expected, company-owned
pharmacies do adhere more to uniform back office standards than franchise pharmacies. H30
is thus only partly supported by the data.
Table 7.14 Conduct: Mean factor scores (MFS) of franchise pharmacies and company-owned pharmacies and pvalues of the differences
Participation in field testing
As hypothesized, franchise pharmacies participate less often in field testing than companyowned pharmacies. Hence, we accept H27.
Adherence to uniform standards
Finally, as far as adherence to uniform standards is concerned, we see two different
outcomes. With respect to adherence to uniform front office standards, there is no
significant difference between franchise and company-owned pharmacies. On the other
hand, with respect to adherence to uniform back office standards, a significant difference
MFS franchise
MFS company-owned
Customer intelligence generation
0.32
-0.42
' p-value
0.000
Market development intelligence
4.50
4.28
0.422
0.04
-0.06
0.525
Customer responsiveness
0.11
-0.14
0.116
Other stakeholder responsiveness
0.08
-0.10
0.275
generation
Other stakeholder intelligence
generation
Critique of chain operator decisions
Table 7.14 illustrates that a significant difference exists between franchise and companyowned pharmacies with respect to critique of chain operator decisions. Contrary to the
expectation, however, company-owned pharmacies provide more critique on these
decisions than franchise pharmacies. We thus have to reject H28.
Speed of implementation
With respect to speed of implementation, a strong significant difference exists between
franchise and company-owned pharmacies. Company-owned pharmacies do indeed more
quickly implement uniform standards than franchise pharmacies. Consequently, we accept
H29. As described in chapter 6, the last two items of the speed of implementation construct
could only be filled out by franchise pharmacies from plural chains. The objective of these
questions was to determine whether the implementation of new standards in companyowned pharmacies leads franchise pharmacies that belong to the same chain to implement
these standards more rapidly. The average score on item 5c was 3.19, which is below 4, the
median of the Likert scale that was used (agree to some extent/disagree to some extent).
This indicates that, on average, franchise pharmacies do not implement new standards more
quickly when these standards are also implemented in company-owned pharmacies. The
average score on item 5d was 4.41, which is higher than the median. This indicates that, on
average, franchise pharmacies do implement new standards somewhat more quickly when
the success of these standards is demonstrated through data gathered from company-owned
pharmacies.
CHAPTER
1
125
133
research
results: survey
Contribution to idea generation
-0.09
0.12
0.198
Demand for CO initiated innovation
-0.34
0.46
0.000
Participation in field testing
0.64
1.31
0.000
Critique of CO decisions
-0.18
0.23
0.011
Speed of implementation
4.11
5.09
0.000
Adherence to uniform front office
0.10
-0.14
0.139
-0.48
0.56
0.000
standards
Adherence to uniform back office
standards
7.7
Performance: Plural pharmacy chains vs. pure pharmacy chains
In chapter 5 we formulated several hypotheses regarding the differences in the performance
of plural and pure pharmacy chains. As described, we expect plural and pure chains to
differ in their performance because of differences in the contribution of franchise and
company-owned pharmacies to the chain’s objectives 50 .
Chain operator contribution to local responsiveness
As described in chapter 5, we expect operators of plural chains and of pure franchise chains
to contribute more to the local responsiveness of their pharmacies than operators of pure
company-owned chains. Table 7.15 depicts the mean factor scores of the pharmacies of the
50
In table 7.15 en 7.16, the mean factor scores of different types of pharmacies for each of the performance
constructs are depicted. The scales of the constructs depicted in these tables are all negatively formulated
(except for the absolute performance with respect to growth scale). For the sake of clarity, we reversed the
signs of the mean factor scores for each of the constructs with negatively formulated scales.
TITLE
126
chapter134
7
three types of chains on this variable and the p-values of the differences in these mean
factor scores. Contrary to expectations, it appears that pharmacies that belong to plural
chains score significantly lower on chain operator contribution to local responsiveness than
pharmacies that belong to pure franchise chains, while no significant difference exists
between these first types of pharmacies and pharmacies that belong to pure companyowned chains. Closer examination of the data teaches us the following, however. When we
split pharmacies of plural chains up into two groups, one group containing only franchise
pharmacies and one containing only company-owned pharmacies, and we compare the
mean factor scores of these groups (see table 7.16), we see that franchise pharmacies of
plural chains score higher than company-owned pharmacies of plural chains, and that this
difference is strongly significant. Table 7.16 also illustrates that franchise pharmacies of
plural chains have a significantly higher mean factor score than company-owned
pharmacies that are part of pure chains and that there is no significant difference between
these latter types of pharmacies and company-owned pharmacies of plural chains. Finally,
no significant difference exists between franchise pharmacies of plural chains and franchise
pharmacies of pure chains. Apparently, franchise pharmacies that are part of plural chains
and of pure chains perceive the contribution of the chain operator to their local
responsiveness to be higher than both company-owned pharmacies of plural chains and of
pure chains. Therefore, we have to reject H31.
Chain operator idea generating proficiency
In chapter 5 we also described that we expect operators of plural pharmacy chains and of
pure franchise chains to display a greater level of idea generating proficiency than operators
of pure company-owned chains. Similar to chain operator contribution to local
responsiveness, we see that pharmacies of plural chains have a significantly lower mean
factor score with respect to this variable than franchise pharmacies of pure chains. No
significant difference further exists between pharmacies of plural chains and companyowned pharmacies of pure chains. To fully understand why the findings are not consistent
with our hypothesis, we again calculated the mean factor scores for each type of pharmacy
separately. Table 7.16 demonstrates that company-owned pharmacies of plural chains score
significantly lower on chain operator idea generating proficiency than both franchise
pharmacies of plural chains and those of pure chains. Furthermore, no significant difference
appears to exist between the mean factor scores of company-owned pharmacies of plural
chains and those of pure chains. Interestingly, franchise pharmacies of plural chains achieve
a significantly lower score than franchise pharmacies of pure chains 51 , while these first
51
We want to make the following comment. As noted earlier, our sample includes franchise pharmacies of two
different plural chains. We received 42 responses from franchise pharmacies of the first plural chain and 14
responses from franchise pharmacies of the second plural chain. When we compare the mean factor scores of
these two types of pharmacies, we see that franchise pharmacies of the first plural chain score significantly higher
on chain operator idea generating proficiency than those of the second plural chain. Furthermore, no significant
difference exists between franchise pharmacies of the first plural chain and franchise pharmacies of pure chains.
The low mean factor score of franchise pharmacies of the second plural chain is thus the reason that a significant
difference exists between franchise pharmacies of plural chains and franchise pharmacies of pure chains.
135
research
results: survey
CHAPTER
1
127
types of pharmacies, on the other hand, do achieve a significantly higher score than
company-owned pharmacies of pure chains. Franchise pharmacies of pure chains thus have
the highest perception of the chain operator’s idea generating proficiency, while companyowned pharmacies of plural chains and of pure chains have the lowest perception.
Franchise pharmacies of plural chains fall in between these groups. We thus reject H32.
Chain operator contribution to general performance
In chapter 5 we hypothesized that operators of plural chains contribute more to pharmacies’
general performance than operators of pure franchise chains and of pure company-owned
chains (H33). With respect to chain operator contribution to effectiveness, table 7.15
demonstrates exactly the opposite. Pharmacies that are part of pure chains perceive the
chain operator to contribute more to their effectiveness than pharmacies that are part of
plural chains. Closer examination of the data teaches us the following though. Table 7.16
demonstrates that franchise pharmacies of pure chains actually score higher than companyowned pharmacies of pure chains and that this difference is significant. Franchise
pharmacies of plural chains in turn score significantly higher than company-owned
pharmacies of plural chains. Furthermore, franchise pharmacies of pure chains score
significantly higher than franchise pharmacies of plural chains52 and no significant
difference exists between company-owned pharmacies of plural chains and companyowned pharmacies of pure chains. Similar to the case of chain operator idea generating
proficiency, franchise pharmacies of pure chains thus have the highest perception of the
chain operator’s contribution to effectiveness, company-owned pharmacies of plural and
pure chains have the lowest, and franchise pharmacies of plural chains fall in between.
On the other hand, with respect to chain operator contribution to efficiency, as
hypothesized, pharmacies of plural chains achieve a significantly higher score than
pharmacies of pure chains. Table 7.16, however, demonstrates that company-owned
pharmacies of plural and of pure chains actually have a significantly higher mean factor
score than franchise pharmacies of plural chains. Table 7.16 further demonstrates that
franchise pharmacies of pure chains in turn score significantly lower than franchise
pharmacies of plural chains. To sum up, company-owned pharmacies of plural and pure
chains have the highest perception of the chain operator’s contribution to efficiency,
franchise pharmacies of pure chains have the lowest, and franchise pharmacies of plural
chains fall in between.
52
Similar to the case of chain operator idea generating proficiency, comparison of the mean factor scores of
franchise pharmacies of the first plural chain and franchise pharmacies of the second plural chain illustrates
that pharmacies of the first chain score significantly higher on chain operator contribution to effectiveness
than those of the second chain. Furthermore, no significant difference exists between franchise pharmacies of
the first plural chain and franchise pharmacies of pure chains. The low score of franchise pharmacies of the
second plural chain is thus the reason that the data illustrate a significant difference between franchise
pharmacies of plural chains and those of pure chains.
TITLE
128
chapter136
7
Adherence to uniform standards
In chapter 5 we hypothesized that franchise pharmacies of plural chains adhere more to
uniform standards than franchise pharmacies of pure chains. Table 7.16 shows that no
significant difference exists between franchise pharmacies of plural chains and those of
pure chains with respect to adherence to uniform front office standards. Franchise
pharmacies of pure chains even score somewhat higher. However, as far as adherence to
uniform back office standards is concerned, franchise pharmacies of plural chains do have a
higher mean factor score than franchise pharmacies of pure chains. Partial support is thus
provided for H34. We have to make the following comment, however. We changed the
scores of franchise pharmacies of pure chains on two (item 6f and 6h) of the three items
that comprised the adherence to uniform back office standards construct in an 8 by hand (7
= totally disagree). The reason for this is that the operator of the pure franchise chain did
not provide these two standards to its pharmacies when we sent the survey. By changing the
scores into an 8, we clarified that there was no uniformity within the pure franchise chain
with respect to these standards (simply because the standards were not offered). The
standard that we described in the third item of the adherence to uniform back office
standards construct (item 6e) was provided by the plural chains as well as the pure
franchise chain. With respect to this item, franchise pharmacies of plural chains also
achieved a significantly higher mean factor score than franchise pharmacies of pure chains.
CHAPTER
1
129
137
research
results: survey
Table 7.15 Performance: Mean factor scores (MFS) of pharmacies of plural chains, franchise pharmacies of pure
chains, company-owned pharmacies of pure chains, and pharmacies of pure chains and p-values of
the differences
CO contribution to local
MFS
MFS
MFS
MFS
'
'
'
'
A+C
B
D
B+D
p-value
p-value
p-value
p-value
A+C vs
A+C vs
B vs D
A+C vs
B
D
0.011
0.127
0.001
0.001
0.626
0.001
B+D
-0.05
0.43
-0.40
CO idea generating proficiency
-0.12
0.52
-0.23
CO contribution to effectiveness
-0.11
0.17
0.088
3.54
3.08
0.069
-0.13
0.26
0.053
-0.15
0.24
0.019
-0.09
0.14
0.191
-0.07
0.11
0.317
responsiveness
CO contribution to efficiency
Absolute pharmacy performance:
growth
Relative pharmacy performance:
stakeholder satisfaction
Relative pharmacy performance:
growth
Relative pharmacy performance:
profit margin
A = Franchise pharmacies of plural chains
B = Franchise pharmacies of pure chains
C = Company-owned pharmacies of plural chains
D = Company-owned pharmacies of pure chains
TITLE
130
chapter138
7
139
research
results: survey
7.8
Table 7.16 Performance: Mean factor scores (MFS) of franchise pharmacies of plural chains, franchise
pharmacies of pure chains, company-owned pharmacies of plural chains, and company-owned
CHAPTER
1
131
Performance: Plural chain pharmacies vs. pure chain
pharmacies
pharmacies of pure chains and p-values of the differences
CO contribution to
MFS
MFS
MFS
MFS
'
'
'
'
'
'
A
B
C
D
p-value
p-value
p-value
p-value
p-value
p-value
A vs B
A vs C
A vs D
B vs C
B vs D
C vs D
0.27
0.43
-0.46
-0.40
0.340
0.000
0.003
0.000
0.001
0.823
0.14
0.52
-0.47
-0.23
0.036
0.003
0.082
0.000
0.001
0.381
0.25
0.60
-0.57
-0.41
0.032
0.000
0.003
0.000
0.000
0.536
2.89
2.18
4.38
4.23
0.005
0.000
0.000
0.000
0.000
0.672
0.01
0.25
0.02
-0.40
0.220
0.958
0.144
0.212
0.019
0.138
0.19
-1.97
0.60
0.46
0.000
0.000
0.041
0.000
0.000
0.047
-0.08
0.05
-0.19
0.54
0.606
0.280
0.019
0.428
0.355
0.025
0.24
0.55
-0.67
-0.17
0.081
0.000
0.019
0.000
0.001
0.062
-0.07
0.09
-0.11
0.19
0.486
0.855
0.287
0.410
0.714
0.234
-0.17
-0.24
0.07
0.61
0.784
0.314
0.007
0.187
0.003
0.039
local responsiveness
CO idea generating
As described, we expect pharmacies of plural chains to perform better than pharmacies of
pure chains. As far as the absolute performance of pharmacies with respect to growth is
concerned, table 7.15 demonstrates that pharmacies of plural chains actually perform worse
than those of pure chains. It, however, appears from table 7.16 that rather than a difference
between pharmacies of pure chains and pharmacies of plural chains, a significant difference
exists between company-owned pharmacies of pure chains and pharmacies of plural chains
but not between franchise pharmacies of pure chains and pharmacies of plural chains.
proficiency
CO contribution to
effectiveness
CO contribution to
efficiency
Adherence to
uniform front office
standards
Adherence to
uniform back office
standards
Absolute pharmacy
performance growth
Relative pharmacy
As far as pharmacies’ relative performance with respect to stakeholder satisfaction is
concerned, pharmacies of plural chains also seem to perform significantly worse than
pharmacies of pure chains. Nevertheless, if we look at table 7.16, we see that a difference
does not so much exist between pharmacies of pure chains and those of plural chains but
between franchise pharmacies and company-owned pharmacies. Franchise pharmacies have
a significantly higher relative performance with respect to stakeholder satisfaction than
company-owned pharmacies. In addition, table 7.16 demonstrates that a significant
difference exists between franchise pharmacies of plural chains and franchise pharmacies
of pure chains and between company-owned pharmacies of plural chains and companyowned pharmacies of pure chains. Franchise pharmacies of pure chains have the highest
mean factor score, followed by franchise pharmacies of plural chains, then come companyowned pharmacies of pure chains, and company-owned pharmacies of plural chains have
the lowest mean factor score.
performance: stakeh.
satisfaction
Relative pharmacy
performance: growth
Relative pharmacy
Contrary to expectations, table 7.15 demonstrates that there is no significant difference
between pharmacies of plural chains and of pure chains with respect to their relative growth
performance. From table 7.16 it also appears that no significant differences exist when we
consider each type of pharmacy separately.
performance: profit
margin
A = Franchise pharmacies of plural chains
B = Franchise pharmacies of pure chains
C = Company-owned pharmacies of plural chains
D = Company-owned pharmacies of pure chains
Finally, as far as pharmacies’ relative performance with respect to profit margin is
concerned, no difference was found to exist between pharmacies of plural chains and those
of pure chains. Closer examination of the data (table 7.16) demonstrates that a difference
exists between franchise pharmacies and company-owned pharmacies rather than a
difference between pharmacies of plural chains and those of pure chains. Company-owned
pharmacies have a higher mean factor score than franchise pharmacies. This difference is,
however, only significant for company-owned pharmacies of pure chains.
Overall, we can conclude that we have to reject H35. It appears from our data that
pharmacies of plural pharmacy chains do not perform better than pharmacies of pure
pharmacy chains.
TITLE
132
chapter140
7
141
CHAPTER 1
141
CHAPTER 1
Chapter 8
7.9
Conclusions
In this chapter we described the outcomes of the survey. To test our hypotheses, we used
Structural Equation Modeling and the t-test. In applying Structural Equation Modeling, we
first estimated the measurement model. To test this model, we assessed its construct
validity. Based on this assessment, we made modifications to the measurement model.
Subsequently, using this modified model, we estimated the structural model. To test this
model, we examined the overall fit of the model and the size, direction, and significance of
the structural parameter estimates. The survey provided some support for our hypotheses.
The hypotheses related to the differences in the structural characteristics of franchise and
company-owned pharmacies were all supported. As far as the hypotheses with respect to
the relationships between structure, conduct, and performance were concerned, we received
mixed support: some hypotheses had to be rejected, while others could be accepted.
Furthermore, the survey data did not provide support for most of the hypotheses related to
the differences in the conduct of franchise and company-owned pharmacies. Finally, with
the exception of one hypothesis for which partial support was provided, none of the
hypotheses related to the differences in the performance of plural and pure pharmacy chains
and the performance of plural and pure chain pharmacies could be accepted. In chapter 8
we will discuss why our expectations were not always confirmed by the survey.
Chapter 8
Conclusions, contribution, and suggestions for
further
research
Conclusions,
contribution, and suggestions for
further research
8.1
Introduction
8.1
Introduction
This chapter looks back at the contributions of this thesis to the plural form theory. In
paragraph 8.2 we draw conclusions regarding the first research question that we formulated
This
chapter1.looks
at thethe
contributions
this thesis
to the plural
form theory. In
in chapter
We back
describe
differencesofbetween
franchise
and company-owned
paragraph
8.2
we
draw
conclusions
regarding
the
first
research
question
that
we formulated
pharmacies with respect to their structural characteristics. We draw conclusions
with
in
chapter
We describe
differences
franchise
andstart
company-owned
respect
to our1.second
and third the
research
questionbetween
in paragraph
8.3. We
this paragraph
pharmacies
with
to theirstructure,
structuralconduct,
characteristics.
We draw Subsequently,
conclusions with
by describing
therespect
links among
and performance.
we
respect
to
our
second
and
third
research
question
in
paragraph
8.3.
We
start
this paragraph
delineate the differences in the conduct of franchise and company-owned pharmacies,
the
by
describing
the performance
links amongofstructure,
and performance.
differences
in the
plural andconduct,
pure pharmacy
chains, and Subsequently,
the differenceswe
in
delineate
the
differences
in
the
conduct
of
franchise
and
company-owned
the
the performance of pharmacies of plural chains and those of pure chains. Inpharmacies,
paragraph 8.4
differences
the scientific
performance
plural and
pure pharmacy
andFinally,
the differences
in
we delineatein the
and ofpractical
contribution
of the chains,
research.
in the last
the
performance
of
pharmacies
of
plural
chains
and
those
of
pure
chains.
In
paragraph
8.4
paragraph, we devote attention to the limitations of the research and launch some ideas for
we
delineate
the scientific and practical contribution of the research. Finally, in the last
further
research.
paragraph, we devote attention to the limitations of the research and launch some ideas for
further research.
8.2
Answering research question 1
8.2
Answering research question 1
The first research question that we formulated in chapter 1 was:
The
research
questionofthat
we formulated
in chaptertheir
1 was:
R1 first
How
do operators
pharmacy
chains structure
relationship with franchise and
company-owned pharmacies?
R1
How do operators of pharmacy chains structure their relationship with franchise and
pharmacies?
Based company-owned
on Yin and Zajac’s
(2004) definition of a governance structure, we made a
distinction among three structural characteristics of franchise and company-owned
Based
on Yin
and Zajac’s
(2004) incentives,
definition decision-making,
of a governance and
structure,
we made
governance
structures
in this thesis:
operational
control.a
distinction
among
three
structural
characteristics
of
franchise
and
company-owned
Decision-making was described in terms of three dimensions: centralization, formalization,
governance
structures
in this thesis:
decision-making,
andand
operational
control.
and participation.
It appeared
from incentives,
the case study
that franchise
company-owned
Decision-making
described in terms
threeother
dimensions:
centralization,
formalization,
pharmacies differwasconsiderably
from of
each
with respect
to these
structural
and
participation.
from the
case
study financial
that franchise
and than
company-owned
characteristics.
FirstIt ofappeared
all, franchisees
have
stronger
incentives
managers in
pharmacies
differ
considerably
from each
with respect
to income
these generated
structural
company-owned
pharmacies.
Franchisees
deriveother
their rewards
from the
characteristics.
First
of
all,
franchisees
have
stronger
financial
incentives
than
managers
in
by their pharmacy, while company managers are mainly rewarded on the basis of a fixed
company-owned
pharmacies.
Franchisees
derive
their
rewards
from
the
income
generated
salary. Second, the relationship between franchise pharmacies and the chain operator is
by
their pharmacy,
whilelevel
company
managers are
rewarded
on the
basis of a fixed
characterized
by a lower
of centralization.
Asmainly
described
in chapter
4, decision-making
salary.
Second,
the relationship
between
franchise while
pharmacies
and the chain pharmacies
operator is
in
franchise
pharmacies
is mainly
decentralized,
in company-owned
characterized
by
a
lower
level
of
centralization.
As
described
in
chapter
4,
decision-making
decisions are often made in a centralized way. Third, franchise pharmacies experience
in franchise pharmacies is mainly decentralized, while in company-owned pharmacies
decisions are often made in a centralized way. Third, franchise pharmacies experience
TITLE
134
chapter142
8
lower levels of formalization in their relationship with the chain operator. They face fewer
rules and regulations than company-owned pharmacies. For example, company managers
often have to ask permission for local initiatives while franchisees do not. Fourth, the
relationship of franchise pharmacies with the chain operator is characterized by a higher
level of participation than that of company-owned pharmacies. Franchise pharmacies are,
for instance, more involved in chain operator decision-making than company-owned
pharmacies. As described in chapter 4, franchisees more often have the feeling that they are
listened to and that they can exert influence on decisions. Finally, franchise pharmacies
face lower levels of operational control than company-owned pharmacies. For example,
chain operators have implemented MIS in their own pharmacies, while franchise
pharmacies are not integrated in these systems.
We statistically investigated the case study findings by means of a survey. Very clear
differences appeared to exist between franchise and company-owned pharmacies with
respect to incentives, decision-making, and operational control. As expected, it was
demonstrated that franchisees have stronger incentives than company managers and that the
relationship between franchise pharmacies and the chain operator is characterized by a
lower level of centralization, formalization, and operational control as well as a higher level
of participation than that between company-owned pharmacies and the chain operator. The
findings of the survey were thus in line with the case study findings. The findings of the
two research methods were also consistent with the literature that has appeared on the
differences in the structural characteristics of franchise and company-owned outlets and
that was described in chapter 2 (see table 8.1).
Table 8.1
Structural characteristics of franchise and company-owned pharmacies: Comparison among
literature, case study, and survey
Literature
Case study
Survey
Structure
Franchise
Company
Franchise
Company
Franchise
Company
Incentives
Stronger
Weaker
Stronger
Weaker
Stronger
Weaker
Centralization
Lower
Higher
Lower
Higher
Lower
Higher
Formalization
Lower
Higher
Lower
Higher
Lower
Higher
Participation
Higher
Lower
Higher
Lower
Higher
Lower
Operational control
Lower
Higher
Lower
Higher
Lower
Higher
8.3
Answering research questions 2, 3, and 4
143
conclusions
, contribution, and suggestions for further research
CHAPTER
1
135
It appeared from the case study that pharmacy chains have three key strategic objectives:
unit growth, local responsiveness, and uniformity (creation and maintenance). As far as
local responsiveness and uniformity were concerned 53 , we studied the relationship between
the structural characteristics of pharmacies and their conduct with respect to these
objectives. Based on Bradach’s research (1992, 1997), we expected differences in an
outlet’s structural characteristics to lead to differences in its behavior (i.e. to differences in
its contribution to the chain’s strategic objectives). Subsequently, we also examined the
differences in the conduct of franchise and company-owned pharmacies.
The final two research questions that we formulated in chapter 1 were:
R3
What is the effect of the conduct of pharmacies on the performance of chain
operators, and what is the effect of this performance on the performance of
pharmacies?
R4
What is the effect of the conduct of pharmacies on their performance?
Besides the link between structure and conduct, we also investigated the link between
conduct and performance in this thesis. A distinction was made between two types of
performance: the performance of the chain operator and the performance of the pharmacy.
After Bradach (1992), we expected plural dynamics, which result from the differences in
the conduct of franchise and company-owned outlets, to lead plural pharmacy chains to be
more effective in meeting their strategic objectives and to make greater contributions to
pharmacy performance. Because we sent the survey to pharmacies of plural chains and
pharmacies of pure chains, we were able to verify whether differences indeed existed in the
performance of both types of chains. In addition, we expected differences in the conduct of
pharmacies and differences in the performance of pharmacy chains to lead to differences in
the performance of pharmacies. Subsequently, we also examined the differences in the
performance of pharmacies of plural chains and those of pure chains.
In paragraph 8.3.1 to 8.3.5, we have inserted figures that depict the significant relationships
among structure, conduct, and performance as well as the sign of these significant
relationships. A plus sign indicates a positive relationship and a minus sign a negative
relationship. By depicting only the significant relationships, we are able to clearly
demonstrate how chain operators can influence the performance of their pharmacies.
Although we would have preferred to use one figure for local responsiveness, one for
generating ideas, one for testing ideas, one for decision-making, and one for
implementation that contains all significant relationships among structure, conduct, and
The second research question that we addressed in this thesis was:
53
R2
What is the effect of the way in which chain operators structure their relationship
with pharmacies on the conduct of pharmacies within the chain organization?
Unit growth was left out of consideration in this analysis since this objective is not influenced by pharmacies’
structural characteristics. Rather, as explained in chapter 4, it is affected by the constraints that exist upon
growth through franchise and company-owned pharmacies.
TITLE
136
chapter144
8
performance, due to the fact that we had to split up some of our original constructs into
different subconstructs, such figures would have contained too many different arrows and
constructs. As described in chapter 7, the GOF statistics did not always indicate good fit
between model and data. Hence, our conclusions regarding the relationships among
structure, conduct, and performance must be interpreted with caution.
8.3.1
Local responsiveness: Relationships among structure, conduct, and
performance
Structure - conduct
The case study demonstrated that pharmacies’ degree of local responsiveness is positively
influenced by incentives and negatively by centralization and formalization. As figure 8.1.1
illustrates, it appeared from the survey that operators of pharmacy chains can only influence
pharmacies’ customer responsiveness directly through formalization and indirectly through
centralization (via customer intelligence generation). It further appeared that chain
operators are not able to influence their pharmacies’ other stakeholder responsiveness
directly through structure but are only able to positively influence it indirectly through
incentives and market development intelligence generation (see figure 8.1.2).
Figure 8.1.1 Local responsiveness: Significant relationships between structure and conduct (customer
responsiveness)
Centralization
Customer
intelligence
generation
+
Customer
responsiveness
Formalization
-
145
conclusions
, contribution, and suggestions for further research
CHAPTER
1
137
Figure 8.1.2 Local responsiveness: Significant relationships between structure and conduct (other stakeholder
responsiveness)
Incentives
+
Market develop.
intelligence
generation
Other stakeholder
intelligence
generation
+
+
Other stakeholder
responsiveness
Conduct - chain operator performance
It appeared from the case study that the local responsiveness of individual pharmacies has a
positive effect on the local responsiveness of the chain organization as a whole. That is, the
chain operator sometimes copies pharmacies’ local responses, offers them to other
pharmacies, and as a result the local responsiveness of these latter pharmacies increases. As
described in chapter 5, to measure the degree to which pharmacies are locally responsive
through the help of the chain operator (and thus not on their own initiative), we used the
construct chain operator contribution to local responsiveness. We assumed that a greater
contribution of the chain operator to pharmacies’ local responsiveness means that these
pharmacies actually demonstrate a greater overall level of local responsiveness.
As also explained in chapter 5, we believe the effect of pharmacies’ local responsiveness on
a chain operator’s contribution to local responsiveness to run through their contribution to
idea generation. Pharmacies can be highly locally responsive, but if they do not share their
responses or ideas for these responses with the chain operator, the chain operator will not
offer them to other pharmacies either. We expected pharmacies’ local responsiveness to
have a positive effect on their contribution to idea generation, which in turn was
hypothesized to have a positive effect on chain operator contribution to local
responsiveness. Based on the case study findings, we also expected pharmacies’
contribution to idea generation to be positively influenced by the level of participation in
chain operator decision-making. As illustrated in figure 8.2, the survey data demonstrated
that a significant and positive relationship exists between other stakeholder responsiveness
and contribution to idea generation but not between customer responsiveness and this latter
construct. Pharmacies thus seem to generate more ideas with respect to other local
stakeholders (e.g. general practitioners) than with respect to customers. As described in
chapter 4, pharmacies also often do not see the need of customer responsiveness since they
TITLE
138
chapter146
8
have a very loyal customer base. Rather than being generated by pharmacies, it appeared
from the case study that marketing actions are mainly being generated by the chain
operator. Finally, the survey data demonstrated that chain operators can positively influence
their pharmacies’ contribution to idea generation through participation.
147
conclusions
, contribution, and suggestions for further research
Figure 8.3 Local responsiveness: Significant relationships between CO performance and pharmacy performance
(relative)
Rel. pharmacy perf:
stakeh. satisfaction
Figure 8.2 Local responsiveness: Significant relationships among structure, conduct, and CO performance
Other stakeholder
responsiveness
+
Contribution to
idea generation
+
CO contribution
to local
responsiveness
-
+
Participation
CHAPTER
1
139
+
Rel. pharmacy perf:
profit margin
CO contribution to
local responsiveness
Chain operator performance - pharmacy performance
As explained in chapter 5, if the chain operator’s products and services allow pharmacies to
better respond to local conditions, we expect these pharmacies to be able to create stronger
positions in their local environment and thus to enhance their performance. It appeared
from the survey that chain operators cannot influence pharmacies’ absolute and relative
performance with respect to growth through their contribution to local responsiveness. On
the other hand, it appeared that they can influence their pharmacies’ relative performance
with respect to stakeholder satisfaction and with respect to profit margin through this
contribution (see figure 8.3). If they provide products and services that increase
pharmacies’ local responsiveness, the relative stakeholder satisfaction of these pharmacies
increases, but their relative profit margin surprisingly decreases. A possible explanation for
the negative financial implication of chain operator contribution to local responsiveness
could be that pharmacies currently still have to invest a lot of money in order to adapt their
organizations to becoming more locally responsive. As described in chapter 4, pharmacies
have generally not been very locally responsive until now.
Conduct - pharmacy performance
In addition to an indirect effect through chain operator contribution to local responsiveness,
we also predicted pharmacies’ local responsiveness to influence their performance directly.
The survey data did not provide support for the positive effect of local responsiveness on
absolute pharmacy performance with respect to growth. As illustrated in figure 8.4, the
survey data did demonstrate that by being more responsive towards customers and other
stakeholders, pharmacies can indeed enhance their relative stakeholder satisfaction. In
addition, pharmacies can increase their relative performance with respect to growth through
a greater level of other stakeholder responsiveness (but not through a greater level of
customer responsiveness). Finally, pharmacies can positively influence their relative profit
margin by demonstrating a greater level of customer responsiveness. On the other hand, by
being more responsive towards other stakeholders, they negatively influence this profit
margin. A possible explanation may be that a consequence of initiating actions aimed at
customers is the sale of, for example, more OTC products, while a consequence of
initiating actions aimed at other local stakeholders (e.g. general practitioners) may be that
pharmacies have a less profitable assortment (e.g. more homeopathic medicines) or a larger
stock. The exact causes need further investigation though.
TITLE
140
chapter148
8
Figure 8.4 Local responsiveness: Significant relationships between conduct and pharmacy performance
(relative)
+
Customer
responsiveness
Rel. pharmacy perf:
stakeh. satisfaction
+
Rel. pharmacy perf:
growth
CHAPTER
1
141
149
conclusions
, contribution, and suggestions for further research
As explained in chapter 5, we included the construct chain operator contribution to general
performance in the survey as we considered it relevant to determine the added value of the
chain operator’s products and services in general. We expected that when the chain
operator is very proficient in generating ideas for new products and services, this leads to a
greater contribution to pharmacies’ general performance. The survey data demonstrated
that by generating more ideas and more varied ideas, the chain operator makes a positive
contribution to pharmacies’ effectiveness but does not make a contribution to their
efficiency.
Figure 8.5 Generating ideas: Significant relationships among structure, conduct, and CO performance
+
Other stakeholder
responsiveness
+
-
Rel. pharmacy perf:
profit margin
Incentives
-
Demand for CO
initiated innovation
CO idea generating
proficiency
+
+
8.3.2
Generating ideas: Relationships among structure, conduct, and performance
Structure - conduct
In chapter 4 we explained that ideas for uniform standards do not just come from the chain
operator but also from pharmacies. As described, pharmacies contribute to the idea
generating process by proposing local actions for their pharmacies, which are then copied
by the chain operator (i.e. contribution to idea generation). The case study also
demonstrated that pharmacies play an important role in the idea generation phase by asking
the chain operator to come up with ideas for new innovations. As described in chapter 4,
stronger financial incentives explain why some pharmacies more often request new
products and services than others. The survey data, however, demonstrated a negative
relationship to exist between incentives and demand for chain operator initiated innovation
(see figure 8.5). A reason could be that pharmacists who generate their own income do not
want much interference from the chain operator. This may especially be the case when they
do not consider the chain operator to be very innovative. As noted earlier in this thesis,
pharmacists all have a university degree and often think they know it better.
Conduct - chain operator performance
As is illustrated in figure 8.5, as expected, it appeared from the survey that pharmacies’
contribution to idea generation positively affects the chain operator’s idea generation
proficiency. On the other hand, in contrast to what was expected, it appeared that a greater
pharmacy demand for chain operator initiated innovation does not lead the chain operator
to be more proficient in generating ideas.
Contribution to
idea generation
CO contribution
to effectiveness
Chain operator performance - pharmacy performance
As described in chapter 5, we expected a positive relationship to exist between the
contribution of the chain operator to pharmacies’ general performance and pharmacies’
actual performance. Similar to the case of chain operator contribution to local
responsiveness, the survey demonstrated that chain operators cannot influence pharmacies’
absolute and relative performance with respect to growth through their contribution to
general performance. The survey further demonstrated that chain operators positively
influence pharmacies’ relative stakeholder satisfaction through their contribution to
effectiveness but negatively influence it through their contribution to efficiency. One can
imagine that chain operator products and services that, for example, cause a pharmacy to
require fewer pharmacy assistants (and that thus cause greater efficiency), can lead to lower
stakeholder satisfaction at the same time. Chain operator products and services are thus not
always beneficial to local stakeholders. As far as pharmacies’ relative performance with
respect to profit margin was concerned, the exact opposite effect was found to exist. Chain
operators positively influence this relative performance through their contribution to
efficiency but negatively influence it through their contribution to effectiveness. This seems
in line with the above.
TITLE
142
chapter150
8
Figure 8.6 Generating ideas: Significant relationships between CO performance and pharmacy performance
(relative)
+
CHAPTER
1
143
As far as testing ideas is concerned, the effect of chain operator performance (i.e. chain
operator contribution to general performance) on pharmacy performance was already
described in the previous paragraph.
Figure 8.7 Testing ideas: Significant relationships among structure, conduct, and CO performance
-
CO contribution to
effectiveness
Incentives
CO contribution to
efficiency
+
8.3.3
Rel. pharmacy perf:
stakeh. satisfaction
151
conclusions
, contribution, and suggestions for further research
Centralization
Rel. pharmacy perf:
profit margin
Testing ideas: Relationships among structure, conduct, and performance
Structure - conduct
The case study illustrated that pharmacies’ participation in field testing is influenced by
three structural characteristics: incentives, centralization, and operational control.
Centralization and operational control both appeared to have a positive effect on
participation in field testing, while incentives appeared to have a positive as well as a
negative effect (ultimately hypothesized to have a positive effect). As is exemplified in
figure 8.7, the survey indeed demonstrated pharmacies’ participation in field testing to be
positively influenced by incentives, centralization, and operational control.
Conduct - chain operator performance
In chapter 5 we described that we predicted pharmacies’ participation in field testing to
have a positive effect on the chain operator’s contribution to general performance. It
appeared from the survey that participation in field testing does indeed positively influence
the chain operator’s contribution to efficiency but, on the other hand, does negatively
influence its contribution to effectiveness. Apparently, when chain operators test new
products and services in their pharmacies, these products and services are mainly related to
pharmacies’ efficiency. Such products and services may, for example, lead to a lower
motivation of employees. This is speculative, however, and the specific reason for the
negative relationship between participation in field testing and chain operator contribution
to effectiveness needs to be further investigated.
+
+
+
Performance control
8.3.4
Participation in
field testing
-
CO contribution to
effectiveness
+
CO contribution
to efficiency
Decision-making: Relationships among structure, conduct, and performance
Structure - conduct
It appeared from the case study that the critique that pharmacies provide on the chain
operator’s decisions is positively influenced by incentives and participation and negatively
by centralization. The survey only confirmed that chain operators can influence
pharmacies’ critique of their decisions through incentives and centralization. Contrary to
expectations, the relationship between centralization and critique of decisions turned out to
be positive rather than negative. It thus seems that when pharmacies can make their own
decisions (and thus when the level of centralization is low), they do not bother to provide
critique on the chain operator’s decisions.
Conduct - chain operator performance
As explained in chapter 5, we predicted pharmacies’ critique of chain operator decisions to
positively influence the chain operator’s contribution to general performance. As figure 8.8
illustrates, chain operator contribution to efficiency is indeed positively influenced by
pharmacies’ critique of decisions, while chain operator contribution to effectiveness is
negatively influenced by it. We cannot explain this negative relationship. Providing critique
on the decisions of the chain operator may be sign of pharmacy dissatisfaction with the
chain operator’s contribution to effectiveness. This is speculative, however, and the specific
reason has to be further examined.
TITLE
144
chapter152
8
As far as decision-making is concerned, the effect from chain operator performance (i.e.
chain operator contribution to general performance) on pharmacy performance was already
described in paragraph 8.3.2.
Figure 8.9.1 Implementation: Significant
relationships between structure and
conduct (front office standards)
conduct (back office standards)
Centralization
+
+
Formalization
Centralization
+
Critique of CO
decisions
-
Figure 8.9.2 Implementation: Significant
relationships between structure and
Figure 8.8 Decision-making: Significant relationships among structure, conduct, and CO performance
Incentives
CHAPTER
1
145
153
conclusions
, contribution, and suggestions for further research
CO contribution to
effectiveness
-
Speed of
implementation
Centralization
+
Speed of
implementation
+
+
Adherence to
uniform front office
standards
Adherence to
uniform back office
standards
+
Rule conformation
control
+
CO contribution to
efficiency
+
Performance
control
8.3.5
Implementation: Relationships among structure, conduct, and performance
Structure - conduct
Based on the case study findings, we expected a pharmacy’s adherence to uniform
standards to be positively influenced by centralization, formalization, and operational
control. The survey partly confirmed our expectations (see figure 8.9.1 and 8.9.2). As
predicted, chain operators are able to positively influence pharmacies’ adherence to front
office standards directly through rule conformation control and indirectly through
centralization (via speed of implementation). Unlike predicted, centralization and
formalization both have a direct negative effect on pharmacies’ adherence to front office
standards. Apparently, pharmacies do not always obey the decisions and rules of the chain
operator. It seems they demonstrate greater resistance to front office standards once they
cannot make their own decisions and must comply with more rules. The specific cause of
these negative relationships has to be further examined though.
Furthermore, the survey demonstrated that chain operators are able to positively influence
pharmacies’ adherence to uniform back office standards directly through centralization and
performance control. The LISREL results demonstrated that pharmacies’ adherence to
uniform back office standards is also positively and indirectly affected by centralization
(through speed of implementation) and negatively and directly by rule conformation
control. As described in chapter 7, these relationships were, however, not confirmed by the
SPSS results. Therefore, we cannot be sure that they actually exist.
Conduct - pharmacy performance
Finally, rather than through chain operator performance, we predicted the adherence of
pharmacies to uniform standards to influence their performance directly. It appeared from
the survey that greater adherence to uniform front and back office standards does not affect
pharmacies’ absolute and relative performance with respect to growth. This is in line with
what we have described up to this point. It appears to be very difficult for chain operators to
influence pharmacies absolute and relative growth performance. As described, only a
higher level of other stakeholder responsiveness leads to a better relative growth
performance. As is illustrated in figure 8.10, by adhering more to uniform front office
standards, pharmacies positively influence their relative stakeholder satisfaction. This
information may help chain operators in persuading pharmacies to adopt these standards.
On the other hand, greater adherence to uniform back office standards negatively affects
this stakeholder satisfaction. If a pharmacy, for example, only dispenses the generic label
that is preferred by the chain operator, this may lead to a lower satisfaction of some of its
customers. This is speculative, however. As far as pharmacies’ relative performance with
respect to profit margin is concerned, the results were exactly the opposite. Pharmacies’
relative profit margin is negatively influenced by adherence to uniform front office
standards and positively influenced by adherence to uniform back office standards.
Apparently, implementation of front office standards costs money, while implementation of
back office standards saves money.
TITLE
146
chapter154
8
Figure 8.10 Implementation: Significant relationships between conduct and pharmacy performance (relative)
+
Rel. pharmacy perf:
stakeh satisfaction
Adherence to
uniform front office
standards
-
Adherence to
uniform back office
standards
+
8.3.6
Rel. pharmacy perf:
profit margin
Conduct: Franchise pharmacies vs. company-owned pharmacies
155
conclusions
, contribution, and suggestions for further research
CHAPTER
1
147
Contribution to idea generation
As described in our theoretical framework, franchise outlets are considered to be a more
important source of innovative product and business ideas than company-owned outlets
(Bradach, 1992; Dant et al., 1992). This difference was confirmed by the case study but not
by the survey. No significant difference was found to exist between the scores of franchise
and company-owned pharmacies. This may be explained by the fact that no difference
exists in the local responsiveness (an antecedent of contribution to idea generation) of
franchise and company-owned pharmacies either.
Demand for chain operator initiated innovation
Bradach (1992) explains that franchise outlets apply greater pressure on the chain operator
to develop new products and services than company-owned outlets in the restaurant sector.
It indeed appeared from the case study that franchise pharmacies more regularly ask the
chain operator to introduce new products and services than company-owned pharmacies.
The survey data illustrated exactly the opposite, however. Franchise pharmacies achieved a
significantly lower score on demand for chain operator initiated innovation than companyowned pharmacies.
As noted earlier, we also examined the differences between franchise and company-owned
pharmacies with respect to conduct in this thesis. In doing this, we compared our findings
with those of Bradach (1992, 1997) in the restaurant sector. In table 8.2 we depict whether
the case study and the survey findings are in line with the literature (i.e. Bradach’s
findings).
Participation in field testing
As far as participation in field testing was concerned, the survey findings corresponded
with the literature and the case study findings. It appeared from all three source of
information that franchise outlets participate less often in field tests than company-owned
outlets.
Market intelligence generation
As far as market intelligence generation is concerned (a concept that was not included in
the case study), the survey data demonstrated that franchise pharmacies generate
significantly more customer intelligence than company-owned pharmacies, but that no
difference exists between these pharmacies with respect to market development intelligence
generation and other stakeholder intelligence generation.
Critique of chain operator decisions
As described in chapter 4, franchise outlets are considered to challenge the assumptions and
business logic of decisions proposed by the chain operator more often than company-owned
outlets (Bradach, 1992; Lafontaine and Kaufmann, 1994). The case study indeed
demonstrated that in the pharmacy sector, franchise pharmacies are more assertive and
more critical of chain operator ideas than company-owned pharmacies. The survey,
however, did not provide support for this difference. The survey actually found exactly the
opposite to exist: company-owned pharmacies provide more critique on chain operator
decisions than franchise pharmacies.
Local responsiveness
According to Bradach (1992), franchise restaurants are more locally responsive than
company-owned restaurants. It appeared from the case study that although pharmacies are
generally not that locally responsive, franchise pharmacies tend to be more sensitive
towards local conditions than company-owned pharmacies. The survey did not provide
support for this difference though. With respect to both customer responsiveness and other
stakeholder responsiveness, no significant difference was found to exist between franchise
and company-owned pharmacies.
Speed of implementation
The survey findings with respect to speed of implementation were in line with the case
study findings and Bradach’s (1992) findings; that is, franchise pharmacies less quickly
implement uniform standards than company-owned pharmacies.
Adherence to uniform standards
Finally, as far as adherence to uniform standards is concerned, Bradach describes that
franchise and company-owned outlets display similar levels of uniformity in the restaurant
TITLE
148
chapter156
8
sector. As described in chapter 4, the reason for these similar levels is that a so-called
ratcheting effect exists between franchise and company-owned outlets. This effect is set in
motion because both types of outlets share certain performance measures (i.e. mystery
guests and field audits). We explained that when we conducted the case study, operators of
pharmacy chains did not use these performance measures or used them infrequently.
Therefore, the ratcheting effect did not exist either. Rather than equal levels of uniformity,
the case study demonstrated that company-owned pharmacies adhere more to uniform
standards than franchise pharmacies. The survey found mixed support for this difference.
With respect to adherence to uniform back office standards, company-owned pharmacies
indeed achieved a significantly higher score than franchise pharmacies. However, with
respect to adherence to uniform front office standards, no significant difference existed
between these two types of pharmacies.
Table 8.2
157
conclusions
, contribution, and suggestions for further research
CHAPTER
1
149
The fact that our expectations with respect to the differences in the conduct of franchise and
company-owned pharmacies were not always confirmed by the survey is actually not that
surprising. In paragraph 8.2 we illustrated that the structure is in place. However, as
described in the previous paragraph, no relationship was found to exist between structure
and pharmacies’ conduct in some cases. In other cases the sign of the relationship was
reversed. For example, the survey data demonstrated that franchise pharmacies score lower
on demand for chain operator initiated innovation than company-owned pharmacies. As
described, we expected franchise pharmacies to score higher because of their more
incentive-based compensation and because of a positive relationship between incentives
and demand for chain operator initiated innovation. Although franchisees’ compensation
indeed turned out to be more incentive-based than that of company managers, the
relationship between incentives and demand for chain operator initiated innovation
appeared to be negative instead of positive.
Conduct of franchise pharmacies and company-owned pharmacies: Comparison among literature,
case study, and survey
Literature
Conduct
Case study
Survey
Franchise
Company
Franchise
Company
Franchise
Local responsiveness
Greater
Smaller
Greater
Smaller
Equal
Company
Equal
Contribution to idea
Greater
Smaller
Greater
Smaller
Equal
Equal
Greater
Smaller
Greater
Smaller
Smaller
Greater
Less often
More often
Less often
More often
Less often
More often
More
Less
More
Less
Less
More
Lower
Higher
Lower
Higher
Lower
Higher
Equal
Equal
Less
More
Mixed
Mixed
generation
Demand for CO
initiated innovation
Participation in field
testing
Critique of CO
decisions
Speed of
implementation
Adherence to uniform
standards
This paragraph illustrated that the case study findings regarding the differences in the
conduct of franchise and company-owned pharmacies are mostly in line with Bradach
(1992) but are generally not in line with the survey findings. Apparently, people who work
at chain operator head quarters have a different perception of pharmacies’ conduct than
pharmacists themselves. This misperception takes away the foundation of the plural
dynamics. As described in chapter 1, one of the reasons for taking a pharmacy-level focus
rather than a chain operator-level focus in conducting the survey was also to test whether
the chain operator’s view regarding pharmacies’ structural characteristics and their conduct
actually corresponded with that of pharmacists.
In explaining the inconsistencies between structure and conduct, we expect the
characteristics of the sector in which pharmacies operate to play an important role. For
instance, as described in chapter 3, the pharmacy sector is characterized by a separation
among enjoying, deciding, and paying. As consumers are not the decision-makers and
usually not the ones who pay, there is a smaller need for franchise pharmacies to be
responsive towards the needs of consumers. Another characteristic of the pharmacy sector
is that pharmacists are professionals and all have a university degree. As explained in
chapter 4, company managers do therefore not always follow the lead of their superiors.
Similar to franchisees, operators of pharmacy chains thus also have to persuade company
managers. According to Bradach (1992), the differences between franchisees and company
managers are much larger in the restaurant sector. Managers of company-owned restaurants
are usually high school graduates, while franchisees, for example, have been mid- to senior
level managers in a company, independent business persons, or franchisees in other chains.
Furthermore, the pharmacy sector is, for example, also characterized by a relatively low
threat of substitutes and a relatively low degree of competitive rivalry. Consequently,
franchise pharmacies are under less pressure to be demanding towards the chain operator,
to be locally responsive, and to be innovative. Finally, as noted earlier, pharmacists are
trained as medicines specialists. They are not educated in a way that stimulates
entrepreneurial thinking and usually do not see themselves as entrepreneurs (i.e. retailers)
but as health care providers. Consequently, they do not always possess the necessary
knowledge and capabilities to initiate certain local activities (e.g. local marketing activities)
and/or simply do not want to initiate them. This applies to company managers as well as
franchisees.
TITLE
150
8.3.7
chapter158
8
Performance: Plural pharmacy chains vs. pure pharmacy chains
We also examined the differences in the performance of plural and pure pharmacy chains in
this thesis. As noted earlier, we expected plural dynamics to lead to differences in the
performance of these two types of chains. Table 8.3 depicts whether the plural dynamics
that were identified by Bradach (1992) were also demonstrated by the case study and the
survey and if so, whether the effects of these plural dynamics seemed equally strong. As far
as local responsiveness and uniformity are concerned, plural dynamics are the result of
differences in the structural characteristics and conduct of franchise and company-owned
pharmacies. However, in the case of unit growth, plural dynamics are, as described, not the
result of these differences, but of the differences in the constraints that exist upon growth
through franchise and company-owned pharmacies.
Unit growth
In agreement with Bradach (1992), it appeared from the case study that by also using
franchise outlets, chain organizations can grow faster because they can (partly) overcome
the capital and organizational resource constraints that exist upon adding company-owned
outlets. As described, operators of pharmacy chains usually acquire pharmacies rather than
that they internally develop them. In the restaurant sector, on the other hand, chain
operators do rely on internal development (Bradach, 1992). In contrast to operators of
restaurant chains, operators of pharmacy chains do thus depend on people who are willing
to sell them their outlets. As quite some pharmacists prefer to stay independent, this poses a
constraint on unit growth. As noted earlier, an increasing number of pharmacists want to
join a cooperation agreement though. By also having a franchise formula, a chain
organization can attract these pharmacists and thus still achieve unit growth. In the
pharmacy sector, the plural form further appeared to provide chain operators a better
chance to win the fierce competition for company-owned pharmacies from other chains. If
franchisees sell their pharmacy to a chain, they often have a greater tendency to sell it to the
chain with which they are associated than to another chain. Finally, the case study
demonstrated that by also using company-owned pharmacies, chain operators can
overcome the constraint that exists on growth through franchise pharmacies caused by the
increasing number of pharmacies that are sold to chain organizations. According to
Bradach (1992), the key constraint on growth in the restaurant sector via franchise outlets is
finding qualified franchisees. In the pharmacy sector, this does not pose much of a
constraint as chain operators are not very discerning in selecting franchisees. Unit growth
was not included in the survey as the plural dynamics that affect it cannot be investigated
on the pharmacy level.
Chain operator contribution to local responsiveness
In agreement with the literature (Bradach, 1992; Bradach and Eccles, 1989; Dant, et al.
1992), it appeared from our case study that due to franchise pharmacies’ greater local
responsiveness and the positive relationship between a pharmacy’s local responsiveness
159
conclusions
, contribution, and suggestions for further research
CHAPTER
1
151
and that of other pharmacies, company-owned pharmacies in plural chains demonstrate
greater local responsiveness. In the pharmacy sector, the effect of this plural dynamic
seemed to be not as strong as that identified by Bradach (1992) in the restaurant sector,
however. As described in chapter 4, pharmacies are generally not that locally responsive,
and therefore there are also fewer local responses that can be copied from franchise
pharmacies. Based on the above, we predicted pharmacies of plural chains and of pure
franchise chains to achieve a higher score on chain operator contribution to local
responsiveness than pharmacies of pure company-owned chains. Contrary to this
prediction, however, the survey data demonstrated that a difference existed between
franchise and company-owned pharmacies. Franchise pharmacies of plural and pure chains
scored significantly higher than company-owned pharmacies of plural and pure chains.
Chain operator idea generating proficiency
It appeared from the case study that plural pharmacy chains generate more ideas for
uniform standards and more varied ideas. In these chains ideas are not just generated by the
chain operator but also by franchise pharmacies. As described, these ideas of franchise
pharmacies emanate from their local responses. In addition, franchise pharmacies positively
influence the idea generating process by asking the chain operator to come up with ideas
for innovations. These case study findings were in line with those of Bradach (1992) in the
restaurant sector. However, due to pharmacies’ limited local responsiveness, franchise
pharmacies are likely to generate fewer ideas than franchise restaurants. Therefore, it seems
as though the impact of this plural dynamic is not as strong in the restaurant sector. In
chapter 5 we predicted pharmacies of plural chains and of pure franchise chains to more
positively evaluate the chain operator’s idea generating proficiency than pharmacies of pure
company-owned chains. It appeared, however, that in contrast to our expectation franchise
pharmacies of plural and pure chains evaluated this proficiency significantly better than
company-owned pharmacies of plural chains and pure chains.
Chain operator contribution to general performance
As described in chapter 4, in plural pharmacy chains the quality of the testing process is
higher than in chains that only consist of franchise pharmacies. The reason for this is that
MIS in company-owned pharmacies provide data which enable detailed analyses of
proposed ideas. This finding corresponded with that of Bradach (1992). In addition, the
case study demonstrated that operators of plural chains are able to make more sound
decisions. As described, in line with the existing literature, franchise pharmacies appear to
challenge the assumptions and business logic of chain operator decisions more often than
company-owned pharmacies. This feedback provides the chain operator with new insights.
As noted earlier, we predicted that field testing, critique of chain operator decisions, and
chain operator idea generating proficiency eventually result in well-though out chain
operator products and services that positively affect the general performance of pharmacies
(i.e. lead to a greater contribution of the chain operator to general performance). In
combination with the anticipated differences in the conduct of franchise and company-
TITLE
152
chapter160
8
owned pharmacies, this prediction led us to expect pharmacies of plural chains to achieve a
higher score on chain operator contribution to general performance than pharmacies of
plural chains. As far as chain operator contribution to effectiveness was concerned, the
survey data demonstrated that rather than a difference between pharmacies of pure and
plural chains, a difference existed between franchise and company-owned pharmacies.
Franchise pharmacies of plural and pure chains scored significantly higher than companyowned pharmacies of plural and pure chains.
With respect to chain operator contribution to efficiency, the survey data also demonstrated
that a difference existed between franchise and company-owned pharmacies. That is,
franchise pharmacies of plural and pure chains achieved a significantly lower score than
company-owned pharmacies of plural and pure chains. In chapter 4 we also explained that
chain operators currently focus mainly on increasing the efficiency of their own
pharmacies. It further appeared that franchise pharmacies of plural chains scored
significantly higher than franchise pharmacies of pure chains on chain operator contribution
to efficiency. This is in line with a plural dynamic that we described in chapter 4; operators
of plural chains have started to offer some of the efficiency enhancing tools used for
company-owned pharmacies to franchise pharmacies. This plural dynamic was not
identified by Bradach (1992).
Adherence to uniform standards
As described in chapter 4, according to Bradach (1992), chain operators can persuade
franchise outlets more easily to adopt an idea in the restaurant sector by implementing it in
their own outlets. This is due to two reasons. First, by implementing an idea in companyowned outlets, chain operators signal their commitment to it, which convinces franchisees
that it is a good idea. The existence of this plural dynamic was not confirmed by our case
study. As franchise pharmacies often believe that company-owned pharmacies are mainly
focused on sales and costs and not, like independent pharmacies, on pharmaceutical care,
they do not automatically consider ideas implemented in company-owned pharmacies to be
of interest to them. The survey data also did not indicate that franchise pharmacies
implement new ideas more quickly when these ideas are implemented in company-owned
pharmacies.
Second, by implementing an idea in their own outlets, chain operators can demonstrate the
economic and operational viability of the idea to franchise outlets (e.g. through MIS data).
The existence of this plural dynamic was partly confirmed by the case study. If a new idea
is successfully implemented in company-owned pharmacies, it indeed sometimes helps
chain operators to persuade franchise pharmacies to implement it too. However, on the
other hand, even if their viability can be demonstrated, franchise pharmacies sometimes
continue to believe that ideas are only of interest to company-owned pharmacies. The
survey data indicated that on average, franchise pharmacies implement new ideas
somewhat more quickly when the success of these ideas is demonstrated through data
CHAPTER
1
153
161
conclusions
, contribution, and suggestions for further research
gathered from company-owned pharmacies. In chapter 4 we have also explained that the
implementation of ideas in company-owned pharmacies sometimes positively affects the
adoption of these ideas by franchise pharmacies through peer-to-peer contact. This plural
dynamic was not identified by Bradach (1992). As not that much peer-to-peer contact
currently exists between franchisees and company managers, the effect of this plural
dynamic is (still) limited in the pharmacy sector.
Because the second plural dynamic was partly confirmed by the case study and because of
peer-to-peer contact, we predicted that franchise pharmacies in plural chains display greater
adherence to uniform standards than franchise pharmacies in pure chains. With respect to
adherence to uniform front office standards, we found no significant difference to exist
between these two types of pharmacies. As far as adherence to uniform back office
standards was concerned, franchise pharmacies of plural chains did achieve a significantly
higher score than franchise pharmacies of pure chains.
Table 8.3
Effects of plural dynamics: Comparison among literature, case study, and survey
Plural dynamics
Literature
Case study
Survey
Faster unit growth
Strong
Strong
Not investigated
Higher level of local responsiveness of
Strong
Moderate
Non-existent
company-owned outlets
More ideas and more varied ideas
Strong
Moderate
Non-existent
Higher quality of testing process
Strong
Strong
Non-existent
More sound decisions
Strong
Strong
Non-existent
Greater adherence to uniform standards
Strong
Moderate
Mixed
The case study mainly demonstrated the same plural dynamics to exist in the pharmacy
sector as those identified by Bradach (1992). In some cases the effect of these dynamics
seemed not as strong as in the restaurant sector though. This is due to the differences in
sector characteristics. For example, as explained, the situation in the pharmacy sector is
such that pharmacies do not have to be very locally responsive towards consumers and to
be innovative. As a result, pharmacy chains are only able to benefit from the advantages of
franchise outlets to a limited extent. Differences in plural dynamics also exist because
pharmacy chains are in a different phase of the chain life cycle. In contrast to restaurant
chains, they are not yet large and established businesses. Therefore, pharmacy chains were,
for example, not (yet) able to benefit from the ratcheting effect (see paragraph 8.3.6) when
we conducted the case study.
With one exception (i.e. adherence to uniform back office standards), the survey did not
confirm the case study findings regarding the plural dynamics. The most important reason
for this is of course that in most cases no statistical support was provided for the
hypothesized differences in the conduct of franchise and company-owned pharmacies. The
TITLE
154
chapter162
8
163
conclusions
, contribution, and suggestions for further research
CHAPTER
1
155
plural dynamics can only be realized if these differences actually exist. If not, pharmacy
chains may as well use only one type of pharmacy. A second reason is that, as described
above, pharmacy chains are not yet large and established businesses. They are, for example,
still in the process of creating uniformity. Consequently, it has not yet become common
practice for plural pharmacy chains to operationalize some of the plural dynamics.
than company-owned pharmacies of plural chains. The differences between franchise and
company-owned pharmacies with respect to relative stakeholder satisfaction and relative
profit margin seem to be in line with the perception of franchisees that company-owned
pharmacies are mainly focused on sales and costs, while independent pharmacies
concentrate on pharmaceutical care.
The outcomes of the survey illustrated that overall, company-owned pharmacies are less
satisfied with the chain operator’s added value than franchise pharmacies. As described,
company-owned pharmacies score lower on chain operator idea generating proficiency,
chain operator contribution to local responsiveness, and chain operator contribution to
effectiveness (but higher on chain operator contribution to efficiency). A possible reason
for this is that working for a company-owned pharmacy is not always what pharmacists
expect it to be. As explained in chapter 4, company managers often feel that they must meet
many requirements, and they consider the chain operator to have a cost oriented approach.
Increasing the satisfaction of company managers is an important point for attention for
operators of pharmacy chains.
The above illustrates that our expectation was not confirmed. In fact, if differences existed
among the different types of pharmacies, pharmacies of pure chains outperformed
pharmacies of plural chains (i.e. absolute performance with respect to growth), or franchise
pharmacies outperformed company-owned pharmacies and vice versa (i.e. relative
performance with respect to stakeholder satisfaction respectively relative performance with
respect to profit margin). In these last two cases, company-owned pharmacies of pure
chains even outperformed company-owned pharmacies of plural chains, and franchise
pharmacies of pure chains outperformed franchise pharmacies of plural chains (franchise
pharmacies of pure chains only did not outperform franchise pharmacies of plural chains on
relative performance with respect to profit margin). Apparently, if operators of plural
chains do not operationalize the plural dynamics, franchise and company-owned
pharmacies in these chains generally perform worse than their counterparts in pure chains.
8.3.8
Performance: Plural chain pharmacies vs. pure chains pharmacies
In chapter 5 we explained that we expected the chain operator’s contribution to local
responsiveness to be greater in plural chains and in pure franchise chains than in pure
company-owned chains, the chain operator’s contribution to general performance to be
greater in plural chains than in pure chains, and franchise pharmacies of plural chains to
adhere more to uniform standards than franchise pharmacies of pure chains. At the same
time, we expected a positive relationship to exist between chain operator contribution to
local responsiveness, chain operator contribution to general performance, and adherence to
uniform standards, on the one hand, and pharmacy performance, on the other hand. Overall,
our expectation was therefore that franchise and company-owned pharmacies of plural
chains outperform franchise and company-owned pharmacies of pure chains. With respect
to pharmacies’ absolute growth performance, pharmacies of plural chains actually appeared
to score lower than pharmacies of pure chains (although the difference with franchise
pharmacies of pure chains was not significant). As far as pharmacies’ relative performance
with respect to stakeholder satisfaction was concerned, franchise pharmacies achieved a
significantly higher score than company-owned pharmacies. The score of franchise
pharmacies of pure chains in turn was higher than that of franchise pharmacies of plural
chains, while the score of company-owned pharmacies of pure chains was higher than that
of company-owned pharmacies of plural chains. With respect to pharmacies’ relative
growth performance, no significant differences appeared to exist among the different types
of pharmacies. Finally, as far as pharmacies’ relative performance with respect to profit
margin was concerned, company-owned pharmacies achieved a higher score than franchise
pharmacies. Company-owned pharmacies of pure chains in turn achieved a higher score
8.4
Contribution to science and practice
This thesis had three different scientific objectives and one practical objective.
Scientific objectives:
1. Providing detailed insight into the benefits of the plural form in the pharmacy sector
and the realization of these benefits, and demonstrating why and to what extent these
benefits are similar to or different from those identified by Bradach (1992, 1997) in the
restaurant sector.
2.
Presenting statistical evidence on the relationship among the structural characteristics
of pharmacies, their contribution to the chain’s strategic objectives, the plural
dynamics, and the performance of pharmacies.
3.
Providing insight into the differences between pharmacies of plural chains and
pharmacies of pure chains.
Practical objective:
4. Assisting the operators of Dutch pharmacy chains in making optimal use of the plural
form and in increasing the performance of their pharmacies.
TITLE
156
chapter164
8
To determine the scientific and practical contribution of this thesis, in this paragraph we
describe to what degree these objectives have been realized.
8.4.1
Scientific contribution
To determine the scientific contribution, we make a distinction among the contribution in
terms of concepts, methods and techniques, and applications. The scientific contribution is
summarized in table 8.4.
Table 8.4
Scientific contribution of the thesis
Replica
Extension
Concept
++
++
Methods and techniques
++
+
Application
++
++
Innovation
++
Concept
In this thesis we have rejected the assumption of existing theories (e.g. TCE and the RBV)
that firms make mutually exclusive choices among governance structures. Rather, we have
treated the choice of governance structure in and-and terms. Similar to existing research
works on the plural form (e.g. Bradach, 1992, 1997; Cliquet, 2000; Cliquet and Croizean,
2002; Heide, 2003; Lewin, 1997), we have presented empirical evidence on the benefits of
a combination of governance structures. More specifically, we have provided insight into
how the plural form enables chain organizations (i.e. pharmacy chains) to better meet their
key strategic objectives. After Bradach (1992, 1997), we have done this by examining
whether differences in the structural characteristics of franchise and company-owned
outlets lead to differences in their contribution to the chain’s strategic objectives (i.e.
conduct), and by examining whether in combination these contributions lead to plural
dynamics among the chain operator, franchise outlets, and company-owned outlets. To the
best of our knowledge, there are no other studies on the plural form that have examined
these relationships.
Although Bradach’s study has generated novel insights into the plural form, his sampling
frame only consisted of plural chains. Therefore, it precluded a specific comparison
between plural and pure chains and their effectiveness in meeting strategic objectives.
Because our survey sampling frame also included outlets of pure chains, we have been able
to make such a comparison. Furthermore, in contrast to Bradach, we have also measured
the performance implications of the plural form at the outlet level. This has enabled us to
determine whether being part of a plural chain also leads to enhanced pharmacy
performance.
165
conclusions
, contribution, and suggestions for further research
CHAPTER
1
157
In addition to Bradach’s plural dynamics, our research identified two new plural dynamics.
First, as described, franchise pharmacies are often much less efficiently organized than
company-owned pharmacies. In order to change this, operators of plural pharmacy chains
have started to offer some of the efficiency-enhancing tools used by company-owned
outlets to franchise outlets. Second, the implementation of products and services in
company-owned outlets positively influences the implementation of these products and
services by franchise outlets through peer-to-peer contact. As noted earlier, the effect of
this latter dynamic is not that strong (yet) as limited peer-to-peer contact exists between
franchisees and company managers. Operators of pharmacy chains realize the importance
of this contact though and try to stimulate it.
Methods and techniques
In this thesis we have combined qualitative and quantitative research methods (i.e. research
triangulation). To the best of our knowledge, existing research works that have empirically
investigated the benefits of the plural form have either used qualitative research methods
(e.g. Bradach, 1992, 1997; Cliquet, 2000; Cliquet and Croizean, 2002) or quantitative
research methods (e.g. Heide, 2003). By using both qualitative and quantitative research
methods, we have been able to provide a detailed insight and understanding of the benefits
of the plural form as well as to make meaningful statistical inferences.
Application
Most studies describe the plural form phenomenon in the context of retail chains.
Restaurant chains often serve as the empirical setting of these studies (e.g. Bradach, 1992,
1997; Sorenson and Sorenson, 2001; Srinivasan, 2006). In this thesis we have examined
pharmacy chains rather than restaurant chains. More specifically, we have examined Dutch
pharmacy chains. As far as we know, pharmacy chains have never served as the empirical
context of plural form studies. In studying the benefits of the plural form, we have
investigated to what extent our findings corresponded with those of Bradach (1992, 1997)
in the restaurant sector. Broadening Bradach’s work to another retail sector has
demonstrated that in addition to structure, sector characteristics play an important role in
understanding conduct and thus in understanding the (potential) plural dynamics.
8.4.2
Practical contribution
This thesis has provided insight into the different advantages of the plural form for
pharmacy chains. Currently, operators of plural pharmacy chains mostly benefit from the
plural dynamics related to unit growth. These dynamics are also the reason why pharmacy
chains adopt the plural form. By having both franchise and company-owned pharmacies,
they can speed up the growth process. As described in chapter 4, adding new pharmacies is
important since it guarantees the wholesaler that is affiliated with the chain organization a
market for its products. We have demonstrated that operators of plural pharmacy chains do
TITLE
158
chapter166
8
not fully exploit the plural dynamics related to local responsiveness and uniformity. In this
chapter we have specified the reasons why. First, due to several factors (e.g. a low degree
of competitive rivalry), pharmacies are not under real pressure to be locally responsive.
This pressure is likely to increase in the future, however, due to the abolishment of the
system of pharmacy purchase benefits (see chapter 3), among other things. Consequently,
we expect that franchise pharmacies will start demonstrating greater local responsiveness
than company-owned pharmacies and thus will also start contributing more to the chain
operator’s idea generating process.
Second, as described, pharmacy chains are not yet large and established businesses. In the
past these chains were mainly focused on achieving fast unit growth. Nowadays, their focus
is not just on unit growth anymore but also on creating uniformity, for example. As they are
still in the midst of creating uniformity, it has simply not yet become common practice for
them to operationalize some of the plural dynamics.
Third, franchise pharmacies seem less involved with the chain organization than companyowned pharmacies. Contrary to expectations, the survey demonstrated that franchise
pharmacies demonstrate a smaller demand for chain operator initiated innovation and
provide less critique on chain operator decisions. A possible explanation may be that
franchisees believe themselves to know it better than the chain operator. After all, they are
the specialists. Consequently, franchisees may prefer limited interference from the chain
operator. This feeling will be reinforced if franchisees do not consider the chain operator’s
products and services to be valuable or innovative enough.
Fourth, in plural chains franchisees often have a somewhat negative bias towards the
company-owned side of the chain organization as they believe company-owned pharmacies
to be focused mainly on sales and costs rather than on pharmaceutical care. As a result, it is
not necessarily easier to persuade franchise pharmacies of plural chains to implement new
products or services.
We believe that ultimately it will be possible for operators of plural pharmacy chains to
exploit the advantages of the plural form more fully. As described, the situation in the
environment of pharmacies is expected to change in such a way that franchise pharmacies
will be forced to demonstrate greater local responsiveness. In addition, when plural
pharmacy chains mature, it is likely to become more common practice for them to
operationalize the plural dynamics. It is, however, not just a matter of time. To be able to
exploit the advantages of the plural form, operators of plural pharmacy chains also have to
strengthen their relationship with franchisees. They can do this by clearly demonstrating
them their added value. Operators of plural pharmacy chains further also have to turn the
negative bias of franchisees towards the company-owned side of the chain organization into
a more positive view. To achieve this, it is important to demonstrate that pharmaceutical
care is also top priority within company-owned pharmacies, and that products and services
167
conclusions
, contribution, and suggestions for further research
CHAPTER
1
159
implemented in company-owned pharmacies (i.e. products and services related to sales and
costs) are also beneficial to franchise pharmacies. Most likely, it will become easier to
convince franchisees of the added value of such products and services when the financial
situation of pharmacies deteriorates.
Simultaneously operating two different governance structures will always be a difficult
managerial challenge though. It asks organizations to encompass the sharply differentiated
characteristics of multiple governance structures. More specifically, it asks chain
organizations to concurrently exploit the local perspective and effort of franchise outlets
and the control in company-owned outlets; characteristics which are at odds with each
other. Chain organizations must try to balance this duality. Variations on these dualities
have been noted by other scholars. O’Reilly and Tushman (2007), for example, focus on
the difficult combination of exploitation and exploration. These authors say that successful
organizations are the ones that are able to simultaneously exploit existing assets and
positions in a profit producing way and to explore new technologies and markets. These
organizations, what they refer to as “ambidextrous organizations,” will create sustained
competitive advantages. Similarly, we expect that plural pharmacy chains will also be able
to generate such advantages. As described, if exploited fully, the dynamics that are
produced by the simultaneous operation of franchise and company-owned outlets will cause
plural chains to better meet their strategic objectives than pure chains. Considering the
complexity of managing plural systems well, we believe that once achieved these
advantages will be difficult to imitate. According to O’Reilly and Tushman, to succeed in
being ambidextrous, it is essential for the senior management of organizations to be in
agreement about the importance of both exploitation and exploration - with neither being
seen as more important. If not, there will be less information exchange and more
unproductive conflict. Likewise, the senior management of plural pharmacy chains must
value local perspective and control equally. Otherwise, it will not be able to realize the
plural dynamics.
This thesis has also demonstrated how operators of pharmacy chains can increase the
performance of their pharmacies. For instance, it appeared that chain operators can
positively affect pharmacies’ relative performance with respect to stakeholder satisfaction
by increasing pharmacies’ adherence to uniform front office standards. In addition, they
can, for example, improve the relative performance of their pharmacies with respect to
profit margin by increasing pharmacies’ responsiveness towards customers.
8.5
Limitations and suggestions for further research
Limitations
A limitation of our case study is that it is based on only two cases. When two cases are
used, it is more difficult to validate conclusions. This limitation is, however, inherent to our
TITLE
160
chapter168
8
169
conclusions
, contribution, and suggestions for further research
CHAPTER
1
161
research context. As noted earlier, there are simply only two pharmacy chains that have
adopted the plural form in the Netherlands at this moment.
demonstrate the same level of local responsiveness as franchisees and a greater level than
company managers who do not want to obtain a majority share.
Suggestions for further research
To find out whether operators of plural pharmacy chains will indeed exploit the benefits of
the plural form more fully in the future, this research should be carried out a second time.
We suggest doing this after four years. We then expect that the situation will be less
favorable for Dutch pharmacies, and that pharmacy chains will be more established.
Finally, we suggest carrying out this research simultaneously among pharmacy chains and
other types of retail chains (e.g. restaurant chains). As described in this chapter, in addition
to structure, sector characteristics (e.g. the structure of the demand side, government
regulation, and competitive rivalry) also seem to play an important role in explaining the
conduct of pharmacies. In our conceptual frameworks, we did not consider the impact of
sector characteristics. This may explain why the overall fit of some of our structural models
was moderate.
We also suggest conducting this research among plural pharmacy chains in other countries
(e.g. the United States). As described in chapter 3, we focused on the Netherlands in this
thesis as we expected country specific characteristics (e.g. government policy and the
structure of the pharmacy sector) to impact the conduct of pharmacies with respect to the
strategic objectives of pharmacy chains. By conducting this research among plural
pharmacy chains in countries, we can verify whether these characteristics do indeed result
in different pharmacy behavior.
Another suggestion for further research is to statistically investigate those plural dynamics
that were left out of consideration in the second part of our empirical study (e.g. the impact
of peer-to-peer contact, the ratcheting effect, and the influence of market pressure on staff
effectiveness). As Bradach (1992) delineates a wide variety of plural dynamics, we have
focused on most but not all of them. If we had not done so, our conceptual frameworks
would have contained too many variables and relationships. More specifically, we have
focused on those plural dynamics that were most extensively described by Bradach or that
we considered relevant in this stage of a pharmacy chain’s life cycle.
A fourth suggestion for further research is rather than to focus on the differences in the
conduct of franchise and company-owned pharmacies, to focus on the differences in the
conduct of other types of pharmacist or pharmacy groups. For example, although most
interviewees agreed with the assertion that franchise pharmacies are more locally
responsive than company-owned pharmacies, not all of them did. Some were of opinion
that no difference exists between these two types of pharmacies. Almost all of these
interviewees were employed by the pharmacy chain that enables its company managers to
obtain a majority share in a pharmacy after a number of years (i.e. Escura Apotheek).
According to a manager of this pharmacy chain, the lack of a difference is caused by the
opportunity that they offer to these managers: “Pharmacists that choose for our chain are
somewhat more entrepreneurial.” However, he explained that the chain organization also
employed company managers who do not want to obtain a majority share and who
(temporarily) manage pharmacies for which no pharmacist can be found who does want to
obtain a majority share, or who manage pharmacies that the chain organization does not
want to sell (e.g. pharmacies in health care centers). Further research should be carried out
to determine whether company managers who do want to obtain a majority share,
TITLE
TITLE
170
170
References
ABN AMRO (2002), Equity Research Report: OPG.
ABN AMRO (2007), Equity Research Report: OPG.
Anderson, E. and Schmittlein, D. (1984), “Integration of the Sales Force: An Empirical
Examination,” Rand Journal of Economics, 15 (Autumn), 385-395.
54 .
ASKA (2007), Ketens: Partners in Zorg, Associatie van Ketenapotheken 54
Bagozzi, R.P., Yi, Y., and Philips, L.W. (1991), “Assessing Construct Validity in
Organizational Research,” Administrative Science Quarterly, 39 (3), 421-458.
Bain, J.S. (1959), Industrial Organization, New York, NY: John Wiley & Sons.
Barney, J.B. (1991), “Firm Resources and Sustained Competitive Advantage,” Journal of
Management, 17 (1), 99-120.
Barney, J.B. (2002), Gaining and Sustaining Competitive Advantage, Upper Saddle River
NJ: Prentice Hall.
Boonen, L.H.H.M. and Schut (F.T.), “Sturing op de Zorgmarkt,” Economisch Statistische
Berichten, May, 2006.
Bradach, J.L. (1992), The Organization and Management of Chains: Owning, Franchising,
and the Plural Form, Doctoral Dissertation, Harvard University.
Bradach, J.L. (1997), “Using the Plural Form in the Management of Restaurant Chains,”
Administrative Science Quarterly, 42 (2), 276-303.
Bradach, J.L. and Eccles, R.G. (1989), “Price, Authority, and Trust: From Ideal Types to
Plural Forms,” Annual Review of Sociology, 15, 97-115.
Brickley, J.A. and Dark, F.H. (1987), “The Choice of Organizational Form. The Case of
Franchising,” Journal of Financial Economics, 18 (June), 401-420.
54
54
http://www.ketenapotheken.nl/pers/presentatie_nieuwejaarsbijeenkomst_2007.ppt#256,1,Ketens:
http://www.ketenapotheken.nl/pers/presentatie_nieuwejaarsbijeenkomst_2007.ppt#256,1,Ketens: partners
partners in
in
zorg
zorg
C
HAPTER 1
references
171
164
TITLE
references
165
172
Brickly, J.A., Dark, F.H., and Weisbach, M.S. (1991), “An Agency Perspective on
Franchising,” Financial Management, 20 (Spring), 27-35.
Collis, D.J. and Montgomery, C.A. (1995), “Competing on Resources: Strategy in the
1990s,” Harvard Business Review, July-August, 118-128.
Brown, M.W. and Cudeck, R. (1993), “Alternative Ways of Assessing Model Fit,”
Sociological Methods & Research, 21 (2), 230-258.
Combs, J.G. and Ketchen, D.J. (1999), “Explaining Interfirm Cooperation and
Performance: Towards a Reconciliation of Predictions from the Resource-Based View and
Organizational Economics,” Strategic Management Journal, 20 (9), 865-888.
Buijs, A. (1998), Statistiek om mee te Werken, Houten: Stenfert Kroese.
Cannon, J.P., Achrol, R.S., and Gundlach, G.T. (2000), “Contracts, Norms, and Plural
Form Governance,” Journal of the Academy of Marketing Sciences, 28 (2), 180-194.
Carlton, D.W. and Perloff, J.M. (2000), Modern Industrial Organization, Reading, MA:
Addison-Wesley
Carney, M. and Gedajlovic, E. (1991), “Vertical Integration in Franchise Systems: Agency
Theory and Resource Explanations,” Strategic Management Journal, 12 (8), 607-629.
CBS (2007), Voorlopige Cijfers van de Uitgaven en Financiering Zorg, Centraal Bureau
voor de Statistiek 55 .
Chau, P.Y.K. (1997), “Reexamining a Model for Evaluating Information Center Success
Using a Structural Equation Modeling Approach,” Decision Sciences, 28 (2), 309-334.
Chi, T. (1994), “Trading in Strategic Resources: Necessary Conditions, Transaction Cost
Problems, and Choice of Exchange Structure,” Strategic Management Journal, 15 (4), 271290.
Cliquet, G. (2000), “Plural Forms in Store Networks: A Model for Store Network
Evolution,” The International Review of Retail, Distribution, and Consumer Research, 10
(4), 369-387.
Cliquet, G. and Croizean, J. (2002), “Towards Plural Forms, Franchising/Company-Owned
Systems, in the French Cosmetics Retail Industry,” International Journal of Retail and
Distribution Management, 30 (5), 238-250.
CMS (2007), National Health Expenditures, Centers for Medicare and Medicaid
Services 56 .
55
56
http://statline.cbs.nl/StatWeb/table.asp?HDR=G1&LA=nl&DM=SLNL&PA=70636ned&D1=0-1,12,2223&D2=l&STB=T
http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf
Conner, K.R. and Prahalad, C.K. (1996), “A Resource-Based Theory of the Firm:
Knowledge versus Opportunism,” Organization Science, 7 (5), 477-501.
Credit Suisse (2007), Equity Research Report: Celesio.
Dant, R.P. and Kaufmann, P.J. (2003), “Structural and Strategic Dynamics of Franchising,”
Journal of Retailing, 79, 63-75.
Dant, R.P., Kaufmann, P.J., and Paswan, A.K. (1992), “Ownership Redirection in
Franchised Channels,” Journal of Public Policy and Marketing, 11 (1), 33-44.
Dess, G.G. and Robinson, R.B. (1984), “Measuring Organizational Performance in the
Absence of Objective Measures: The Case of the Privately-Held Firm and Conglomerate
Business Unit,” Strategic Management Journal, 5 (3), 265-273.
Dnes, A.W. (1993), “A Case-Study Analysis of Franchise Contracts,” Journal of Legal
Studies, 22 (June), 367-393.
Duijvis, R.M., Commandeur, H.R., Van Montfort, C.A.G.M., and Peelen, E. (2007), “De
Toegevoegde Waarde van de Plural Form in de Apotheeksector,” M&O: Tijdschrift voor
Management en Organisatie, 1 (January/February), 30-48.
Dutta, S., Bergen, M., Heide, J.B., and John, G. (1995), “Understanding Dual Distribution:
The Case of Reps and House Accounts,” The Journal of Law, Economics, and
Organization, 11 (1), 189-204.
Dwyer, R.F. and Oh, S. (1988), “A Transaction Cost Perspective on Vertical Contractual
Structure and Interchannel Competitive Strategies,” Journal of Marketing, 52 (2), 21-34.
Dwyer, R.F. and Welsh, A.M. (1985), “Environmental Relationships of the Internal
Political Economy of Marketing Channels,” Journal of Marketing Research, 22 (4), 397414.
Eisenhardt, K.M. (1989), “Building Theories from Case Study Research,” Academy of
Management Review, 14 (4), 532-550.
C
HAPTER 1
references
173
166
FD (2007), “Apothekers Houden Kortingen Overeind,” Het Financieele Dagblad,
September 8.
Fornell, C. and Larcker, D.F. (1981), “Evaluating Structural Equation Models with
Unobservable Variables and Measurement Error,” Journal of Marketing Research, 18 (1),
39-50.
TITLE
references
167
174
John, G. and Weitz, B.A. (1988), “Forward Integration into Distribution: An Empirical Test
of Transaction Cost Analysis,” Journal of Law, Economics, and Organization, 4 (Fall),
121-139.
Jöreskog, K. and Sörbom, D. (1998), LISREL 8: Structural Equation Modeling with the
SIMPLIS Command Language, Chicago, IL: Scientific Software International.
Gill, J. and Butler, R.J. (2003), “Managing Instability in Cross-Cultural Alliances,” Long
Range Planning, 36 (6), 543-563.
Kaufmann, P.J. and Eroglu, S. (1998), “Standardization and Adaptation in Business Format
Franchising,” Journal of Business Venturing, 14 (1), 69-85.
Ghosh, M. and John, G. (2005), “Strategic Fit in Industrial Alliances: An Empirical Test of
Governance Value Analysis,” Journal of Marketing Research, 42 (3), 346-357.
Kempen & Co (2006), Equity Research Report: OPG.
Hage, J. and Aiken, M. (1967), “Relationship of Centralization to Other Structural
Properties,” Administrative Science Quarterly, 12 (1), 72-92.
Kline, R.B. (2005), Principles and Practice of Structural Equation Modeling, New York,
NY: The Guilford Press.
Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E., and Tatham, R.L. (2006), Multivariate
Data Analysis, Upper Saddle Rive, NJ: Pearson Education, Inc.
Kneppers-Heynert, E.M. (1988), Een Economische en Juridische Analyse van Franchising:
Tegen de Achtergrond van een Property Rights en Transactiekostenbenadering, Doctoral
Dissertation, Groningen: Drukkerij van Denderen.
Harrigan, K.R. (1984), “Formulating Vertical Integration Strategies,” Academy of
Management Review, 9 (4), 638-652.
Kohli, A.K. and Jaworski, B.J. (1990), “Market Orientation: The Construct, Research
Propositions, and Managerial Implications,” Journal of Marketing, 54 (2), 1-18.
Hartwick, J. and Barki, H. (1994), “Explaining the Role of User Participation in
Information System Use,” Management Science, 40 (4), 440-465.
Lafontaine, F. and Kaufmann, P.J. (1994), “The Evolution of Ownership Patterns in
Franchise Systems,” Journal of Retailing, 70 (2), 97-113.
Heide, J.B. (2003), “Plural Governance in Industrial Purchasing,” Journal of Marketing, 67
(4), 18-29.
Lewin, S.B. (1997), Innovation and Authority in Franchise Systems: Toward a Grounded
Theory of the Plural Form, Doctoral Dissertation, Harvard University.
James Dudley (2007), “DocMorris Deal Reflects Changes in Distribution,” OTC bulletin,
April 30 57 .
Madhok, A. (2002), “Reassessing the Fundamentals and Beyond: Ronald Coase, the
Transaction Cost and Resource-Based Theories of the Firm and the Institutional Structure
of Production,” Strategic Management Journal, 23 (6), 535-550.
Jaworski, B.J. and Kohli, A.K. (1993), “Market Orientation: Antecedents and
Consequences,” Journal of Marketing, 57 (3), 53-70.
John, G. (1984), “An Empirical Investigation of Some Antecedents of Opportunism in a
Marketing Channel,” Journal of Marketing Research, 21 (3), 278-289.
John, G. and Reve, T. (1982), “The Reliability and Validity of Key Informant Data from
Dyadic Relationships in Marketing,” Journal of Marketing Research, 19 (4), 517-524.
57
http://www.james-dudley.co.uk/pdfs/OTCbulletinArticleJune07.pdf
Mason, E.S. (1939), “Price and Production Policies of Large-Scale Enterprise,” American
Economic Review, 29 (1), 61-74.
Mason, E.S. (1949), “The Current Status of the Monopoly Problem in the United States,”
Harvard Law Review, 62 (8), 1265-1285.
Ministry of VWS (2006), The New Care System in the Netherlands. Durability, Solidarity,
Choice, Quality, Efficiency, Ministry of Health, Welfare, and Sport 58 .
58
http://www.minvws.nl/images/boekje-zorgstelsel--engels_tcm20-107938.pdf
C
HAPTER 1
references
175
168
TITLE
references
169
176
Monteverde, K. and Teece, D.J. (1982), “Supplier Switching Costs and Vertical Integration
in the Automobile Industry,” The Bell Journal of Economics, 13 (Spring), 206-213.
Rubin, P.H. (1978), “The Theory of the Firm and the Structure of the Franchise Contract,”
Journal of Law and Economics, 21 (April), 223-233.
NACDS (2006), 2006 Community Pharmacy Results, National Association of Chain
Drugstores 59 .
SBA (2006), Arbeidsmarktmonitor. Apotheekbranche 2005-2006, Stichting Bedrijfsfonds
Apotheken.
Norton, S.W. (1988), “An Empirical Look at Franchising as an Organizational Form,”
Journal of Business, 61 (2), 197-218.
SBD (2007), Gesundheitsausgaben 2005 um 2,4% Gestiegen, Statistisches Bundesambt
Deutschland 64 .
NYFER (2006), Maatschappelijke Effecten van Internetfarmacie 60 .
Schut, F.T. (2007), “Marktwerking in de Zorg Eén Jaar Later,” Economisch Statistische
Berichten, December, 20-24.
NZa
(2006),
De
Tussenstand
Zorgverzekeringsmarkt Juni 2006 61 .
op
de
Zorgverzekeringsmarkt.
Monitor
OECD (2004), Enhancing Beneficial Competition in the Health Professions, Organization
for Economic Co-operation and Development 62 .
OFT (2007), Annexe K: International Survey of Pharmaceutical Pricing and
Reimbursement Schemes, Office of Fair Trading 63 .
O’Reilly, C.A. and Tushman, M.L. (2007), Ambidexterity as a Dynamic Capability:
Resolving the Innovator’s Dilemma, Stanford Graduate School of Business, Research Paper
1963 (March).
Oxenfeldt, A. and Kelly, A. (1968-1969), “Will Successful Franchise Systems Ultimately
Become Wholly-Owned Chains?,” Journal of Retailing, 44 (4), 69-83.
Penrose, E.T. (1958), The Theory of the Growth of the Firm, New York, NY: Wiley.
Peter, P.J. (1981), “Construct Validity: A Review of Basic Issues and Marketing Practices,”
Journal of Marketing Research, 18 (2), 133-145.
Porter, M.E. (1979), “How Competitive Forces Shape Strategy,” Harvard Business Review,
March-April, 137-145.
Ramani, G. and Kumar, V. (2008), “Interaction Orientation and Firm Performance,”
Journal of Marketing, 72 (1), 27-45.
59
60
61
62
63
http://www.nacds.org/user-assets/pdfs/Pharmacy/2006CommunityPharmacyResults.pdf
http://www.nyfer.nl/Publicaties/Maatschappelijke%20effecten%20van%20internetfarmacie.pdf
http://www.nza.nl/7113/10083/10110
http://www.oecd.org/dataoecd/7/55/35910986.pdf
http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft885k.pdf
Segars, A.H. and Grover, V. (1993), “Re-Examining Perceived Ease of Use and
Usefulness: A Confirmatory Factor Analysis,” MIS Quarterly, 17 (4), 517-525.
SFK (2007), Data en Feiten 2007, Stichting Farmaceutische Kengetallen 65 .
Simon, H.A. (1961), Administrative Behavior, New York, NY: Macmillan.
SK&A (2007), Consumer Access to Pharmacies in the United States, 2007 66 .
Slater, S.F. and Narver, J.C. (1994), “Does Competitive Environment Moderate the Market
Orientation-Performance Relationship?,” Journal of Marketing, 58 (1), 46-55.
Sorenson, O. and Sorenson, J.B. (2001), “Finding the Right Mix: Franchising,
Organizational Learning, and Chain Performance,” Strategic Management Journal, 22
(6/7), 713-724.
Speklé, R.F. (2001), Beyond Generics: A Closer Look at Hybrid and Hierarchical
Governance, Doctoral Dissertation, Rotterdam: Erasmus Universiteit.
Spekman, R.E. and Stern, L.W. (1979), “Environmental Uncertainty and Buying Group
Structure: An Empirical Investigation,” Journal of Marketing, 43 (2), 54-64.
Srinivasan, R. (2006), “Dual Distribution and Intangible Firm Value: Franchising in
Restaurant Chains,” Journal of Marketing, 70 (3), 120-135.
64
65
66
http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Presse/pm/2007/04/PD07__170__
23611,templateId=renderPrint.psml
http://www.sfk.nl/publicaties/2007denf.pdf
http://www.pcmanet.org/newsroom/2007/Documents/SKA%20Research%20Consumer%20Access%20to%
20Pharmacies%202007%205_1_07.pdf
177
170
C
HAPTER 1
references
Tinke, L (2006), Data en Feiten over Unieke Leveringen (Webcast), Stichting
Farmaceutische Kengetallen (SFK) 67 .
TPG (2004), Het Kan Echt: Betere Zorg voor Minder Geld. Sneller Beter - De Logistiek in
de Zorg 68 .
Vektis (2007), Geneesmiddelen: Wie Wordt er Beter van? Zorgthermometer, Zomer
2007 69 .
Westerhout, E.W.M.T. (2004), “Competition in the Dutch Health Care System,”
Economiepublique, 14, 3-10.
Williamson, O.E. (1985), The Economic Institutions of Capitalism, New York, NY: The
Free Press.
Williamson, O.E. and Ouchi, W.G. (1981), “The Markets and Hierarchies Program of
Research: Origins, Implications, Prospects,” in Perspectives on Organization Design and
Behavior, Van de Ven, A.H. and Joyce (eds.), New York, NY: John Wiley & Sons, 347370.
Yin, R.K. (2003), Case Study Research: Design and Methods, Thousand Oaks, CA: Sage
Publications, Inc.
Yin, X. and Zajac, E.J. (2004), “The Strategy/Governance Structure Fit Relationship:
Theory and Evidence in Franchising Arrangements,” Strategic Management Journal, 25
(4), 365-383.
Zheng Zhou, K., Chi Kin, B., and Tse, D.K. (2005), “The Effects of Strategic Orientations
on Technology- and Market-Based Breakthrough Innovations”, Journal of Marketing, 69
(2), 42-60.
178
TITLE
TITLE
Appendix A List of people interviewed
Alliance Apotheek
x J. Smits
x B. Drees
x R. Rouws
Managing director
Business development director
Region manager
Escura Apotheek
x P. Verhoef
x L. ten Boden
x M. de Jong
x A. Nahon
x G. Groot
x Managing pharmacist
Manager formula management
Coordinator pharmaceutical patient care
Formula supervisor
Account manager
Region manager
Escura Apotheek Overbos
Kring-apotheek
x P. de Jong
x C. Jacobs
x M. Coelewij
x
x
x
x
x
x
R. Majoor
M. van Roozendaal
W. van Baarsen
K. Grote
M. Fontijne
T. den Hertog
Lloyds Apotheek
x A. van Marle
x W. van der Laan
Mediveen
x R. de Backker
x A. van Wijk
67
68
69
http://www.farmamedia.nl/KNMP2006/Tinke_files/Default.htm#nopreload=1
http://www.snellerbeter.nl/fileadmin/snellerbeter/documenten/Feiten_en_cijfers/Rapport_Sneller_Beter.pdf
http://www.vektis.nl/index.php?option=com_remository&Itemid=53&func=fileinfo&id=260
Managing director
Manager formula development
Managing director of the VKAN (Association of
Kring-Pharmacists Netherlands)
Manager management, organization, and education
Account manager
Account manager
Pharmacist/ Kring-apotheek Adelheid
Pharmacist/ Kring-apotheek Bergschenhoek
Pharmacist/ Kring-apotheek de Alblas
Managing director
Project manager pharmacy services and
development
Commercial director
Retail manager
Regifarm
x H. Bracht
x H. van Lierop
Managing director
Operational manager AIO
Service Apotheek
x E. Mijnhardt
Managing director
179
179
C
CHAPTER
HAPTER 1
1
Appendix B Cover letter and survey
Cover letter
Breukelen, May 19, 2006
Dear Mr./Ms.,
This is a survey with respect to the performance of chain and formula pharmacies. The
survey is part of my dissertation research on pharmacy chains/formulas that I am
conducting at Nyenrode Business Universiteit. The results of this research will enable
pharmacy chains/formulas to improve their service towards pharmacies.
The objective of the survey is to provide answers to the following three questions:
x Are there differences in the performance (financial and non financial) of pharmacies
that are associated with different formulas?
x Are there differences in the performance of pharmacies that are part of different
chains?
x Are there differences in the performance of chain and formula pharmacies?
To determine the cause of possible differences, this survey, among other things, deals with
the added value of the chain/formula organization and the differences in the way in which
chain and formula pharmacies are being managed.
If you participate in this research, you will receive a summary of the results. This will
enable you to compare your own situation to that of other pharmacies. In addition, we will
invite you to an interactive session at Nyenrode during which the findings will be discussed
(for this session we have applied for accreditation at the KNMP).
Your information will be treated as strictly confidential. In no way will it be possible to
trace information to individual respondents. The research is not conducted by order of a
pharmacy chain/formula. It is independent scientific research. It is important that the survey
is filled out by the managing pharmacist. If you are not the managing pharmacist, could you
please forward this survey to him or her? It will take 30 minutes at most to fill out the
survey.
TITLE
174
appendix180
b
We would be very grateful if you would fill out the survey. A large number of respondents
will increase the reliability of the research considerably! We would like to receive the
completed survey back within 10 days.
181 letter and survey
cover
Survey
Instructions
x
Please answer all questions. If you do not know the answer, please give us an
estimate. We prefer an estimate to no answer at all.
x
When answering the questions, please only use the specified answer possibilities.
x
The survey consists of four different parts.
Yours sincerely,
Drs. Rosalie Duijvis
CHAPTER
1
175
Part I: General questions
1.
How many years have you been working as a pharmacist?
_____ year(s)
2.
Are you an independent pharmacist or are you employed?
o
o
o
3.
By which chain are you employed?
o
o
o
o
4.
independent pharmacist, continue to question 8
employed by an independent pharmacy, continue to question 8
employed by a chain, continue to question 3
De Vier Vijzels
Farmassure
Lloyds
Mediveen
How many years have you been working as a pharmacist for this chain?
_____ year(s)
5.
How many years has this pharmacy been a part of this chain?
_____ year(s)
6.
Nyenrode Business Universiteit, Straatweg 25, 3621 BG BREUKELEN, Tel: 0346-291561,
E-mail: [email protected]
Was this pharmacy associated with the formula of the central organization before it
became a chain pharmacy?
o
o
yes
no
o
o
o
9.
Kring-apotheek
Meditheek/Escura Apotheek
Service Apotheek
How many years have you been associated with this formula as a pharmacist?
_____ year(s)
10. How many years has this pharmacy been associated with this formula?
_____ year(s)
11. How many years have you been working in this pharmacy?
_____ year(s)
o
o
yes
no
17. To what degree is your income from this pharmacy fixed or variable?
o
o
o
o
o
completely fixed
largely fixed
partially fixed/partially variable
largely variable
completely variable
Part II: Statements
Please indicate how much you agree or disagree with the following statements. We ask
you to respond to all statements.
Strongly disagree
With which formula is this pharmacy associated?
16. Are there still obligations with respect to the repayment of the purchase price of this
pharmacy/pharmacies?
Disagree
8.
_____ pharmacy/pharmacies
Partially disagree
Continue to question 17
Partially agree/
partially disagree
_____ year(s)
15. How many of these pharmacies are associated with the formula that you have
marked off in question 8?
Partially agree
How many years have you been working in this pharmacy?
a) From the central organization I get complete
freedom to adapt to changes in the local
environment of this pharmacy.
1
2
3
4
5
6
7
b) For
every
important
decision
(nonpharmaceutical) that I make with respect to this
pharmacy, permission is required from the
central organization.
1
2
3
4
5
6
7
c) I always have to comply with recommendations
of the central organization regarding this
pharmacy.
1
2
3
4
5
6
7
12. Have you worked in a chain pharmacy before this?
o
o
yes, continue to question 13
no, continue to question 14
13. Was this chain pharmacy part of the chain that is affiliated with your formula?
o
o
yes
no
14. How many pharmacies do you own?
_____ pharmacy/pharmacies
If you own multiple pharmacies, continue to question 15. Otherwise continue to question
16.
CHAPTER
1
177
183 letter and survey
cover
Agree
7.
appendix182
b
Strongly agree
TITLE
176
1. Centralization
Strongly disagree
5
6
7
e) I am allowed to decide myself at which moment
I obtain that which the central organization
offers (products, services, working methods,
etc.).
1
2
3
4
5
6
7
Strongly disagree
Disagree
4
Disagree
Partially disagree
3
Partially disagree
Partially agree/
partially disagree
2
Partially agree/
partially disagree
Partially agree
1
Centralization
Partially agree
Agree
d) I am allowed to decide myself whether I obtain
that which the central organization offers
(products, services, working methods, etc.).
1.
CHAPTER
1
179
185 letter and survey
cover
Agree
Strongly agree
appendix184
b
Strongly agree
TITLE
178
d) When I criticize decisions of the central
organization, she acts on it.
1
2
3
4
5
6
7
e) The central organization makes decisions that
influence this pharmacy without consulting me
first.
1
2
3
4
5
6
7
3.
Participation
In the remaining part of the survey, we sometimes ask for the situation in past years. If
you have joined this pharmacy more recently, please try to make an estimation of the
situation for the indicated period.
2. Formalization
a) My relationship with the central organization is
characterized by many rules and procedures.
1
b) The central organization has clearly described
the responsibilities of this pharmacy.
1
2
3
4
5
6
7
c) The central organization has determined how
decisions regarding this pharmacy have to be
made.
1
2
3
4
5
6
7
d) The central organization has drawn up few
formal procedures for this pharmacy.
1
2
3
4
5
6
7
e) The central organization has specified with
whom I have to communicate within the central
organization.
1
2
2
3
3
4
4
5
5
6
6
7
7
3. Participation
a) The central organization encourages me to
generate new ideas.
1
2
3
4
5
6
7
b) The central organization encourages me to give
my opinion on her ideas.
1
2
3
4
5
6
7
c) The central organization listens well when I
criticize her decisions.
1
2
3
4
5
6
7
4.
Operational control
a) The central organization has regularly checked
whether this pharmacy complies with the rules
and procedures that she has specified in the past
two years.
1
2
3
4
5
6
7
b) The central organization uses multiple methods
to determine whether this pharmacy complies
with the rules and procedures that she has
specified.
1
2
3
4
5
6
7
c) The central organization has regularly
measured the service quality of this pharmacy
in the past two years.
1
2
3
4
5
6
7
d) The central organization periodically gathers
information on the financial and operational
results of this pharmacy (profit, rules per
assistant, etc.).
1
2
3
4
5
6
7
e) The central organization has regularly
evaluated the financial and operational results
of this pharmacy in the past two years.
1
2
3
4
5
6
7
Disagree
Strongly disagree
b) I apply the house style of the formula.
Partially disagree
Adherence to uniform standards
Partially agree/
partially disagree
6.
Partially agree
By “innovations” we mean new and adaptations to existing products, services, working
methods, processes, and systems.
CHAPTER
1
181
187 letter and survey
cover
Agree
Strongly disagree
Disagree
Partially disagree
Partially agree/
partially disagree
Partially agree
Speed of implementation
Agree
Strongly agree
5.
appendix186
b
Strongly agree
TITLE
180
1
2
3
4
5
6
7
na
1
2
3
4
5
6
7
central
1
2
3
4
5
6
7
c) I make use of the FPZ materials of the central
organization (first dispensing protocols, blood
pressure measuring, etc.).
b) When the central organization introduces an
innovation, I first wait to see which way the cat
is going to jump.
1
2
3
4
5
6
7
d) I make use of the quality management system
that is preferred by the central organization.
na
1
2
3
4
5
6
7
e) I obtain my basis assortment from the
wholesaler that is affiliated with the central
organization.
na
1
2
3
4
5
6
7
7
f)
I carry the generic label that has been selected
by the central organization.
na
1
2
3
4
5
6
7
na
1
2
3
4
5
6
7
7
g) I carry the private label (OTC products) of the
formula.
h) I make use of the deals that the central
organization
has
closed
with
the
wholesaler/manufacturers.
na
1
2
3
4
5
6
7
i)
I make use of the blanket agreements that the
central organization has closed with the
suppliers of back office services (paperwork,
packaging material, energy, etc.).
na
1
2
3
4
5
6
7
j)
I make use of the stock management system of
the wholesaler that is affiliated with the central
organization (for example, Apollo).
na
1
2
3
4
5
6
7
a) I implement innovations by
organization right away.
the
Please respond only to the following two statements if you are an independent Kring or
Escura pharmacist. Otherwise, mark off “not applicable” (na).
c) I implement innovations by the central
organization more quickly when she also
implements them in chain pharmacies.
na
d) I implement innovations of the central
organization more quickly when she
demonstrates the success of these innovations
through data gathered from chain pharmacies.
na
6.
1
1
2
2
3
3
4
4
5
5
6
6
Adherence to uniform standards
The following statements are about the use of the products/services of the central
organization/affiliated wholesaler. If the central organization does not (yet) offer a
product/service or if you do not know whether she offers it, please mark off “not
applicable” (na).
If you partly use the products/services that are described, you can choose from options
2 up to 6 to indicate to what extent you use them.
a) This pharmacy is clearly recognizable as a
formula pharmacy in her presentation to the
outside world.
1
2
3
4
5
6
7
4
5
6
7
b) I regularly conduct research among customers
(= patients) on the service quality of this
pharmacy.
1
2
3
4
5
6
7
c) I have systematically analyzed the wants and
needs of customers in the past year.
1
2
3
4
5
6
7
d) I watch other local pharmacies closely.
1
2
3
4
5
6
7
e) In the past year, I have intensively consulted
with local stakeholders (prescribers, nursing
homes, etc.) on the possibilities to improve
service.
1
2
3
4
5
6
7
8.
Strongly disagree
3
Disagree
2
Partially disagree
1
the
Partially agree/
partially disagree
market
a) I have regularly analyzed
developments in the past year.
Partially agree
The following statements are about the market information that this pharmacy gathers
on her own initiative. They are thus not about the information that the central
organization gathers for her.
CHAPTER
1
183
189 letter and survey
cover
Agree
Strongly disagree
Disagree
Partially disagree
Partially agree/
partially disagree
Partially agree
Market intelligence generation
Agree
Strongly agree
7.
appendix188
b
Strongly agree
TITLE
182
c) To tie customers to this pharmacy, I do much
more than average.
1
2
3
4
5
6
7
d) I am actively engaged in acquiring new
customers.
1
2
3
4
5
6
7
e) I regularly organize local marketing activities.
1
2
3
4
5
6
7
f)
Decisions regarding the products and services
of this pharmacy are also based on the
approaches of competing pharmacies.
1
2
3
4
5
6
7
g) I put much time and energy into building and
maintaining
relationships
with
local
stakeholders (prescribers, nursing homes, etc.).
1
2
3
4
5
6
7
h) I adapt to the wants and needs of local
stakeholders.
1
2
3
4
5
6
7
8.
9.
Local responsiveness
Contribution to idea generation
By “innovations” we mean new and adaptations to existing products, services, working
methods, processes, and systems.
Local responsiveness
The following statements are about the local activities that this pharmacy conducts on
her own initiative. They are thus not about the activities that she conducts with the help
of the central organization.
a) I undertake many actions to strengthen the
position of this pharmacy in her local
environment.
1
2
3
4
5
6
7
b) I react immediately in the case of an (future)
opportunity or threat in the local environment
of this pharmacy.
1
2
3
4
5
6
7
a) I often implement innovations in this pharmacy.
1
2
3
4
5
6
7
b) Via the central organization, other pharmacies
that have joined the central organization often
benefit from the innovations that I implement in
this pharmacy.
1
2
3
4
5
6
7
c) The innovations that I implement in this
pharmacy are regularly adopted by the central
organization.
1
2
3
4
5
6
7
6
7
10. Demand for chain operator initiated innovation
2
3
4
5
6
7
a) In the past year, I have regularly asked the
central organization to invent something to
improve the organization of this pharmacy.
1
b) I urge the central organization to help this
pharmacy professionalize further.
1
2
3
4
5
6
7
c) I stimulate the central organization to introduce
innovations.
1
2
3
4
5
6
7
11. Chain operator idea generation proficiency
By “ideas” we mean ideas for new and adaptations to existing products, services,
working methods, processes, and systems.
a) The central organization generates many ideas.
1
2
3
4
5
6
7
b) The ideas of the central organization have great
added value for this pharmacy.
1
2
3
4
5
6
7
c) The ideas of the central organization are
original.
1
2
3
4
5
6
7
d) The type of ideas generated by the central
organization differs from the type of ideas
generated by pharmacies.
1
2
3
4
5
6
7
e) The ideas of the central organization are
practical.
1
2
3
4
5
6
7
Strongly disagree
5
Disagree
Strongly disagree
4
Partially disagree
Disagree
3
Partially agree/
partially disagree
Partially disagree
2
12. Critique of chain operator decisions
Partially agree
Partially agree/
partially disagree
1
CHAPTER
1
185
191 letter and survey
cover
Agree
Partially agree
d) Through my ideas for innovations in this
pharmacy, I actively contribute to the
innovation of the central organization.
Agree
Contribution to idea generation
Strongly agree
9.
appendix190
b
Strongly agree
TITLE
184
By “decisions” we mean decisions about new and adaptations to existing products,
services, working methods, processes, and systems.
a) I am actively involved in the evaluation of
ideas of the central organization (participation
in soundboard groups, commissions, etc.).
1
2
3
4
5
6
7
b) I tell the central organization exactly what I
think of the ideas that she generates.
1
2
3
4
5
6
7
c) I regularly enter into discussion with the central
organization about her decisions.
1
2
3
4
5
6
7
d) If decisions of the central organization are
insufficiently substantiated in my opinion, I ask
her to come up with better arguments.
1
2
3
4
5
6
7
e) Once the central organization has implemented
a decision, I do not enter into a discussion with
her concerning that decision anymore.
1
2
3
4
5
6
7
f)
1
2
3
4
5
6
7
Once the central organization has implemented
a decision, I continue to evaluate it critically.
13. Participation in pilots
a) How many times has the central organization
used this pharmacy to test something new in the
past two years?
_____ times
a) Better fulfill the wants and needs of her
customers.
1
2
3
4
5
6
7
b) Better fulfill the wants and needs of local
stakeholders.
1
2
3
4
5
6
7
c) Improve her image in the local environment.
1
2
3
4
5
6
7
d) Obtain more
environment.
1
2
3
4
5
6
7
awareness
in
her
local
e) Better defy (future) local competition.
1
2
3
4
5
6
7
f)
1
2
3
5
5
6
7
Better adapt to opportunities and threats in her
local environment.
15. Chain operator contribution to general
performance
Partially agree
Partially agree/
partially disagree
Partially disagree
Disagree
Strongly disagree
Because of the use of that which the central organization offers (products, services,
working methods, processes, systems, etc.), this pharmacy is able to:
h) The acquisition of new customers
1
2
3
4
5
6
7
Part III: Performance of the pharmacy
For the following questions, can you indicate by approximation how this pharmacy
performs?
16. Performance
a) By what percentage have the sales of this pharmacy increased/decreased in the past
three years (2005 compared to 2003)?
_____ %
b) By what percentage have the number of processed WTG-rules of this pharmacy
increased/decreased in the past three years?
_____ %
c) How many WTG-rules has this pharmacy processed in the past year (2005)?
15. Chain operator contribution to general performance
The use of that which the central organization offers (products, services, working
methods, processes, systems, etc.) leads in case of this pharmacy to:
a) A higher level of service
1
2
3
4
5
6
7
b) A higher level of pharmaceutical patient care
1
2
3
4
5
6
7
c) More professional marketing
1
2
3
4
5
6
7
d) More motivated employees
1
2
3
4
5
6
7
e) A higher processing rate per assistant
1
2
3
4
5
6
7
f)
1
2
3
4
5
6
7
1
2
3
4
5
6
7
Lower fixed costs
g) The retention of existing customers
CHAPTER
1
187
193 letter and survey
cover
Agree
Strongly disagree
Disagree
Partially disagree
Partially agree/
partially disagree
Partially agree
14. Chain operator contribution to local
responsiveness
Agree
Strongly agree
appendix192
b
Strongly agree
TITLE
186
_____ rules
d) By what percentage has the gross profit margin (gross profit1 as a percentage of
sales) of this pharmacy increased/decreased in the past three years?
_____ %
e) What was the gross profit margin of this pharmacy in the past year?
_____ %
f)
By what percentage has the operational profit margin (operational profit before
depreciation2 as a percentage of sales) of this pharmacy increased/decreased in the
past three years?
_____ %
TITLE
188
appendix194
b
195 letter and survey
cover
CHAPTER
1
189
Part IV: Remaining questions
16. Performance
g) What was the operational profit margin of this pharmacy in the past year before
depreciation?
1.
What is the population of the village/city area in which this pharmacy is located?
o
o
o
o
o
_____ %
Specification profit calculation:
Sales
-/- Costs of goods sold
Gross profit1
-/- Operational costs (personnel costs, etc.)
Operational profit before depreciation2
-/- Depreciation
Taxes
-/- Financing costs
Net profit
2.
Less than 10,000
10,000 - 19,999
20,000 - 34,999
35,000 - 49,999
50,000 or more
How many persons are registered (excluding passers-by) at this pharmacy?
_____ persons
3.
How many pharmacy assistants/pharmaceutical employees are working full time in
this pharmacy?
_____ full time equivalent
4.
Is this pharmacy a city or a rural pharmacy?
Equal
Smaller
Much smaller
city pharmacy
rural pharmacy
Higher
o
o
Much higher
Please indicate how your pharmacy performs relative to the average pharmacy with
respect to the following performance measures.
h) Customer satisfaction
How many pharmacies are located in the local environment of this pharmacy
(including this pharmacy)?
i)
Local stakeholder satisfaction
_____ pharmacy/pharmacies
j)
Employee satisfaction
k) Sales growth
l)
m) Gross profit margin
n) Operational profit margin (before depreciation)
Growth in number of WTG-rules
5.
6.
Is there an Etos pharmacy or DA pharmacy located in the local environment of this
pharmacy?
o
o
7.
yes
no
Is this pharmacy located in a health care center or an AHOED?
o
o
yes
no
TITLE
190
8.
appendix196
b
Is another pharmacy in the local environment of this pharmacy located in a health
care center or an AHOED?
o
o
9.
yes
no
In what kind of area is this pharmacy located (young area, low income housing area,
etc.)?
197 letter and survey
cover
If you would like to receive a summary of the results of the research per e-mail and/or an
invitation for a session at Nyenrode, you can indicate this below.
o
o
Yes, I would like to receive a summary of the results of the research.
Yes, I would like to receive an invitation for participation in a session at
Nyenrode.
E-mail address:
_____________________ area
10. Do you work part time or full time (five days a week)?
o
o
part time
full time
11. Do you live in the village/city area in which this pharmacy is located?
o
o
yes
no
Finally
Thank you very much for your participation in this research. You can help us by filling
in possible remarks or comments with respect to the survey in the space below.
Remarks or comments:
CHAPTER
1
191
You can return this survey in the enclosed postage-paid return envelope.
In case of questions, please contact:
Drs. Rosalie Duijvis
Nyenrode Business Universiteit
Straatweg 25
3621 BG Breukelen
Tel: 0346-291561
E-mail: [email protected]
198
TITLE
Appendix C Descriptive statistics
Table C.1
Respondents according to the number of years they have been affiliated with the chain organization
Number of years affiliated with chain: pharmacist
Percentages
Less than 4 years
41.7%
4 - 6
28.5%
7 - 9
17.7%
10 - 12
10.8%
More than 12 years
Table C.2
1.3%
Respondents according to the number of years the pharmacy has been affiliated with the chain
organization
Number of years affiliated with chain: pharmacy
Percentages
Less than 4 years
34.8%
4 - 6
31.0%
7 - 9
17.7%
10 - 12
13.3%
More than 12 years
Table C.3
3.2%
Respondents according to whether the pharmacy was associated with the franchise formula of the
chain organization before it became company-owned (only answered by company managers)
Pharmacy associated with formula of chain organization
Percentages
Yes
13.2%
No
86.8%
Table C.4
Respondents according to the number of years they have been working within this pharmacy
Number of years working within this pharmacy
Less than 4 years
Percentages
26.6%
4 - 6
22.1%
7 - 9
10.8%
10 - 12
More than 12 years
9.5%
31.0%
Cappendix
HAPTER 1
c
199
194
Table C.5
Respondents according to whether they have previously worked in a company-owned pharmacy
Table C.9
(only answered by franchisees)
Previously worked in a company-owned pharmacy
195
200
TITLE
descriptive
statistics
Respondents according to the number of persons (excluding passers-by) that are registered at the
pharmacy
Percentages
Number of persons registered
Percentages
Yes
8.8%
Less than 4,000
1.9%
No
91.2%
4,000 - 6,999
13.8%
7,000 - 9,999
32.7%
10,000 - 12,999
24.5%
13,000 or more
15.7%
Table C.6
Respondents according to the number of pharmacies they own (only answered by franchisees)
Number of pharmacies owned
Percentages
Table C.10 Respondents according to the number of full time equivalent pharmacy assistants/pharmaceutical
0
14.4%
1
54.5%
2
21.1%
3
3.3%
4
5.6%
pharmaceutical employees
5
1.1%
Less than 4
Table C.7
employees
Number of full time equivalent pharmacy assistants/
6.7%
4 - 6
40.3%
Respondents according to the obligations regarding the repayment of the purchase price of the
7 - 9
36.9%
pharmacy (only answered by franchisees)
10 - 12
11.4%
More than 12
Obligations regarding repayment of purchase price
45.5%
No
54.5%
Table C.11 Respondents according to whether they are working in a city or a rural pharmacy
City or rural pharmacy
Respondents according to the population of the village/city area in which the pharmacy is located
Population of village/city area
4.7%
Percentages
Yes
Table C.8
Percentages
Percentages
City pharmacy
49.4%
Rural pharmacy
50.6%
Percentages
Table C.12 Respondents according to the number of pharmacies that is located in the local environment of this
Less than 10,000
32.1%
10,000 - 19,999
37.2%
20,000 - 34,999
16.6%
35,000 - 49,999
7.7%
Number of pharmacies located in local environment
50,000 or more
6.4%
1
24.7%
2
18.2%
3
16.2%
4
15.6%
More than 4
25.3%
pharmacy (including this pharmacy)
Percentages
Cappendix
HAPTER 1
c
201
196
Table C.13 Respondents according to whether an Etos or DA pharmacy is located in the local environment of the
Table C.18 Respondents according to whether they are living in the village/city area in which the pharmacy is
pharmacy
Etos or DA pharmacy located in local environment
197
202
TITLE
descriptive
statistics
located
Percentages
Living in village/city area in which pharmacy is located
Percentages
Yes
14.1%
Yes
38.9%
No
85.9%
No
61.1%
Table C.14 Respondents according to whether the pharmacy is located in a health care center or an AHOED
Pharmacy located in health care center or AHOED
Percentages
Yes
22.9%
No
77.1%
Table C.15 Respondents according to whether another pharmacy in the local environment is located in a health
care center or an AHOED
Other local pharmacy located in health care center or AHOED
Percentages
Yes
33.1%
No
66.9%
Table C.16 Respondents according to the area in which their pharmacy is located
Area in which pharmacy is located
Percentages
Young
16.4%
Old
18.2%
Mixed
44.7%
Low income housing
11.9%
Affluent
5.7%
Other
1.9%
Table C.17 Respondents according to whether they are working part time or full time (five days a week)
Working part time or full time
Percentages
Part time
19.7%
Full time
80.3%
198
appendix c
CHAPTER 1
203
Appendix D Test statistics of multi-item constructs
Table D.1
Test statistics of multi-item constructs: Number of items, minimum item-to-total correlation, average
variance extracted, and Cronbach’s alpha
Constructs
Number
Minimum
Average
Cronbach’s
of items
item-to-total
variance
alpha
correlation
extracted
Centralization
5
0.64
66.2%
0.87
Formalization
3
0.47
66.2%
0.74
Participation
4
0.66
74.2%
0.88
Rule conformation control
2
0.68
84.0%
0.81
Performance control
2
0.96
97.9%
0.98
Adherence to uniform front office standards
2
0.84
91.8%
0.91
Adherence to uniform back office standards
3
0.72
82.9%
0.89
Customer intelligence generation
2
0.70
85.0%
0.82
Other stakeholder intelligence generation
2
0.28
64.2%
0.44
Customer responsiveness
3
0.58
70.6%
0.79
Other stakeholder responsiveness
3
0.50
69.4%
0.76
Contribution to idea generation
3
0.64
78.9%
0.87
Demand for CO initiated innovation
3
0.58
71.5%
0.80
CO idea generating proficiency
4
0.65
70.5%
0.86
Critique of CO decisions
3
0.74
81.2%
0.88
CO contribution to local performance
6
0.69
68.3%
0.91
CO contribution to effectiveness
6
0.61
66.6%
0.90
Absolute pharmacy performance: growth
2
0.90
94.9%
0.95
Relative pharmacy performance: stakeholder
3
0.58
70.5%
0.78
Relative pharmacy performance: growth
2
0.87
93.5%
0.93
Relative pharmacy performance: profit margin
2
0.75
87.6%
0.85
satisfaction
200
appendix c
TITLE
204
Appendix E Removed items
2. Formalization
d) The central organization has drawn up few formal procedures for this pharmacy.
e) The central organization has specified with whom I have to communicate within the
central organization.
3. Participation
e) The central organization makes decisions that influence this pharmacy without
consulting me first.
4. Operational control
c) The central organization has regularly measured the service quality of this pharmacy in
the past two years.
5. Speed of implementation
b) When the central organization introduces an innovation, I first wait to see which way
the cat is going to jump.
6. Adherence to uniform standards
c) I make use of the FPZ materials of the central organization (first dispensing protocols,
blood pressure measuring, etc.).
d) I make use of the quality management system that is preferred by the central
organization.
g) I carry the private label (OTC products) of the formula.
i)
I make use of the blanket agreements that the central organization has closed with the
suppliers of back office services (paperwork, packaging material, energy, etc.).
j)
I make use of stock management system of the wholesaler that is affiliated with the
central organization (for example, Apollo).
8. Local responsiveness
b) I react immediately in the case of an (future) opportunity or threat in the local
environment of this pharmacy.
f)
Decisions regarding the products and services of this pharmacy are also based on the
approaches of competing pharmacies.
Cappendix
HAPTER 1e
205
202
9. Contribution to idea generation
a) I often implement innovations in this pharmacy.
11. Chain operator idea generating proficiency
d) The type of ideas generated by the central organization differs from the type of ideas
generated by pharmacists.
12. Critique of chain operator decisions
a) I am actively involved in the evaluation of ideas of the central organization
(participation in soundboard groups, commissions, etc.).
e) Once the central organization has implemented a decision, I do not enter into a
discussion with her concerning that decision anymore.
f)
Once the central organization has implemented a decision, I continue to evaluate it
critically.
15. Chain operator contribution to efficiency
e) The use of that which the central organization offers (products, services, working
methods, processes, systems, etc.) leads in case of this pharmacy to: a higher
processing rate per assistant.
16. Absolute pharmacy performance
c) How many WTG-rules has this pharmacy processed in the past year (2005)?
d) By what percentage has the gross profit margin (gross profit as a percentage of sales) of
this pharmacy increased/decreased in the past three years?
e) What was the gross profit margin of this pharmacy in the past year?
f)
By what percentage has the operational profit margin (operational profit before
depreciation as a percentage of sales) of this pharmacy increased/decreased in the past
three years?
g) What was the operational profit margin of this pharmacy in the past year before
depreciation?
TITLE
TITLE
206
Nederlandse samenvatting
Introductie
Bestaand wetenschappelijk onderzoek naar governance beslissingen richt zich
hoofdzakelijk op het verklaren van de keuze van organisaties tussen governance-structuren
(ofwel beheersingsstructuren). Dit onderzoek beschouwt deze keuze als een product van
omstandigheden. Onder bepaalde omstandigheden voldoet de ene governance-structuur
beter dan de andere. Wanneer de omstandigheden wijzigen, wijzigt ook de gebruikte
governance-structuur. In de praktijk bestaan verschillende governance-structuren echter
vaak naast elkaar onder dezelfde omstandigheden. In de literatuur wordt het gelijktijdig
gebruik van meerdere governance-structuren een plural form genoemd (Bradach and
Eccles, 1989). Om het plural form fenomeen te verklaren, hebben sommige wetenschappers
de veronderstelling losgelaten dat de ene governance-structuur superieur is aan de andere
onder bepaalde omstandigheden. Zij beweren dat de plural form het product is van het
synergetisch potentieel van verschillende governance-structuren.
Bradach (1992, 1997) heeft waarschijnlijk de grootste bijdrage geleverd aan de bestaande
kennis met betrekking tot de synergetische voordelen van de plural form. In een kwalitatief
onderzoek heeft hij onderzocht hoe het gelijktijdige gebruik van franchise- en
eigendomsvestigingen (d.w.z. vestigingen in eigendom van een keten), restaurantketens
beter in staat stelt aan hun strategische doelstellingen te voldoen. Volgens Bradach leiden
verschillen in de organisatie- en managementstructuur van franchise- en
eigendomsrestaurants tot verschillen in hun bijdrage aan deze strategische doelstellingen. In
combinatie leiden deze bijdragen tot zogenaamde plural dynamics. De bijdrage van
franchiserestaurants heeft bijvoorbeeld soms een positieve invloed op de bijdrage van
eigendomsrestaurants en vice versa. Bradach beschrijft dat deze plural dynamics er
uiteindelijk voor zorgen dat restaurantketens die de plural form gebruiken, beter aan hun
strategische uitdagingen voldoen. Daarom presteren deze restaurantketens volgens hem
uiteindelijk beter dan restaurantketens die gebruik maken van de pure form (d.w.z. alleen
franchiserestaurants of alleen eigendomsrestaurants).
In deze dissertatie onderzoeken wij de synergetische voordelen van de plural form voor
Nederlandse apotheekketens. De plural form is een actueel onderwerp in de Nederlandse
apotheeksector. Twee apotheekketens maken reeds gebruik van de plural form.
Apotheekketens die op dit moment alleen franchise- of eigendomsapotheken hebben,
overwegen veelal ook gebruik te maken van een combinatie. Om de voordelen van de
plural form te onderzoeken, baseren wij ons op het Structure-Conduct-Performance (SCP)
paradigma. Dit paradigma veronderstelt dat de structuur van een industrie het gedrag van
organisaties in deze industrie beïnvloedt en dat dit gedrag op haar beurt de prestaties van de
CHAPTER 1
nederlandse samenvatting
207
204
industrie beïnvloedt. In deze dissertatie passen wij het SCP paradigma toe vanuit een
apotheekketen/apotheek (micro) perspectief en niet zozeer vanuit een industrie (meso)
perspectief. In navolging van Bradach onderzoeken wij eerst hoe apotheekketens hun
relatie met franchise- en eigendomsvestigingen structureren. Vervolgens onderzoeken wij
het verband tussen deze structuur en het gedrag van apotheken (d.w.z. hun bijdrage aan de
strategische doelstellingen van apotheekketens) en de plural dynamics die voortkomen uit
de verschillen in het gedrag van franchise- en eigendomsapotheken. Tenslotte onderzoeken
wij de gevolgen van de plural form voor de prestatie. Hierbij maken wij een onderscheid
tussen twee soorten prestatie: de prestatie van ketenexploitanten (d.w.z. hun effectiviteit in
het behalen van de strategische doelstellingen en hun bijdrage aan de prestatie van
apotheken) en de prestatie van de apotheken. Wij onderzoeken het indirecte effect van
gedrag op de prestatie van apotheken (via de prestatie van ketenexploitanten) en het directe
effect. Doordat wij het onderzoek van Bradach uitbreiden naar een andere retailsector,
wordt beter inzicht verkregen in de verschillende voordelen van de plural form.
TITLE
nederlandse
samenvatting
205
208
(d.w.z. ruimere beslissingsbevoegdheden) en formalisatie (d.w.z. minder regels en
procedures) en een hoger niveau van participatie (d.w.z. grotere inbreng bij beslissingen)
dan de relatie tussen eigendomsvestigingen en de ketenexploitant. Tenslotte hebben
franchisevestigingen te maken met een lagere mate van operationele beheersing dan
eigendomsvestigingen.
R1
Hoe structureren exploitanten van apotheekketens hun relatie met franchise- en
eigendomsapotheken?
R2
Wat is het effect van de manier waarop ketenexploitanten hun relatie met apotheken
structuren op het gedrag van apotheken in de keten?
Naast de verschillen in structuurkenmerken gaan wij in het theoretisch kader in op twee
theorieën die worden gebruikt om de keuze van organisaties tussen governance-structuren
te verklaren: Transaction Cost Economics (TCE) en de Resource-Based View of the Firm
(RBV). Verder beschrijven wij twee aan TCE en de RBV gerelateerde theorieën die
specifiek gericht zijn op het verklaren van de keuze van ketenorganisaties tussen franchiseen eigendomsvestigingen: de agency cost theory en de ownership redirection theory. Alle
vier theorieën beschouwen de governance-beslissingen van een organisatie als een product
van omstandigheden. TCE en de agency cost theory gebruiken verschillen in
omgevingsomstandigheden om governance-beslissingen te verklaren terwijl de RBV en de
owernship redirection theory verschillen in de middelen (ofwel resources) van organisaties
gebruiken om deze beslissingen te verklaren. Zoals eerder beschreven, beschouwt de plural
form theorie governance-beslissingen als een product van de synergetische voordelen van
governance-structuren en niet als een product van omstandigheden. Deze voordelen worden
beschreven door verschillende wetenschappers. Harrigan (1984) geeft bijvoorbeeld aan dat
organisaties die een deel van hun aanvoer of distributie uitbesteden aan externe partijen en
tegelijkertijd achterwaarts of voorwaarts zijn geïntegreerd, de R&D inspanningen van deze
externe partijen beter kunnen controleren.
R3
Wat is het effect van het gedrag van apotheken op de prestatie van ketenexploitanten
en wat is het effect van deze prestatie op de prestatie van apotheken?
De Nederlandse apotheeksector
R4
Wat is het effect van het gedrag van apotheken op hun prestatie?
Op basis van het bovenstaande hebben wij de volgende vier onderzoeksvragen
geformuleerd:
Theoretisch kader
Op basis van Yin en Zajac’s (2004) definitie van een governance-structuur, onderscheiden
wij drie structuurkenmerken van franchise- en eigendomsvestigingen: beloningsstructuur,
besluitvorming en operationele beheersing. Volgens Yin en Zajac verschillen franchise- en
eigendomsvestigingen aanzienlijk van elkaar met betrekking tot deze kenmerken. Allereerst
hebben franchisenemers sterkere financiële prikkels. Zij behouden de winst die hun
vestiging genereert terwijl het inkomen van vestigingsmanagers (d.w.z. managers in
eigendomsvestigingen) hoofdzakelijk bestaat uit een vast salaris. Besluitvorming kan
worden gekarakteriseerd aan de hand van drie verschillende dimensies: centralisatie,
formalisatie en participatie. Volgens bestaand onderzoek kenmerkt de relatie tussen
franchisevestigingen en de ketenexploitant zich door een lager niveau van centralisatie
Zoals beschreven, vormt de Nederlands apotheeksector het empirisch kader van deze
dissertatie. In hoofdstuk 3 hebben wij een analyse uitgevoerd van de farmaceutische
zorgmarkt (waarvan de apotheeksector onderdeel uitmaakt) op twee niveaus. Op het
hoogste aggregatieniveau hebben wij het farmaceutische zorgbeleid in Nederland
geanalyseerd. Dit beleid is er sinds de jaren negentig op gericht een systeem van
gereguleerde concurrentie te introduceren. Teneinde concurrentie te stimuleren, heeft het
ministerie van Volksgezondheid, Welzijn en Sport (VWS) bijvoorbeeld een aantal barrières
weggenomen die nieuwe partijen belemmerden de farmaceutische zorgmarkt te betreden.
Daarnaast heeft zij grotere verantwoordelijkheden gegeven aan zorgverzekeraars.
Tegelijkertijd heeft het ministerie van VWS ook direct ingegrepen in de farmaceutische
zorgmarkt door het implementeren van diverse maatregelen om de stijgende uitgaven aan
farmaceutische zorg te beteugelen.
De verschillende beleidswijzigingen en kostenbesparende maatregelen van het ministerie
van VWS hebben een grote invloed gehad op de situatie in de apotheeksector. Op een lager
209
206
CHAPTER 1
nederlandse samenvatting
aggregatieniveau hebben wij deze sector geanalyseerd met behulp van het vijf
krachtenmodel van Porter (1979). Op dit moment is de rivaliteit tussen apotheken (nog)
laag. Eén van de redenen hiervoor is dat Nederlandse apotheken een relatief groot aantal
patiënten bedienen. Daarnaast wisselen Nederlanders nauwelijks van apotheek en zijn de
winstmarges van apotheken hoog. Volumegroei heeft de kostenbesparende maatregelen van
de overheid gecompenseerd. De concurrentie in de apotheeksector is echter stijgende.
Verschillende nieuwe partijen zijn toegetreden tot de markt (bijv. farmaceutische
groothandels, drogisterijketens en poliklinische apotheken). Hoewel deze nieuwe partijen
niet allemaal (reeds) succesvol zijn, is hun dreiging de afgelopen jaren wel toegenomen.
Ook zijn er substituten voor de dienstverlening van apotheken geïntroduceerd. Van deze
substituten vormen unieke leveringen de grootste bedreiging op dit moment. Vanwege de
groeiende dreiging van nieuwe toetreders en substituten alsmede de onzekerheid over
toekomstige kostenbesparende maatregelen, verkopen steeds meer apothekers hun apotheek
aan een keten of sluiten zich aan bij een franchiseformule.
Empirie
Casestudie
Omdat wij de bevindingen van Bradach (1992, 1997) willen testen en de context van het
plural form fenomeen volledig willen begrijpen, hebben wij een casestudie uitgevoerd
onder twee Nederlandse apotheekketens die gebruik maken van de plural form. Het
grootste deel van de casestudiegegevens was afkomstig uit interviews met mensen die op
het hoofdkantoor van deze ketens werkzaam zijn. Apotheekketens hebben drie
verschillende strategische doelstellingen. Uit de casestudie is gebleken dat verschillende
plural dynamics, welke van de franchisezijde van de keten naar de eigendomszijde lopen en
vice versa, de twee apotheekketens beter in staat stellen om aan deze doelstellingen te
voldoen. Een aantal van deze plural dynamics wordt hieronder beschreven.
De eerste strategische doelstelling van apotheekketens is unit growth (d.w.z. groei van het
aantal apotheekvestigingen). Door het gebruik van de plural form is gebleken dat
apotheekketens het proces van unit growth kunnen versnellen. Dit komt doordat zij via
franchiseapotheken diverse beperkingen kunnen overkomen die verbonden zijn aan groei
van het aantal eigendomsapotheken. Franchiseapotheken vereisen bijvoorbeeld weinig
financiële investeringen. Daarom kunnen apotheekketens, wanneer zij ook
franchiseapotheken hebben, de financiële beperkingen met betrekking tot groei via
eigendomsapotheken overkomen. Daarnaast biedt de plural form apotheekketens een betere
kans de hevige strijd om eigendomsapotheken te winnen van concurrerende
apotheekketens. Wanneer franchisenemers besluiten hun apotheek te verkopen, zijn zij
namelijk eerder geneigd dit te doen aan de apotheekketen waaraan zij zijn gelieerd. Aan de
andere kant kunnen ketens wanneer zij ook eigendomsapotheken hebben, de beperking die
TITLE
nederlandse
samenvatting
207
210
voortkomt uit het dalende aantal potentiële franchiseapotheken overkomen. Een toenemend
aantal apothekers kiest ervoor hun apotheek aan een keten te verkopen.
De tweede strategische doelstelling is lokaal ondernemerschap. Uit de casestudie is
gebleken dat apotheken vaak niet echt lokaal ondernemend zijn. Een reden hiervoor is dat
de opleiding van apothekers lokaal ondernemerschap niet stimuleert. Apothekers worden
opgeleid tot medicijnspecialisten. Een andere reden is dat het exploiteren van een apotheek
(nog steeds) erg winstgevend is. Desondanks vertonen franchiseapotheken meer lokaal
ondernemerschap dan eigendomsapotheken. Dit komt onder andere door verschillen in de
structuurkenmerken van deze apotheken. Omdat franchiseapotheken bijvoorbeeld te maken
hebben met een lager niveau van centralisatie en formalisatie dan eigendomsapotheken,
hebben zij grotere vrijheid om in te spelen op lokale omstandigheden. In apotheekketens
die de plural form gebruiken, heeft het grotere lokale ondernemerschap van
franchiseapotheken een positieve invloed op dat van eigendomsapotheken. Exploitanten
van deze ketens kopiëren soms de lokale initiatieven van franchiseapotheken en
implementeren deze dan op een lokaal, regionaal of nationaal niveau in hun eigen
apotheken.
De derde strategische doelstelling van apotheekketens is uniformiteit. Op dit moment zijn
apotheekketens druk bezig meer uniformiteit tussen hun apotheken te creëren. In het
verleden bestond weinig uniformiteit omdat apothekers gewend waren om volledig
zelfstandig te opereren. Het opleggen van veel verplichtingen met betrekking tot
uniformiteit zou hen destijds hebben ontmoedigd zich aan te sluiten bij een keten. Omdat
steeds meer apotheken zich aansluiten bij een keten, accepteren apothekers deze
verplichtingen tegenwoordig makkelijker. Het proces van het creëren van uniformiteit
bestaat uit vier verschillende fasen. In elk van deze fasen leidt de plural form tot
verschillende plural dynamics.
De eerste fase is het genereren van ideeën voor uniforme standaarden. Franchiseapotheken
hebben een positieve invloed op de generatie van deze ideeën. Dit komt onder andere
doordat zij de ketenexploitant regelmatig vragen om nieuwe producten en diensten te
introduceren. Een belangrijke drijfveer hiervoor is dat franchisenemers in tegenstelling tot
vestigingsmanagers, financieel baat hebben bij nieuwe producten en diensten. De
aanwezigheid van eigendomsapotheken draagt ook bij aan de generatie van ideeën.
Ketenexploitanten proberen hun eigen apotheken zo efficiënt mogelijk te organiseren.
Franchiseapotheken zijn daarentegen vaak veel minder efficiënt georganiseerd. Om dit te
veranderen, bieden ketenexploitanten van plural-formketens hulpmiddelen die zij gebruiken
om de efficiëntie van eigendomsvestigingen te verhogen aan hun franchisevestigingen aan.
In een plural-formketen worden dus meer en meer gevarieerde ideeën gegenereerd.
De tweede fase is het testen en evalueren van ideeën. Voordat nieuwe ideeën worden
geïmplementeerd in alle apotheken, testen ketenexploitanten ze vaak eerst in één of een
aantal apotheken. Door het testen van ideeën in eigendomsapotheken stijgt de kwaliteit van
211
208
CHAPTER 1
nederlandse samenvatting
het testproces. Dit komt doordat de managementinformatiesystemen (MIS) van
eigendomsapotheken gegevens verschaffen die ketenexploitanten in staat stellen de
resultaten van ideeën beter te evalueren. Franchiseapotheken zijn niet geïntegreerd in deze
systemen.
De derde fase in het creëren van uniformiteit is besluitvorming. In franchiseapotheken
worden beslissingen hoofdzakelijk decentraal genomen. Om deze apotheken zover te
krijgen een idee te implementeren, proberen ketenexploitanten franchisenemers te
overtuigen van de toegevoegde waarde van dit idee. Bradach (1992) beschrijft dat
exploitanten van plural-formketens, franchisenemers in de restaurantsector makkelijker
kunnen overtuigen. Wanneer exploitanten van deze ketens een idee implementeren in hun
eigen restaurants, laten zij zien in dit idee te geloven. Dit overtuigt de franchisenemers
ervan dat het een goed idee is. Deze plural dynamic werd echter niet bevestigd door de
casestudie. Omdat franchisenemers er vaak vanuit gaan dat eigendomsapotheken
hoofdzakelijk zijn gericht op omzet en kosten en niet, zoals onafhankelijke apotheken op
farmaceutische zorg, beschouwen zij ideeën die worden geïmplementeerd in
eigendomsapotheken niet automatisch als van belang voor henzelf. In deze fase profiteren
apotheekketens wel van de aanwezigheid van franchisenemers. Dit komt doordat
franchisenemers over het algemeen kritischer ten opzichte van de ideeën en beslissingen
van de ketenexploitant staan dan vestigingsmanagers. Dit verschil wordt onder andere
veroorzaakt doordat de relatie tussen franchisenemers en de ketenexploitant zich kenmerkt
door een hoger niveau van participatie. Franchisenemers hebben vaker het gevoel dat zij
invloed kunnen uitoefenen op de beslissingen van de ketenexploitant en dat er naar ze
wordt geluisterd. De feedback van franchisenemers stelt de ketenexploitant in staat om
betere beslissingen te nemen.
De laatste fase is implementatie. Bradach (1992) legt uit dat exploitanten van pluralformketens de implementatie van nieuwe ideeën in hun eigen restaurants gebruiken om
franchisenemers te overtuigen van de levensvatbaarheid van deze ideeën. Deze plural
dynamic werd bevestigd door de casestudie. Toch is echter ook gebleken dat zelfs wanneer
de levensvatbaarheid van ideeën kan worden aangetoond, franchisenemers soms blijven
geloven dat deze ideeën alleen van belang zijn voor eigendomsapotheken. De
implementatie van ideeën in eigendomsapotheken heeft soms ook een positieve invloed op
de implementatie door franchiseapotheken via onderling contact tussen vestigingsmanagers
en franchisenemers. Omdat er in de praktijk (nog) niet zo veel contact tussen hen bestaat, is
het effect van deze plural dynamic nog beperkt.
Onderzoeksmodel en hypothesen
Op basis van de literatuur en de casestudie hebben wij vijf verschillende
onderzoeksmodellen geconstrueerd. Deze modellen zijn gerelateerd aan twee strategische
doelstellingen van apotheekketens: lokaal ondernemerschap en uniformiteit (d.w.z. de vier
fasen in het creëren van uniformiteit). In de onderzoeksmodellen hebben wij structuur,
TITLE
nederlandse
samenvatting
209
212
gedrag en prestatie met elkaar verbonden. Op basis van de onderzoeksmodellen hebben wij
verschillende hypothesen geformuleerd met betrekking tot de relaties tussen structuur,
gedrag en prestatie. Daarnaast hebben wij hypothesen geformuleerd met betrekking tot de
verschillen in de structuurkenmerken en het gedrag van franchise- en eigendomsapotheken.
Tenslotte hebben wij ook diverse hypothesen geformuleerd met betrekking tot de
verschillen in de prestatie van plural-formketens en pure-formketens en de prestatie van
apotheken die tot plural-formketens en apotheken die tot pure-formketens behoren. Wij
verwachten dat plural dynamics ertoe leiden dat plural-formketens beter presteren dan pureformketens en dat apotheken van plural-formketens daardoor beter presteren dan die van
pure-formketens.
Survey
Om onze hypothesen te testen, hebben wij een survey uitgevoerd. De survey werd
verstuurd naar apotheken en niet naar de exploitanten van apotheekketens. Eén van de
redenen hiervoor was dat dit ons in staat stelde om na te gaan of de opvatting van de
ketenexploitant (welke is bepaald aan de hand van de casestudie) overeenkomt met die van
apotheken. De steekproef bestond uit apotheken van plural-formketens én apotheken van
pure-formketens. Door de survey ook te versturen naar apotheken van pure-formketens
konden wij nagaan of er daadwerkelijk verschillen bestaan tussen de twee soorten
apotheken. De survey is in totaal naar 794 apotheken verstuurd. Uiteindelijk hebben wij
159 bruikbare ingevulde surveys ontvangen (19.8%). Indien mogelijk hebben wij items van
bestaande schalen gebruikt om structuur, gedrag en prestatie te meten. In de meeste
gevallen waren er echter geen bestaande schalen beschikbaar en hebben wij de items zelf
gegenereerd. De antwoorden hebben wij geanalyseerd met behulp van Structural Equation
Modeling (SEM) en de t-toets. In de survey hebben wij unit growth buiten beschouwing
gelaten. Dit vanwege het feit dat de plural dynamics die plural-formketens in staat stellen
beter aan deze doelstelling te voldoen, voortkomen uit de beperkingen die bestaan met
betrekking tot groei van het aantal franchise- en eigendomsapotheken en niet uit de
verschillen in het gedrag van deze apotheken.
Conclusies
Wat betreft de verschillen in de structuurkenmerken van franchise- en
eigendomsvestigingen waren de resultaten van de survey in overstemming met de
casestudie en de literatuur. Zowel de casestudie als de survey lieten zien dat
franchisenemers sterkere financiële prikkels hebben dan vestigingsmanagers en dat hun
relatie met de ketenexploitant wordt gekenmerkt door een lager niveau van centralisatie,
formalisatie en operationele beheersing en een hoger niveau van participatie
(onderzoeksvraag 1).
213
210
CHAPTER 1
nederlandse samenvatting
De relaties tussen structuur, gedrag en prestatie werden gedeeltelijk bevestigd door de
survey. Sommige hypothesen konden worden geaccepteerd terwijl andere hypothesen
moesten worden verworpen (onderzoeksvragen 2 en 3).
Wat betreft de verschillen in het gedrag van franchise- en eigendomsapotheken kwamen de
resultaten van de casestudie grotendeels overeen met de literatuur (d.w.z. Bradach, 1992;
1997). De resultaten van de casestudie kwamen echter niet altijd overeen met de resultaten
van de survey. Blijkbaar hebben mensen die op het hoofdkantoor van een apotheekketen
werken niet altijd dezelfde perceptie van het gedrag van apotheken als apothekers zelf.
Slechts twee hypothesen met betrekking tot de verschillen in het gedrag van franchise- en
eigendomsapotheken werden bevestigd en één hypothese werd gedeeltelijk bevestigd. Voor
drie soorten gedrag (bijv. lokaal ondernemerschap) werden geen verschillen gevonden
terwijl voor twee andere soorten gedrag wel verschillen werden gevonden maar deze
verschillen waren precies tegenovergesteld aan hetgeen werd verwacht.
Franchiseapotheken bleken bijvoorbeeld juist minder kritisch te staan ten opzichte van de
ideeën van de ketenexploitant dan eigendomsapotheken. Een mogelijke verklaring hiervoor
is dat de relatie tussen ketenexploitanten en franchisenemers op dit moment niet sterk
genoeg is. Het is overigens niet verwonderlijk dat de survey niet al onze verwachtingen met
betrekking tot gedrag heeft bevestigd. Hoewel de structuur aanwezig is, heeft de survey,
zoals beschreven, de relaties tussen structuur en gedrag slechts gedeeltelijk bevestigd. Eén
van de redenen voor de inconsistenties tussen structuur en gedrag is dat
sectorkarakteristieken ook een rol lijken te spelen in het verklaren van het gedrag van
apotheken. Omdat Nederlandse apotheken te maken hebben met weinig concurrentie, staan
franchiseapotheken bijvoorbeeld niet onder echte druk om lokaal ondernemend en
innovatief te zijn. Wij verwachten echter dat deze druk in de toekomst zal toenemen,
bijvoorbeeld vanwege nieuwe kostenbesparende maatregelen van de overheid. Daarnaast
zijn apothekers professionals en hebben zij allemaal een universitaire opleiding gevolgd. In
de restaurantsector hebben vestigingsmanagers volgens Bradach (1992) meestal alleen een
middelbare schoolopleiding terwijl franchisenemers senior managers in een bedrijf zijn
geweest of reeds eerder zelfstandig ondernemer waren. De verschillen tussen
vestigingsmanagers en franchisenemers in deze sector zijn dus veel groter dan in de
apotheeksector.
De casestudie heeft grotendeels dezelfde plural dynamics laten zien als Bradach’s (1992,
1997) onderzoek. In sommige gevallen leek het effect van de plural dynamics echter niet zo
sterk als in de restaurantsector. Dit komt onder andere door de verschillen in
sectorkarakteristieken. Omdat franchiseapotheken bijvoorbeeld niet onder echte druk staan
om lokaal ondernemend en innovatief te zijn, kunnen apotheekketens op dit moment slechts
in beperkte mate profiteren van de voordelen van deze apotheken. Ons onderzoek heeft ook
een aantal nieuwe plural dynamics geïdentificeerd. Eén van deze plural dynamis is het
onderlinge contact tussen vestigingsmanagers en franchisenemers. De survey heeft de
resultaten van de casestudie met betrekking tot de plural dynamics niet bevestigd. Met
TITLE
nederlandse
samenvatting
211
214
uitzondering van één hypothese, die deels werd bevestigd, kon geen van de hypothesen met
betrekking tot de verschillen in de prestatie van plural-formketens en pure-formketens
worden geaccepteerd. Wij hebben dus geen statistisch bewijs gevonden voor het bestaan
van plural dynamics. Een reden hiervoor is uiteraard dat er ook geen statistisch bewijs is
gevonden voor veel van de verschillen in het gedrag van franchise- en
eigendomsapotheken. Plural dynamics kunnen alleen worden gerealiseerd wanneer deze
verschillen daadwerkelijk bestaan. Een andere reden is dat apotheekketens op dit moment
nog geen grote en gevestigde organisaties zijn. Daarom is het voor hen nog niet
gebruikelijk om alle plural dynamics te operationaliseren.
De survey heeft tenslotte ook niet onze verwachting bevestigd dat apotheken van pluralformketens beter presteren dan apotheken van pure-formketens. Geen van de hypothesen
kon worden geaccepteerd. Wanneer er al verschillen in prestatie bestonden, bleken
apotheken van pure-formketens beter te presteren dan die van plural-formketens of
eigendomsapotheken beter dan franchiseapotheken en vice versa. Indien
eigendomsapotheken beter presteerden dan franchiseapotheken en vice versa, presteerden
eigendomsapotheken van pure-formketens op hun beurt weer beter dan die van pluralformketens en franchiseapotheken van pure-formketens beter dan franchiseapotheken van
plural-formketens. Wanneer exploitanten van plural-formketens de plural dynamics niet
operationaliseren, presteren franchise- en eigendomsapotheken in deze ketens blijkbaar
slechter dan hun tegenhangers in pure-formketens.
212
chapter
1
215
215
CHAPTER 1
CHAPTER 1
Curriculum vitae
Curriculum vitae
Rosalie Aldewereld-Duijvis studied business economics at the Vrije Universiteit in
Rosalie
Aldewereld-Duijvis
business
economics
at the University
Vrije Universiteit
in
Amsterdam.
She spent a partstudied
of her study
period
at Northeastern
in Boston,
Amsterdam.
She
spent
a
part
of
her
study
period
at
Northeastern
University
in
Boston,
United States. After receiving her Master’s degree in May 2001, she joined Nyenrode
United States.
After receiving
her Master’s
in afterwards,
May 2001, she
she started
joined her
Nyenrode
Business
Universiteit
as a research
assistant.degree
Shortly
Ph.D.
Business atUniversiteit
research and
assistant.
started
her Ph.D.
research
the Center as
for aMarketing
SupplyShortly
Chain afterwards,
Managementshe
of this
university.
In
research atshe
thelectured
Center marketing
for Marketing
and Supply
Chain Management
of this
university.
addition,
strategy
and marketing
implementation
in the
Master In
of
addition, programs
she lectured
marketing implementation
in the Master
of
Science
at marketing
Nyenrode strategy
BusinessandUniversiteit.
Her research interests
include
Science
programs
at
Nyenrode
Business
Universiteit.
Her
research
interests
include
marketing channels, marketing in the health care sector, franchising, and vertical
marketing channels, marketing in the health care sector, franchising, and vertical
integration.
integration.