Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry

Dennis Campbell · Srikant M. Datar · Tatiana Sandino

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Franchising Strategies and Performance Corporate Finance and Governance Accounting and Organizational Management

Abstract

ABSTRACT: Many companies operate units that are dispersed across different types of markets, serving significantly divergent customer bases. Such dispersion is likely to compromise headquarters' ability to control local managers' behavior and satisfy the needs of different customer types. In this study we find that market-type dispersion is an important determinant of the delegation of decision rights and the provision of incentives. Using a sample of convenience store chains, we show that market-type dispersion is positively associated with the degree of franchising at the chain level as well as the probability of franchising a given store within a chain. Our results are robust to alternative definitions of market-type dispersion and to other determinants of franchising such as the stores' geographic dispersion. Additional analyses suggest that chains that do not franchise cope with market-type dispersion by decentralizing operations from headquarters to their stores and providing their store managers higher variable pay.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2001Econometric Analysis of Cross Section and Panel Data 1983Separation of Ownership and Control 2021Econometric Analysis of Panel Data 2000Strengthening the Satisfaction-Profit Chain 1992Agency Theory and Franchising: Some Empirical Results 1987The choice of organizational form The case of franchising 1978The Theory of the Firm and the Structure of the Franchise Contract

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2011The Structure of Decision Rights in Franchising Networks: A Property Rights Perspective 2010Market Heterogeneity and Local Capacity Decisions in Services 2010Multi-Unit Ownership Strategy in Franchising: Development of an Integrative Model 2024Enterprise Resource Planning (ERP) System Implementations and Corporate Misconduct 2023Dynamic pricing and inventory control for multiple products in a retail chain 2019Who Should Select New Employees, Headquarters or the Unit Manager? Consequences of Centralizing Hiring at a Retail Chain

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