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

Dennis Campbell (), Srikant M. Datar () and Tatiana Sandino ()
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Dennis Campbell: Harvard Business School, Accounting and Management Unit
Srikant M. Datar: Harvard Business School, Accounting and Management Unit
Tatiana Sandino: University of California, Marshall School of Business

No 08-091, Harvard Business School Working Papers from Harvard Business School

Abstract: Many companies operate units which are dispersed across different types of markets, and thus serve significantly diverging customer bases. Such market-type dispersion is likely to compromise the headquarters' ability to control its local managers' behavior and satisfy the divergent needs of different types of customers. In this paper we find evidence that market-type dispersion is an important determinant of delegation and the provision of incentives. Using a sample of convenience store chains, we show that market-type dispersion is related to 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 distance from headquarters and geographic dispersion. Additional analyses also suggest that chains that do not franchise at all, may cope with market-type dispersion by decentralizing operations from headquarters to their stores, and, to a weaker extent, by providing higher variable pay to their store managers.

Keywords: Control; Market Dispersion; Decentralization; Incentives; Franchising; Retailing (search for similar items in EconPapers)
JEL-codes: D82 D86 L22 M41 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2008-04
New Economics Papers: this item is included in nep-acc and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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