Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry
AbstractMany 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.
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Bibliographic InfoPaper provided by Harvard Business School in its series Harvard Business School Working Papers with number 08-091.
Length: 44 pages
Date of creation: Apr 2008
Date of revision:
Control; Market Dispersion; Decentralization; Incentives; Franchising; Retailing;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
This paper has been announced in the following NEP Reports:
- NEP-ACC-2008-04-15 (Accounting & Auditing)
- NEP-ALL-2008-04-15 (All new papers)
- NEP-MKT-2008-04-15 (Marketing)
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