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

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Author Info

  • 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)

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    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.

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    Bibliographic Info

    Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 08-091.

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    Length: 44 pages
    Date of creation: Apr 2008
    Date of revision:
    Handle: RePEc:hbs:wpaper:08-091

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    Related research

    Keywords: Control; Market Dispersion; Decentralization; Incentives; Franchising; Retailing;

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    References

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    1. Gomez, Miguel I. & McLaughlin, Edward W. & Wittink, Dick R., 2003. "Do Changes In Customer Satisfaction Lead To Changes In Performance In Food Retailing?," 2003 Annual meeting, July 27-30, Montreal, Canada 22048, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. G. S. Maddala, 1987. "Limited Dependent Variable Models Using Panel Data," Journal of Human Resources, University of Wisconsin Press, vol. 22(3), pages 307-338.
    3. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    4. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
    5. Miguel Ignacio Gomez & Edward W. McLaughlin & Dick Wittink, 2003. "Do Changes in Customer Satisfaction Lead to Changes in Sales Performance in Food Retailing?," Yale School of Management Working Papers ysm363, Yale School of Management.
    6. Gomez, Miguel I. & McLaughlin, Edward W. & Wittink, Dick R., 2003. "Do Changes in Customer Satisfaction Lead to Changes in Sales Performance in Food Retailing?," Working Papers 127195, Cornell University, Department of Applied Economics and Management.
    7. Karin Fladmoe-Lindquist & Laurent L. Jacque, 1995. "Control Modes in International Service Operations: The Propensity to Franchise," Management Science, INFORMS, vol. 41(7), pages 1238-1249, July.
    8. Augustin Landier & Vinay B. Nair & Julie Wulf, 2009. "Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1119-1148, March.
    9. Peter Boatwright & Sanjay Dhar & Peter Rossi, 2004. "The Role of Retail Competition, Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity," Quantitative Marketing and Economics, Springer, vol. 2(2), pages 169-190, June.
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