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


  • 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)


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.

Suggested Citation

  • Dennis Campbell & Srikant M. Datar & Tatiana Sandino, 2008. "Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry," Harvard Business School Working Papers 08-091, Harvard Business School.
  • Handle: RePEc:hbs:wpaper:08-091

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    References listed on IDEAS

    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. 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.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. 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 (QME), Springer, vol. 2(2), pages 169-190, June.
    5. Blair,Roger D. & Lafontaine,Francine, 2011. "The Economics of Franchising," Cambridge Books, Cambridge University Press, number 9780521775892, March.
    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. 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.
    8. 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.
    9. 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 301-325, June.
    10. 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.
    11. repec:bla:joares:v:33:y:1995:i:2:p:205-229 is not listed on IDEAS
    12. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
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    Cited by:

    1. Francesco PAOLONE, 2014. "Cost Structure Complexity And Stock Prices Volatility: An Analysis Of Possible Relationship Among Italian Listed Companies In The Period Of Crisis," Romanian Journal of Economics, Institute of National Economy, vol. 38(1(47)), pages 107-133, June.

    More about this item


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

    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; Personnel Economics - - Accounting - - - Accounting

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