Monitoring Policy and Organizational Forms in Franchised Chains

Abstract

Franchising is nowadays a prominent way to organize the distribution sector. While previous literature suggests that monitoring issues are a critical determinant of organizational choices, it is rather silent on the optimal monitoring strategy once the organization of the chain is set. In this article, we analyze the monitoring policy of chains with both franchised and company-owned units. We develop a model in which a chain monitors its outlets under asymmetric information on local demands and managers' efforts. We show that partial monitoring (i.e., when the franchisor monitors only a subset of its outlets) represents an optimal monitoring policy. Second, we identify the units that should be monitored. Finally, we discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.

Performance in Distribution Systems: What is the Influence of the Upstream Firm’s Organizational Choices?

“…Organizational forms in distribution systems are the subject of a vast empirical literature on franchise data, and constitute an ongoing issue, as demonstrated by several recent publications (Kosova et al 2012;Cliquet and Pénard, 2012;Kashyap and Sivadas, 2012;Pénard et al 2011; Barthélémy, 2011). In line with studies focusing on the influence of the organizational choices on the performance at the network level (initially, over the last ten years: Sorenson and Sorensen, 2000;Shane, 2001;Azoulay and Shane 2001), this paper provides several new empirical results leading to managerial and conceptual implications.…”

Ownership Structure of Franchise Chains: Trade-Off Between Adaptation and Control

“…Although uncertainty has played an important role in explaining the organization as an information processing system in organization theory (Simon 1947;Lawrence and Lorsch 1967;Thompson 1967;Galbraith 1973Galbraith , 1974Tushman and Nadler 1978;Norton 2004;Puranam 2018), this theoretical perspective has not been applied to the governance of franchise networks. Most studies focus on risk and information asymmetry explanations for the contractual mix between franchised and company-owned outlets (e.g., Brickley and Dark 1987;Martin 1988;Lafontaine 1992;Lafontaine and Bhattacharyya 1995;Allen and Lueck 1999;B€ urkle and Posselt 2008;P enard, Raynaud, and Saussier 2011), without analyzing the fundamental role of uncertainty (in the sense proposed by Knight 1921) for network governance. This study addresses this research gap by developing a new theoretical view of the ownership structure of franchise chains, thus adding to existing explanations of PCO in the franchise literature, such as the resource scarcity view (Oxenfeldt and Kelly 1968), resource-based theory (Gillis, Combs, and Ketchen 2014), agency theory (Brickley and Dark 1987;Lafontaine 1992;Gonzalez-Diaz and Solis-Rodriguez 2012), search cost theory (Minkler 1992), transaction cost theory (TCT; Manolis, Dahlstrom, and Nygaard 2011;Windsperger 2004), signaling theory (Gallini and Lutz 1992;Dant and Kaufmann 2003), synergistic and tapered integration view (Bradach 1997;Cliquet 2000;Michael 2000;Cliquet and P enard 2012), property rights theory (Windsperger and Dant 2006), and risk-based theory (B€ urkle and Posselt 2008).…”

Network Integration Through Franchised and Company‐Owned Chains: Evidence from French Distribution Networks

“…During the last 3 decades, agency-theoretical explanations were the dominant direction in franchising research (e.g. Brickley and Dark, 1987;Brickley et al, 1991;Lafontaine, 1992;Lafontaine and Kaufmann, 1994;Shane, 1996;Combs and Ketchen, 1999;Alon, 2000;Lafontaine and Shaw, 2005;Castrogiovanni et al, 2006a;Pénard et al, 2011). The agency theory offers the following explanation: under the condition of low monitoring costs, company-owned outlets with their low-powered incentives are more efficient than franchised outlets.…”