Organizational design choices in franchising chains

This paper investigates management control problems as determinants of franchising chains’ organizational design choices, i.e. chains’ use of franchising versus company-ownership, across chain organizations that are characterized by a different type of service design. We undertake a multiple case-study in twelve franchising chains characterized by different levels of customer input uncertainty, which is determined by the extent of variation in customer demand and active participation by customers in the service production process. Our findings indicate that organizational design choices made by franchising chains respond to management control problems related to their service activity and that the dual structure (i.e. the simultaneous use of franchised and company-owned units) as a control device functions differently depending on the type of management control problems chains are facing. First, when franchisors consider franchising to outperform company-ownership as a control solution for their management control problems, the function of the company-owned units is restricted to supporting the franchisor in managing the relationship with the franchisees. This preference for franchising occurs in the franchising chains with the highest as well as the lowest levels of customer input uncertainty, however for different reasons. Second, when the service activity of a chain induces conflicting management control problems, chains use franchised and company-owned units in a consciously balanced way to cope with this dual challenge. Finally, when chains have a clear preference for company-ownership to manage their service activity, franchising is primarily used to deal with problems related to unit profitability. In this case, a sufficient share of company-owned units is desired in order to maintain control over the chain’s uniformity and image.status: publishe