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

The Accounting Review, Forthcoming

50 Pages Posted: 1 Aug 2007 Last revised: 13 Aug 2009

See all articles by Dennis Campbell

Dennis Campbell

Harvard University - Accounting & Control Unit

Srikant Datar

Harvard University - Accounting & Control Unit

Tatiana Sandino

Harvard Business School - Accounting and Control

Date Written: February 2, 2009

Abstract

Many companies operate units that are dispersed across different types of markets, serving significantly diverging customer bases. Such dispersion is likely to compromise headquarters' ability to control local managers' behavior and satisfy the needs of different customer types. In this study we find that market-type dispersion is an important determinant of the delegation of decision rights and the provision of incentives. Using a sample of convenience store chains, we show that market-type dispersion is positively associated with 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 dispersion. Additional analyses suggest that chains that do not franchise cope with market-type dispersion by decentralizing operations from headquarters to their stores and providing their store managers higher variable pay.

Keywords: Control Systems, Franchising, Agency Costs, Market Dispersion, Retailing

JEL Classification: D82, L22, M41, M55, M40, M46

Suggested Citation

Campbell, Dennis and Datar, Srikant and Sandino, Tatiana, Organizational Design and Control Across Multiple Markets: The Case of Franchising in the Convenience Store Industry (February 2, 2009). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1004192 or http://dx.doi.org/10.2139/ssrn.1004192

Dennis Campbell

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

Srikant Datar

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6543 (Phone)
617-496-7363 (Fax)

Tatiana Sandino (Contact Author)

Harvard Business School - Accounting and Control ( email )

367 Morgan Hall
Soldiers Field
Boston, MA 02163
United States
617-495-0625 (Phone)

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