Journal Article | Accounting Review | November 2009

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

by Dennis Campbell, Srikant M. Datar and Tatiana Sandino

Abstract

Many companies operate units that are dispersed across different types of markets, and thus serve significantly diverging customer bases. Such market-type dispersion is likely to compromise the headquarter's 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.

Keywords: Business Headquarters; Geographic Location; Governance Controls; Distribution; Organizational Design; Franchise Ownership; Retail Industry;

Citation:

Campbell, Dennis, Srikant M. Datar, and Tatiana Sandino. "Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry." Accounting Review 84, no. 6 (November 2009).