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Controlling Market-Type Dispersion in Chain Organizations: An Examination of Franchising Decisions in the Convenience Store Industry
Dennis Campbell, Harvard Business School
Srikant Datar, Harvard Business School
Tatiana Sandino, University of Southern California
ABSTRACT. Chain organizations operate units which are dispersed across different types of markets and serve significantly diverging customer bases. Market-type dispersion is likely to compromise the headquarters' ability to control its store managers' behavior and satisfy the divergent needs of different types of customers. In this paper 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, consistent with chains using franchising to deal with the control problems raised by market diversity. We also show that chains that match their franchising decisions to the store’s market diversity and geographic characteristics are able to generate higher sales. 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.
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