Franchising or Not?

The Harvard Business School has a nifty newsletter, HBS Working Knowledge. Nifty sometimes just because it is free and sometimes because it is both free and practical. I say Making the Decision to Franchise (or not) falls into the second category.

Much has been written about product differentiation and its role in retail success. Now the less well-known dynamic of customer differentiation and its effect on the way businesses are structured and run is examined in a recent Harvard Business School working paper, "Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry." The study was written by HBS professors Dennis Campbell and Srikant Datar, with Tatiana Sandino (HBS DBA '04) of USC's Marshall School of Business.

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The impact of organizational design choices on performance will be considered in other papers; Campbell notes that early evidence indicates that unit sales are lower for firms that expand into multiple markets without franchising or providing some incentive system for local managers.

"This research is really a starting point," says Campbell. "To our knowledge, no one has drawn this link between the complexity that is imposed by customers with divergent demand preferences and these broad organizational design choices."