An Empirical Literature Review of Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry Michael T. Cook
Sage Graduate School
Topic: An Empirical Literature Review of Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry
Companies get into expansion mode by having a number of business units for many reasons: to leverage from available competencies, to promote company’s brand and get economies of scale. Mostly companies serving multiple markets are franchise organizations. Benefits of serving multiple markets kept aside; there are significant challenges of control across different market types that come in the way of attending to and serving diverse customer base. Case in point, a hotel franchise can achieve economies of scale by opening at new locations, as a departmental store repeats its business model by operating stores in markets that attends to different customers.
Organizational Design and Control across Multiple Markets
Crucial control dilemmas surface in such companies because of the vast network creating information deviations among the units answerable to customers and the head office. Such situations demand expertise of the local management more than the headquarters comparatively. Companies try to resolve the issues faced in controlling multiple markets through their organizational design and control choices. There are market type dispersions due to changing customer demand; it is not related to geographical dispersion necessarily. It is a possibility that there are strongly different types of customers in any two units of a company although they are not far from each other geographically. For example, convenience stores of the diverse population in Chicago attend to patrons of totally different culture although distance from one store to the other is just some blocks. The same cannot be true always, as it also happens that units are situated far away from each other geographically but customer base is the same. Some of the operational decisions can be delegated to unit managers like maintaining stock levels and customer-relationships but crucial operational and strategic decisions need to be taken by the headquarters like spending on advertisement, purchase and choosing the service or product mix. It becomes challenging to take these decisions by the headquarters when market dispersion is high. It creates two control dilemmas, first, due to difference in local conditions, it becomes difficult to keep a check on managers and control them, as serving different markets. Secondly, wide customer base demands won’t be easy to satisfy from a demand perspective. One way of dealing with information deviations among the head office and local managers with local market knowledge, could be transferring of authority and incentives to local managers. In franchise organizations, such problems can be managed internally by awarding higher responsibility to managers or externally by franchising.
Franchising in the Convenience Store Industry
Franchising provides the answer to control dilemmas by at once decentralizing of decision making and offering of incentives. It has been substantiated even by franchise managers that franchising mechanisms have leverage over internally controlling the franchise in market dispersion. Franchising structure attracts franchisees with management and market knowledge is in any case better than the skill of company-appointed store managers. Risk taking entrepreneurs are offered franchise. Risks are transferred from the company to the franchise that can manage them more competitively than headquarters. According to the Chief Operating Officer of a big convenience store franchise: “Franchisees are more entrepreneurial and would have more control over difficult situations such...