Title: Management control of franchising relationships.
Other Titles: Management control of franchising relationships.
Authors: Verbieren, Sofie
Issue Date: 27-Jun-2012
Abstract: The overall objective of this PhD dissertation is to investigate management control aspects of franchising chains that are characterized by different levels of service customization. In chapter one, we provide an overview of the recent literature on franchising, with special attention to management control issues. Based on an analysis of franchising articles published in twenty-five high-impact journals over the period1996–2008, the literature is divided into the following three broad streams: franchise initiation and subsequent propensity to franchise, franchise performance and control of franchising relationships. Several research gaps and avenues for future research are identified, especially towards a systematic study of management control issues in the context of franchising relationships.In chapter two, we investigate management control system (MCS) design in service organizations that are characterized by varying levels of customization. Based on a comparative case study in four franchising chains offering various degrees of standardized versus customized services, we find substantial differences in the use and nature of outcome, behavior and social control. Financial outcome controlis used to a high extent in all cases, but is more tight in case of higher customization. Nonfinancial outcome control is also used to a high extent in all cases, but it is more subjective in case of higher customization. A particular type of behavior control, which we call interventionbehavior control, is used to a higher extent in case of lower customization. The use of non-intervention types of behavior control is unrelatedto the degree of customization. Finally, social control is used to a higher extent in service organizations offering more customized services. We conclude that this study shows the need to refine the generic outcomeand behavior control concepts in order to improve predictions concerning their use under various conditions of service customization. Based upon our case study findings we formulate propositions concerning the use of different types of control and provide insights into why organizationsinstall particular control structures in case of lower versus higher customization. The aim of chapter three is to investigate how service customization impacts on the way in which franchisors controlthe relationship with their franchised service units. We particularly investigate variation in franchise contract design in terms of the delegation of decision rights, monitoring, incentives and input control in chains offering services with varying levels of customization. We code and analyze a unique sample of 81 contracts of chains from different serviceindustries. The results of our empirical analyses show that there existimportant differences in the contractual control system dependent on the level of service customization. Franchisors of chains offering highly customized services delegate more decision rights to their service units, but include higher monetary incentives and more input control items assafeguards in their contracts. Regarding outcome monitoring, we observe no difference in the use of financial outcome monitoring across chains with different levels of service customization. Nevertheless, higher customization is associated with a higher use of subjective nonfinancial outcome monitoring, whereas objective nonfinancial outcome monitoring is used to a higher extent when services are more standardized. In chains offering standardized services, franchisors make higher use of behavior monitoring. Supplementary analyses point to complementary as well as substitutive relationships among the contractual control items in franchising contracts of chains with different degrees of service customization. Chapter four explores the choice for franchisingversus company-ownership in relation to franchisors’ management controlproblems based on comparative case studies of 14 franchising chains with varying levels of service customization. The prior franchising literature on the plural form tends to narrow down the choice between franchising and company-ownership to a choice between different incentive schemes, which are associated with different types of control problems for the franchisor. However, since incentive schemes are only a part of the management control system, we argue that the residual control problems in both types of relationships are not properly accounted for in the extant literature. In this paper, we take a broader management control perspective to explain the use of franchising. In chains offering highly standardized services, we identify the costs of enforcing standards in the relationship with franchisees as an important driver of the preference for franchising or company-ownership. Franchising chains offering standardizedservices and experiencing rather low costs of standard enforcement as well as chains offering customized services prefer working with franchisees, however each for different reasons. By contrast, when standards are costly to enforce in the relationship with franchisees, chains offering standardized services prefer operating company-owned units to have more control over the chain’s uniformity and image and mainly franchise to deal with problems related to particular unit locations. Overall, we provide insights into potential causes of differential costs of enforcing standards in the relationship with franchisees and conclude that the pluralform as a control device functions differently depending on the size ofthese costs despite similarities in the level of service customization.
Publication status: published
KU Leuven publication type: TH
Appears in Collections:Research Center Accountancy, Leuven
Department of Accountancy, Finance and Insurance (AFI), Leuven - miscellaneous

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