Successful Franchising Using the Plural Form

Abstract

Many successful franchise companies consist — other than their name might suggest — of more than just the system’s headquarter and its associated franchisees. Besides independent franchise outlets, the majority of chains operates a significant number of company-owned stores run by employed store managers. The evolution and constant existence of these hybrid organizational forms cannot be explained along a pure principal-agent-view and deserves further analysis. As this article explores, plurally organized franchisors may benefit from effects of cost reduction, quality enhancement, growth stimulation and optimized risk control in contrast to pure franchise chains. Within our sample of 240 franchise systems we found strong empirical support for the quality argument of the Plural Form. Compared to pure franchise companies, plurally organized chains are superior in sending out positive signals to any external community containing internal information and thus in reducing costly agent uncertainty. By running company owned stores as well as independent franchise outlets, chains force themselves successfully into cooperational and less opportunistic behavior towards their franchisees.1