Should You Franchise Your Retail Empire?
Store owners who are skilled or lucky enough to be able to expand their retail operations to multiple outlets at some point must make a crucial decision.
Is it better to manage these far-flung operations from a central HQ, or is franchising -- essentially giving local managers a stake in the game -- the better way to go? At the heart of this challenge is that you may be serving very different customers at each location. Can a centralized administration keep in touch with the needs of localized clientele?
Just this question is the subject of recent research conducted by Harvard Business School professors Srikant Datar and Dennis Campbell, and profiled on HBS Working Knowledge. Attempting to understand the relationship between franchising and the challenge of operating in diverse markets, Datar and Campbell reviewed data from 420 convenience store chains.
One conclusion: Chains operating in disparate types of markets were more likely to franchise stores. The advantage for the franchiser is that the firm minimizes exposure to risk in a relatively unfamiliar market. Of course, it also yields some control (and profit) to the the local franchisee.
Retailers who decide to maintain centralized control are faced with designing an organization that must addresses potential issues such as reporting structures, variable pay across the operation, and efficiency in stocking operations.
Organizing for Success
Quoted in the article, Campbell says:
"The basic idea is to think about how the complexity of the customer-facing operating environment affects organizational design choices such as control systems, incentives, performance measurement, and ownership structures. Even firms that have very standardized business models in terms of products, labor, and merchandising will face the challenge of serving customers with different preferences and behaviors when that model is stretched across multiple markets."
The researchers are just at the starting point of their work in this area, which previously has not drawn much academic interest.If your retail empire is spread across multiple locations, the article and related research paper will give you some things to think about.
For you store owners, how do you organize to meet the needs of diverse customers across multiple locations?
(Franchise image by Dr. Stephen Dann, CC 2.0)