Organizational form and efficiency of franchise chains

The purpose of this paper is to develop a new model allowing the implementation of a benchmarking process that jointly measure the efficiency of franchise chains and determine their optimal organizational form.

The methodology is based on a non-econometric technique developed by management scientists on economic concepts for evaluating the performance of decision-making units and implementing a benchmarking process. An extended model is developed in the paper for evaluating the efficiency and determining the optimal percentage of company-owned outlets (PCO) of each franchise chain.

First, results showed that the PCO has a positive impact on franchise chain efficiency; even if other chain characteristics have a larger impact. Second, the optimization of the PCO allows for additional improvements in efficiency.

Even though this study has some limitations (e.g. sample and variable selection), it contributes to the literature on franchising by providing an approach allowing us to answer to the question of Shane (1998) on the optimal proportion of franchised units given other firm characteristics.

By developing a model that allows for the joint evaluation of franchise chain efficiency and optimal PCO, this study offers to franchisors a new benchmarking process allowing for both a competitive and functional benchmarking.

The originality of this research can be found in the new model developed for allowing a benchmarking of franchise chains that allows an evaluation of efficiency jointly with a determination of their optimal organizational form.