Finding the right mix: Franchising, organizational learning, and chain performance

Franchising provides an increasingly important vehicle for entrepreneurial wealth creation and accounts for a large and growing share of business in t he retail and service sectors. Chains-which operate in dispersed markers-mo st frequently use this form of governance. These firms must balance the cen tralization and standardization required for efficiency with the adaptation needed for success in varied local markets. By adopting an organizational learning perspective, we argue that the min of company-owned and franchised units affects this balance, thereby influencing chain performance. In part icular, the different incentives facing company managers and the entreprene urs that manage franchises encourage distinct patterns of organizational le arning. Franchised establishments provide better opportunities for the firm to learn through experimentation; however, companies find it easier to dif fuse this information and enforce standards through their company-owned uni ts. Analyses of franchised restaurant chains in the United Stares provide e mpirical evidence of this trade-off Copyright (C) 2001 John Wiley & Sons, L td.