A Franchisor Decision Matrix for Structuring the Chain

Early research work theorized franchising to exist because Hybridal Form Benefits (HFB) are achieved by the franchisor. Compared to the full hierarchy, franchising was held to reduce agency costs, to overcome resource scarcity and to enable risk sharing. Lately, the focus has shifted to an enquiry into the parallel use of franchise and company-owned outlets - the plural form - to provide the chain with Plural Form Synergies (PFS). More so than wholly franchised or entirely integrated systems, plural forms may allign the interests of diverse actors, signal profitability, enhance innovation speed and increase inter-firm competition. Due to costs specific to each form, net HFB (HFBnet) and net PFS (PFSnet) evolve as organizational decision variables. Within this article we analyze both HFB and PFS, we review their influence on the process of structuring the chain and develop a decision matrix to aid franchisors improve their distributional setting. Accordingly, if neither positive HFBnet nor PFSnet are realized, full ownership is efficient. In a state of positive HFBnet only, the chain should be fully franchised. If only PFSnet are positive, the chain will be structured either plurally or fully company-owned depending on the impact of possibly negative HFBnet. For a positive HFBnet and PFSnet finally, plural forms prevail.