Entrepreneurial Autonomy, Incentives, and Relational Governance in Franchise Chains

Franchisee autonomy fosters system-wide adaptability and outlet-owners’ motivationbut also raises the costs from agency problems present in franchiseefranchisordyads. Advancing upon the understanding of agency issues involved infranchising, we test the argument that chains counterbalance the loss in controlinherent to autonomy with relational governance mechanisms. The empiricalresults provided strong support for this presumption. In addition and most notably,we found that relational governance becomes more important the weakeragents’ incentives are aligned with the interests of the entire network. The moderatingeffects of five franchisee characteristics influencing goal congruencies wereconsidered: multi-unit ownership, age of the relationship, geographic distance,economic success, and the level of perceived intra-chain competition. Implicationsfor chain management are provided.