Monitoring Policy and Organizational Forms in Franchised Chains

Monitoring Policy and Organizational Forms in Franchised Chains
Thierry Pénard (CREM, Université de Rennes I), Emmanuel Raynaud (INRA & CES, Université Paris I) and Stéphane Saussier (IAE Sorbonne Grad School)
Abstract: Franchising is nowadays a prominent way to organize the distribution sector. While previous literature suggests that monitoring issues are a critical determinant of organizational choices, it is rather silent on the optimal monitoring strategy once the organization of the chain is set.
In this article the authors analyze the monitoring policy of chains with both franchised and companyowned units. They develop a model in which a chain monitors its outlets under asymmetric information on local demands and managers’ efforts. They show that partial monitoring (i.e. when the franchisor monitors only a subset of its outlets) represents an optimal monitoring policy. Second, the authors identify the units that should be monitored. Finally, they discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.
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