The Impact of Managerial Performance Decay on Franchisors' Store Allocation Strategies

Multi-unit franchising (i.e., one franchisee owning and operating multiple units) is no longer the exception; it is the norm. Nevertheless, because of the decay in managerial performance associated with the increasing span-of-control, systems built on multi-unit (versus single unit) expansion strategies may be jeopardizing some of the efficiencies which fueled franchising in the first place. Many franchisors have adapted to this problem by developing rules of thumb for allocating new outlets to new or existing franchises. This paper formalizes had compares several different strategies for allocating new outlets. In doing so, we specifically incorporate the effects of managerial performance decay on the various strategies. Using empirically obtained starting values for the rate of decay, we calcualate the reults for a hypothetical ten store expansion. The starting values are then varied systematically revealing complex relationship between decay rates, population variance, and managerial performance not accommodated in the less formal strategies currently employed.