When Multi-Unit Franchising Backfires: The Contingent Effects of Subgroup Configurations

Description

Multi-unit franchising (MUF) may benefit franchisors in capital acquisition and monitoring efficiency and thus has been increasingly employed by franchisors in business expansion. Different from prior research's predominant focus on the positive effect of MUF, the current research adopts a new theoretical angle, i.e., subgroup cohesion (in network), and postulates that MUF may potentially hurt franchised outlet survival, because outlets within the same MUF ownership construct a cohesive subgroup and are likely to be confined in their efforts and resources devoted to inter-group communication and knowledge search. Using a longitudinal dataset of 1443 observations across 21 franchisors operating in 50 states of U.S. (2002-2015), we find that MUF ratio has an inverted U-shaped effect on MUF outlet survival. Furthermore, we identify two subgroup configurational properties that may moderate such baseline relationships, i.e., subgroup number and subgroup size imbalance. Our results suggest that both subgroup number and subgroup size imbalance attenuates the baseline inverted-U effects of MUF on MUF outlet survival, based on which we offer actionable insights for managers to more effectively implement MUF strategy.