Partner Empowerment and Relationship Failure in Franchising

What is it about?

Franchisors must empower franchisees to take decisions in response to pressure for local adaptations and for entrepreneurial autonomy. However, little is known about which specific elements should be decentralized and to what extent adaptation of such elements affects disputes between franchisor and franchisees. This study explores these issues by analyzing which decision rights should be franchisees’ responsibility to reduce early terminations instigated by the franchisor.

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Why is it important?

Early terminations of franchise contracts are costly and, as this study highlights, can be noticeably avoided through an informed allocation of decision rights within the franchise chain. Our main contribution is that we analyse and test, for the first time, how local autonomy in various decision areas (i.e. pricing, HHRR management, merchandising, and local advertising) differently affects conflict. Two significant findings are that: a) the delegation of certain decisions increases terminations (e.g. pricing), whereas others have the opposite effect (e.g. personnel, local advertising); thus, the type of decision delegated to the franchisees is possibly more important than the absolute level of empowerment given to them, and b) a contingent analysis based on the value of the franchisor brand-name is necessary to weigh up the pros and cons of franchisee empowerment.

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