How Does the Franchisor's Choice of Different Control Mechanisms Affect Franchisees’ and Employee-Managers’ Satisfaction?

Satisfaction of franchisees and employee-managers affects the overall performance of a franchise system. We argue that different actors in the same franchise system need to be treated in different ways. The franchisor's choice of control mechanisms affects the satisfaction of franchisees and employee-managers differently. To our knowledge this is the first study that gathers primary data from franchisees and employee-managers in the same franchise system at the store level with almost identical questionnaires. We show based on data from the largest German franchise system that outcome control leads to higher satisfaction among franchisees and employee-managers, while behavior control enhances employee-managers’ satisfaction. Thereby, outcome control leads to higher satisfaction among more experienced franchisees, while behavior control enhances both highly and lowly experienced employee-managers’ satisfaction. Our results suggest that franchisors face a dilemma: On the one hand, behavior control is associated with high costs and has no impact on franchisees’ satisfaction at all. On the other hand, it might still be necessary to prevent franchisees from behaving opportunistically.

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► Different actors in the same franchise system need to be treated in different ways.
► Outcome control increases franchisees’ and employee-managers’ satisfaction.
► Behavior control enhances employee-managers’ but not franchisees’ satisfaction.
► Costly behavior control may be necessary to prevent franchisees’ opportunism.