Second, there are franchisees, independent entrepreneurs who enter long-term business relationships with the chain. Rather than specializing, many chains contain a large proportion of both types of store. This paper argues that this plurality of forms is not simply the outcome of a multitude of decisions, each concerning the best structure for a particular store. Rather, by franchising some stores while they own others, franchise systems can achieve dynamic efficiency which would be impossible in a homogeneous system. Thus, a genuine plural form exists in this industry.
Chains value their franchisees because franchisees exercise initiative.
However, unless a chain includes a sufficiently high proportion of company stores, it lacks proper incentives to evaluate innovations efficiently. Therefore, despite the dynamism of franchises, a chain must maintain a certain proportion of company stores. This paper synthesizes theoretical modeling and empirical research. Based on the work of Jeffrey Bradach, I formulated an initial model in 1995. Then, in 1995-6, I conducted interviews with participants in five chains, to explore the relevance of that model.