For franchise operations like McDonald’s, Supercuts and Ace Hardware, should the goal be to copy exactly or to adapt locally?
Transferring business success from one location to another has always been a tricky proposition. On the one hand, some experts advocate that companies try to copy the original operations as closely as possible. Consider Intel Corp., which uses precisely the same paint for the walls of all its chip plants in order to minimize manufacturing defects — just one example of the company’s motto, “copy exactly.” On the other hand, some contend that localization is crucial. To market a consumer product such as shampoo in India, for instance, Western companies should shrink their packaging to sell smaller unit quantities at cheaper prices.
The issue of stringent replication versus local adaptation is especially important for franchise businesses. Indeed, diverse companies like McDonald’s, Supercuts, Ace Hardware and Super 8 Motels have succeeded (or failed) based on their ability to transfer a business template from one location to another. But how faithfully should that template be copied? Many managers contend that local adaptation of the template will increase an outlet’s chances of success. After all, those working at a particular business unit should have the deepest knowledge of the local market, with all its nuances and peculiarities, making those individuals best able to determine which practices and procedures should be retained and which should be altered. But is that really the case?
That basic question was investigated recently by a team composed of Sidney G. Winter, professor of management at the University of Pennsylvania’s Wharton School; Gabriel Szulanski, professor of strategy, and Dimo Ringov, Ph.D. candidate, at INSEAD; and Robert J. Jensen, assistant professor in organizational leadership and strategy at Brigham Young University’s Marriott School. In their study, the researchers investigated nearly 2,500 outlets of a large franchise organization that specializes in business services, office supplies and photocopying. Based in the United States, the franchise has operations in all 50 states, with customers primarily in the small-office/home-office market. (Details of the research are contained in Reproducing Knowledge: Inaccurate Replication and Failure in Franchise Organizations, Academy of Management Annual Meeting Proceedings, August 2007.)
For each of the franchise locations in the study, the researchers collected revenue data broken down by type of product or service. All of the outlets commenced their operations during the study period (from 1991 to 2001), and during that time 111 of them closed.