6. Shane, S. (1996). Hybrid organizational arrangements and their implications for firm growth and survival A study of new franchisors. Flashcards
What type of organizational form may be advantageous for firms looking to grow quickly and efficiently?
Hybrid organizational forms may be advantageous for firms looking to grow quickly and efficiently.
What can franchising lead to?
Reduce moral hazard and adverse selection by using contractual forms, and can also increase the chance of a company’s survival
What is the relationship between modern corporations and their managers?
In most modern corporations, managers are not the primary owners of the organizations, creating a separation of ownership and control.
What mechanisms have been developed to ensure that employees act in accordance with the owners’ goals?
One of these mechanisms has been the development of franchising, a hybrid organizational form that allocates ownership rights to the managers of retail outlets.
What are the two solutions proposed by agency theory to address the problems of moral hazard and adverse selection?
The two solutions proposed by agency theory to address the problems of moral hazard and adverse selection are residual claimancy and monitoring.
What does residual claimancy involve?
Residual claimancy involves replacing wage contracts with hybrid organizational arrangements such as franchising.
What does monitoring involve?
Monitoring involves increasing the amount of information about the agent’s behaviour.
What factors should be considered when deciding between the solutions of residual claimancy and monitoring?
The best solution should be chosen based on the cost of monitoring relative to the cost of establishing a franchise.
What is the problem of adverse selection?
The problem of adverse selection occurs when entrepreneurs hire employees to take on tasks they cannot do themselves, but they are uncertain of the quality of potential new employees.
What is an example of a hybrid organizational form?
Franchising is an example of a hybrid organizational form.
How does franchising reduce the problems of adverse selection and moral hazard?
Franchising reduces the problems of adverse selection and moral hazard by providing residual claimancy and creating a downside risk for a franchisee if they choose to shirk. This reduces the cost of deterring such behaviour and encourages qualified individuals to pursue a franchise.
What type of organizational form can firms use to increase their chances of survival and growth?
Firms can use contractual organizational forms such as franchising to increase their chances of survival and growth.
What is the main point of the article?
The main point of the article is that firms can overcome managerial limits to firm growth and can increase their chances of survival and growth by using contractual organizational forms such as franchising.
