Product details

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 Corporation, 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. 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 1991-2001), and during that time 111 of them closed. Of the failed units, none was able to stay in business for more than seven years, and the average life span was 3-4 years. Not surprisingly, the total revenue of the failed franchises was, on average, substantially lower than that of the units that survived. The researchers then looked at the exact mix of products and services offered by the different outlets. In particular, they compared how the mix at each location differed from what was recommended by the franchise headquarters. That official mix was very specific. Not only did it call for 12 standard products, it also indicated the relative importance of each. For instance, revenues for the number one product on the list should be 36% of total sales; revenues for the number twelve should be 2%. The franchise trains new owner-managers of the outlets to replicate that product mix because of its success not only at the original location but at other sites as well. The results of the study might be explained in the following way. On the surface, changes in a product mix and the selling of non-standard items might seem relatively insignificant, but they can have large ramifications. They might, for instance, lead to changes in certain operational routines, such as the recruitment and training of new employees. As such, local adaptation can unintentionally undermine the very business model of an organization unless managers know exactly what they''re doing and therein lies the rub. With any company of sufficient complexity, the specific chain of activities that truly generate value isn''t always obvious, and managers who deviate from an official template run the risk of tampering with variables that are crucial to the organization''s success. But the study hardly closes the book on the issue of replication versus adaptation. For one thing, the researchers did not have access to detailed financial information (for instance, the operational costs) at each location, so they couldn''t determine the profitability of each site. With such data, they might, for example, have determined whether precise replication of the standard product mix led to maximum profitability, or whether some degree of deviation was more profitable, particularly under certain circumstances (the presence of a number of nearby competitors, for instance). Additional studies are needed to investigate such issues.