Knowledge transfer mechanisms and decentralization of decision rights in interfirm networks: the case of franchising

Decentralization of decision-making in interfirm networks (such as franchise networks, strategic alliances, or joint ventures) requires successfully transferring knowledge from headquarters to local network partners using appropriate knowledge transfer mechanisms. This study examines the relationship between the franchisor’s choice of knowledge transfer mechanisms and the decentralization of decision rights in franchise networks. Specifically, we test the facilitating effect of three types of knowledge transfer mechanisms—high, medium, and low information-rich media—on decentralization of decision rights by using data from 168 franchise networks in four European countries. Our findings show that the use of high information-rich media increases the decentralization of decision rights by facilitating the transfer of tacit system knowledge, and the use of medium information-rich knowledge transfer mechanisms increases decentralization by facilitating the transfer of system knowledge with both explicit and tacit components. Thus, the design of knowledge transfer mechanisms plays a critical role in transferring tacit and explicit knowledge from headquarters to local franchisees and is a prerequisite for the decentralization of decision-making in franchise networks. Overall, we contribute to the literature on franchise and interfirm networks by highlighting that network governance based on the allocation of decision rights is closely intertwined with the choice of knowledge transfer mechanisms.