Plural form chain and efficiency: Insights from the French hotel chains and the DEA methodology

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Plural form chain and efficiency: Insights from theFrench hotel chains and the DEA methodology q

Rozenn Perrigot a,*, Gerard Cliquet b, Isabelle Piot-Lepetit c

a Graduate School of Business Administration (IGR-IAE), University of Rennes 1, and ESC Rennes School of Business, andCenter for Research in Economics and Management (CREM UMR CNRS 6211), 11, rue Jean Mace, CS 70803, 35708 RennesCedex, Franceb Graduate School of Business Administration (IGR-IAE), University of Rennes 1, and Centre for Research in Economics andManagement (CREM UMR CNRS 6211), 11, rue Jean Mace, CS 70803, 35708 Rennes Cedex, Francec INRA Economic Department UMR SMART, and Center for Research in Economics and Management (CREM UMR CNRS 6211),4, allee Adolphe Bobierre, CS 61103, 35011 Rennes Cedex, France

KEYWORDSPlural form;Franchising;Hotel industry;Data envelopmentanalysis;Technical efficiency;Scale efficiency

Summary This paper compares plural form chains, i.e., chains in which franchised unitsand company-owned units coexist, in terms of performance and more specifically in termsof efficiency, to predominantly franchised chains and predominantly company-ownedones. The data envelopment analysis (DEA) is implemented to assess the efficiency ofhotel chains in the French market. It is shown that plural form chains have a significantlyhigher average efficiency score than predominantly franchised and company-owned ones.Managerial implications are drawn for managing hotel chains.ª 2008 Elsevier Ltd. All rights reserved.

Introduction

Plural form, i.e., the coexistence of franchised and com-pany-owned units within a same chain, is now the leadingchoice of most of the franchisors, whatever the industryin which they have their activities and whatever the countryin which they have their operations. Conceptual papers

(Bradach and Eccles, 1989; Dant et al., 1992) and empiricalpapers (Bradach, 1997, 1998; Cliquet, 2000; Dant and Kauf-mann, 2003; Lafontaine and Kaufmann, 1994; Lafontaineand Shaw, 1999, 2005) have contributed to a better under-standing of plural form, and have often underlined itsadvantages in terms of costs, growth, quality, risk manage-ment (Ehrmann and Spranger, 2004). Most of these papershave pointed out the plural form superiority compared toother organizational forms more strictly based on eitherfranchising or company-owned systems. But, so far, thissuperiority has never been studied in terms of performance,even if authors such as Combs et al. (2004) and Watson et al.(2005) have nevertheless highlighted the need for researchfocusing on performance in franchising.

0263-2373/$ - see front matter ª 2008 Elsevier Ltd. All rights reserved.doi:10.1016/j.emj.2008.11.001

q The authors are very thankful to the editor of the EuropeanManagement Journal and to the two reviewers for their relevantcomments that have contributed to significantly improve the paper.* Corresponding author. Tel.: +33 6 13 82 40 58.E-mail addresses: [email protected] (R.Perrigot),

[email protected] (G. Cliquet), [email protected] (I. Piot-Lepetit).

European Management Journal (2009) 27, 268– 280

journal homepage: www.elsevier .com/ locate /emj


The purpose of this paper is therefore to study this even-tual superiority, in terms of performance, of the plural formchains compared to the predominantly franchised or com-pany-owned ones. Yet, several indicators can be used tomeasure the chain performance: survival (Lafontaine andShaw, 1998; Shane, 1996; Shane and Foo, 1999; Perrigot,2008), productivity (Achabal et al., 1984; Bultez and Par-sons, 1998; Sparks, 2005), efficiency (Yoo et al., 1998; Perri-got and Barros, 2008), etc. Efficiency is chosen in thiscurrent research to assess the chain performance becauseit implies the notion of cost constraints that is omnipresentin the chain management and development. Among the pos-sible methods of efficiency assessment, data envelopmentanalysis (DEA) appears an interesting non parametric ap-proach. Indeed, it enables using multiple inputs and multi-ple outputs with no assumption about any functional formrelating inputs to outputs, and working on small samples.

The DEA method has already been used in the franchisingfield, at the unit level and specifically to compare fran-chised units efficiency and non-franchised unit efficiency(Anderson et al., 1998; Yoo et al., 1998), but has not beenapplied at the chain level except a recent study (Bottiet al., 2009). Instead of working in an internal benchmarkingperspective (unit level), the present study is built in anexternal benchmarking perspective. It is innovative sincemost previous authors have focused on the unit level. Usingthe DEA method at the chain level could provide bothresearchers and practitioners with interesting insights onthe influence of the organizational form on chain perfor-mance which has not been explored in the literature sofar. The first contribution when applying DEA at the chainlevel is the comparison of several chain organizational forms(plural form, predominantly franchised and predominantlycompany-owned) and their different impact on chain per-formance. The researchers and the practitioners are inter-ested in such a comparison, and in knowing more aboutplural form efficiency compared to predominantly fran-chised and company-owned chains. The second contributionof the DEA application at the chain level is strategic andconcerns the development of an external benchmarking. Itis particularly useful for chain managers when they haveto adapt their chain and their managerial practices to theircompetitive environment.

A particular industry is chosen for the empirical study. Itdeals with the hotel sector. According to Reynolds (2003),‘‘DEA applicability to lodging operations appears readilyapparent and underscored by one of the few papers onDEA that include hotel-related data’’. Moreover, even iffranchising is widely used in the hotel industry (Kehoe,1996; Contractor and Kundu, 1998), in many chains, someof the hotels are franchised whereas others are owned bythe operator depending on strategy, positioning and man-agement of the chain. For example, within the French hotelgroup Accor, about half of the Ibis and Mercure hotels arefranchised while Formule 1 hotels are nearly all company-owned. Location or local environment can influence theorganizational form of the hotel within the chain. Akena lo-cated company-owned hotels close to the headquarterswhereas remote hotels were franchised (Cliquet, 1998),implementing therefore the agency and transaction costtheories (Rubin, 1978). This study particularly focuses onthe French hotel chains. They are very dynamic. The Accor

group is ranked number 1 in Europe, and in the top five inthe world. This group has more than 4000 hotels under thefollowing brand names: Formule 1, Etap Hotel, Motel 6,Ibis, All Seasons, Novotel, Mercure, Suite Hotel, Pullmanand Sofitel.

Botti et al. (2009) implemented a similar methodology inthe hotel industry as well but their findings were not signif-icant. We assume that the set of variables chosen by theseauthors, including for instance the territory coverage, werenot relevant enough. This present paper therefore proposesa new set of variables which leads to significant results in fa-vor of the plural form.

The paper is organized as follows. After having describedthe advantages of the plural form in ‘‘Plural form chainsadvantages’’, the concept of efficiency is defined in ‘‘Theconcept of efficiency’’. ‘‘Methodology and data’’ presentsthe methodology and the data. The results are displayedin ‘‘Results’’. Managerial implications, limitations andtracks for future research are described in ‘‘Discussion’’ be-fore some concluding remarks in ‘‘Concluding remarks’’.

Plural form chains advantages

The pioneer research (Bradach, 1997) on plural form wasbased on an in-depth exploratory study of five US fast foodchains. The author developed a model highlighting the abil-ity to meet four challenges:

– adding new units,– maintaining the concept uniformity,– reacting locally to threats or opportunities,– and adapting the concept to changes.

He described several processes emerging in a plural formchain and helping it to take on more easily the four chal-lenges. It deals, for instance, with the additive process dur-ing the chain development: the franchisor shows his/herknow-how through the company-owned units, and thus at-tracts new franchisees, and also a franchisee can createhis/her own units. This is particularly true in the case ofthe hotel industry: multi-unit franchising is a very commonpractice. There is, as well, a socialization process in thesense that the franchisor personnel can become a sourcefor hiring new franchisees. Moreover, a mutual learningprocess also exists in a plural form chain which facilitatesthe generation, test, selection and implementation of newideas (Bradach, 1998).

Cliquet (2000) examined plural form advantages in theFrench context through a qualitative approach of three sec-tors: hotels, bakeries and beauty shops. In order to explainthe plural form choice, he pointed out three uncontrollablevariables: environment (legal, economic, human, and com-petitive), time (chain life cycle, investment returns periodand location speed), and ‘‘basic profession’’ of the operator(marketing, management, bread-making, real estate, . . .);and five controllable variables: marketing concept, globalstrategy, spatial ambition, chain management, entrepre-neur mentality. After the determination of these eightexplanatory variables, Cliquet (2000) showed that pluralform favors strategic and managerial flexibility, informationcontrol in local markets, showcase effect to attract new

Plural form chain and efficiency: Insights from the French hotel chains and the DEA methodology 269


franchisees by showing personal, financial and professionalinvestment capacity, etc.

Furthermore, despite a tendency to convert existingfranchised units into company-owned ones (Oxenfeldt andKelly, 1968–1969) and vice–versa, Dant and Kaufmann(2003) claimed that their results ‘‘show universal recogni-tion of the benefits of plural form organizations or mixeddistribution strategy [. . .]’’. They found that the strategicinsight and control afforded by the plural form arrangementare richly valuable for franchisors regardless of their prefer-ence for particular types of outlet ownership. Lafontaineand Shaw (2005) showed that the proportion of company-owned units were stable after eight years.

All these papers have highlighted some advantages ofmixing both franchising and company ownership within asame chain. But, does this superiority exist at the perfor-mance level as well? Indeed, this question has never beenexplored, mainly due to data collection constraints whenlooking for data regarding the chain performance. The pur-pose of this paper is then to empirically test the two follow-ing propositions linked to this superiority of plural formchains regarding the chain performance:

Proposition 1: Plural form chains perform better thanpredominantly franchised chains.

Proposition 2: Plural form chains perform better thanpredominantly company-owned chains.

The concept of efficiency

Performance evaluation can be used as a reference in thedecision-making process and serves as the basis of anyimprovements. Retail and service productivity is specificallyan important topic for organizations and chains (Ingene,1984). But, surprisingly, there is ‘‘still no single widely ac-cepted definition and measurement methodology for retailproductivity’’ (Donthu and Yoo, 1998).

The concept of partial productivity is basically a physicalconcept which compares the level of production to a re-source factor. The measurement of partial productivity isdefined as the ratio of one output to one input, both mea-sured in specific units (Bloom, 1972). For example, if salesare assumed to measure the relevant output for the retailfirm and labor costs are an important production factor,then the ratio sales to labor costs would define the produc-tivity of labor (Dubelaar et al., 2002). Furthermore, produc-tivity can be considered as the combination of effectivenessand efficiency (Ingene, 1984). Effectiveness focuses on theoutputs relative to a particular objective (Thomas et al.,1998). It is defined as the way of using resources in orderto maximize return on capital investment in a long-termperspective. In other words, effectiveness is doing it well,does not matter what it takes. Effectiveness implies thatthings are well done compared to a particular objective(Drucker, 1966). Efficiency focuses on the relationships be-tween inputs and outputs. In an organization, efficiency de-scribes the optimization of the resources used to obtain aresult. In other words, efficiency is doing something withthe least possible expenditures of resources (time, energy,etc.). Efficiency means that good things are done regardingcost constraints (Drucker, 1966). The measure of efficiencyis therefore an important and broad-scope topic (Hwang andChang, 2003).

In franchising research, some researchers have focusedon the efficiency component of productivity at the unit le-vel. They compared the efficiency of franchised units versusnon-franchised units. For instance, Anderson et al. (1998)used a DEA approach to compare the efficiency of 184 unaf-filiated real estate brokerage firms and 92 affiliated ones.They concluded that both franchised and non-franchisedfirms were operating relatively inefficiently. Yoo et al.(1998) showed the superiority of franchised outlets onnon-franchised ones in the refreshment place industrythrough a DEA method as well. Concerning the hotel sector,all of the studies have been implemented at the hotel level.We are not aware of any published paper analyzing the hotelchain level. Morey and Dittman (1995) studied 54 owner-managed hotels of a US chain through a DEA approach.Johns et al. (1997) monitored and benchmarked productiv-ity in a chain of fifteen hotels. Tsaur (2000) measured theoperating efficiency of international tourist hotels in Taı-wan. Anderson et al. (2000) used a DEA approach and a sto-chastic frontier technique to analyze 48 hotels in the USA.Hwang and Chang (2003) evaluated hotel managerial effi-ciency change in Taiwan. Barros (2004), Barros and Alves(2004a) and Barros and Mascarenhas (2005) analyzed the ho-tel efficiency of a Portuguese public-owned hotel chain,Enatur, by using a stochastic cost frontier and a DEA model.

However, many attempts from managers and economistsdo exist to measure efficiency at the hotel industry. Some ofthem used simple indicators of performance such as occu-pancy rate, or simple ratios like net profit to revenue (seeAnderson et al., 1999; Hwang and Chang, 2003 for a detailedreview). But, few research works tried to accurately exam-ine the efficiency in the hotel industry and none of themimplement the DEA method at the chain level. Andersonet al. (1998) and Yoo et al. (1998) underlined the powerof the DEA technique in comparing franchised and non-fran-chised units. As it is relevant to benchmark hotels within asame chain as already done by other researchers, it is alsoof interest to benchmark hotel chains in a same market aswe are doing now.

The purpose of the following study is to analyze the effi-ciency of hotel chains and to test the propositions dealingwith the superiority of the plural form chains over predom-inantly franchised ones and predominantly company-ownedones. Positive results could bring real support in terms ofone of the components of productivity, namely efficiency,to the superiority a priori claimed by authors such as Brad-ach (1998), Cliquet (2000), Dant and Kaufmann (2003) orLafontaine and Shaw (2005). As far as the theoretical contri-bution of this paper is concerned, we want to confirm or notthe interest of mixing both franchising and company owner-ship within a same chain through an empirical analysis of theFrench hotel industry.

Methodology and data

Methodology

General presentationThe choice of efficiency to measure and compare hotelchains performance is appropriate to find organizationaland resource allocation problems. Indeed, some hotel

270 R. Perrigot et al.


chains have better performance than others. Apart fromenvironmental opportunities and customer loyalty, variousfactors can be taken into account: organizational quality,internal resources management, scale economies, costdetermination, competition reactivity, etc.

The data envelopment analysis (DEA) has been developedto study the efficiency of various units, called DecisionsMaking Units (or DMUs). Efficiency, in the DEA context,deals with the optimization of the resource allocationsamong alternative uses. There are two equivalent orienta-tions to express this optimization (Parsons, 1992). On theone hand, the output orientation concerns the productionof the maximum quantity of outputs for any given amountof inputs. On the other hand, the input orientation dealswith the use of the minimum quantity of inputs for any givenamount of outputs.

DEA identifies the relationships between inputs and out-puts, whether single or multiple, whatever their similaritiesor dissimilarities in terms of scale, from the perspective ofbest-practice frontier. The production technology is builton the best observed DMUs in the sample, i.e., all the DMUsthat produce a given level of outputs with the lower observedlevel of inputs in the sample, in an input orientation case.These DMUs are called ‘‘efficient’’ and are scored at unity(or 100%). They serve as benchmarks for the other DMUs thatare not on the efficient frontier in order to improve their per-formance. Moreover, the DEA approach provides a measure-ment of the distance through the best-practice frontier alonga ray from the origin that gives an evaluation of the ‘‘ineffi-ciency’’ of these DMUs. The inefficient DMUs receive a scorewithin the interval [0, 1] or [0%, 100%].

The efficiency measurement provided by the DEA ap-proach is a relative one. It refers to the best observed prac-tices in the selected sample, whatever it is possible outsidethis sample. However, the DEA approach is a useful tool thatallows for the conversion of multiple inputs and multipleoutputs into a single measure of performance.

In the literature on efficiency measurement, severalmodels have been developed according to the considerationof the nature of returns to scale. Two main models are usedin this study. The first model is developed under an assump-tion of constant returns to scale for the production technol-ogy. It is called the CCR model according to the name of theresearchers that developed it in 1978 (Charnes, Cooper andRhodes, 1978) or the CRS (constant returns to scale) model.The second model implies a disproportionate rise or fall inoutputs when inputs are increased. This model is developedunder an assumption of variable returns to scale and iscalled the BCC model according to the name of theresearchers that developed it in 1984 (Banker, Charnesand Cooper, 1984) or the VRS (variable returns to scale)model. The CRS-efficiency score represents the overall effi-ciency which measures inefficiencies due to the input/out-put configuration as well as the size of the operations(Avkiran, 1999). As a unit grows in size, its efficiency wouldeither fall or rise. The VRS-efficiency score represents thepure technical efficiency, i.e., a measure of efficiency with-out scale efficiency (Avkiran, 1999). The difference be-tween the overall and the pure efficient measures gives ameasurement of the scale efficiency of DMUs (Fare et al.,1985). All these optimization models are now providedthrough their mathematical formulation.

Mathematical formulationThis section provides a brief presentation of the mathemat-ical formulation of DEA models. The general purpose of theDEA approach developed by Charnes et al. (1978) considersJ DMUs (j = 1,. . .,J) using N inputs (n = 1,. . .N) to secure Moutputs (m = 1,. . .,M). Let us denote xnj, ymj the observedlevel of the nth input and mth output, respectively, forthe jth DMU.

Efficiency of a DMU can be evaluated in two ways provid-ing the same measurement: the ratio form or its dual. Thechoice of the form is most often influenced by the informa-tion researchers are looking for.

The essential characteristic of the ratio form is thereduction of the multiple output and multiple-input situa-tions for each DMU and a single ‘‘virtual output’’ and a sin-gle ‘‘virtual input’’ that provides a measure of theefficiency of each observed DMU as a function of multipliersof a linear programming model. An efficiency score for oneobserved DMU, named ‘‘o’’, from the data set can be mea-sured by maximizing the ratio of total weighted outputsover total weighted inputs. This ratio defines the objectivefunction of the model (1) for the particular DMUo underevaluation. This objective function is maximized, subjectto a set of constraints; one for each DMU that reflects thatthe ratio of virtual output to virtual input for each DMU j inthe sample (j = 1,. . .,J) using the same weights as these de-fined for the DMUo, should be less than or equal to unity(Charnes et al., 1994). Mathematically, this can be writtenas:

maxuo;vo

ho ¼uoyo

voxostuoyj

voxj� 1 j ¼ 1; :::; J

uo; vo � 0

ð1Þ

where uo is the vector of output weights and vo is the vectorof input weights for the DMUo. The system of equations in(1) is a linear fractional programming model (Charnes andCooper, 1962). The linear programming dual problem ofthe ratio form model is:

minzo ;ho

ho

st

XJ

j¼1ymjzoj � ymo � 0 m ¼ 1; . . . ;M

hoxno �XJ

j¼1xnjzoj � 0 n ¼ 1; . . . ;N

zoj � 0; j ¼ 1; . . . ; J

hofree

ð2Þ

where ho is, at the optimum of the linear programming mod-el (2), the same measurement of the efficiency of DMUo

than those provided by the optimum of the ratio form modelin (1).

The primary optimization model provides weights for ob-served outputs and inputs to be combined in the productionprocess in an optimal manner. The dual model provides asingle measurement for efficiency by which each input can



be proportionally reduced. In this paper, we implementedthe dual approach, where a DMUo is considered as efficientif and only if h�o ¼ 1. If h�o < 1, the DMUo is declared as inef-ficient relative to the other DMUs in the sample. In the lit-erature, this model is often named the CCR (Charnes,Cooper and Rhodes) model or CRS (constant returns toscale) model.

The intensity vector zo of the DMUo is defined through theoptimisation process of the model (2). It provides usefulinformation concerning the benchmarks the DMUo can usedto improve its productive inefficiency.

When a DMUo is efficient, it is an element of the technol-ogy frontier that can serve as a benchmark for inefficientDMUs. The only component of the vector zo is unity forthe efficient DMU itself. Otherwise, the magnitude of thevector zo components gives information on the weightingwith which each benchmark can be used by the DMUo to in-crease its efficiency.

As it refers to a best-practice production frontier basedon an assumption of constant returns to scale, the aboveefficiency measurement ho is a composite measure whichcontains information on both the technical and scale effi-ciency of the DMUo. In order to decompose these two ele-ments from the overall efficiency measure, Banker et al.(1984) proposed an extension of the CCR model (2) wherethe assumption of constant returns to scale was relaxed.Their model, named BCC (Banker, Charnes, Cooper) modelor VRS (variable returns to scale) model, introduces an addi-tional constraint in (2) that allows for a representation ofthe production technology that reduces the cone from theorigin defined by the CCR model to a convex envelop ofthe data set based on the assumption of free disposabilityof inputs and outputs. With the BCC model, the productionfrontier is tighter from the observations than with the CCRmodel. This additional constraint is:

XJ

j¼1zjo � 1 ¼ 0 ð3Þ

The equality in (3) allows the measurement of efficiency ofeach DMU at their observed scale of production, i.e., con-stant, increasing or decreasing returns to scale. Thus, theefficiency measurement provided by this extended modelcorresponds to the ‘‘pure’’ technical efficiency of theDMUo. The comparison of the efficiency measure from mod-el (2) and from model (2) and Eq. (3), gives a measurementof the scale efficiency of the DMUo. That is:

Scale efficiency ¼ CCR or CRS efficiency

BCC or VRS efficiencyð4Þ

DMUs presentation

Most chains running hotels in France use franchising to man-age at least some of their hotels. They are therefore homo-geneous enough to enable efficiency comparisons. As, weworked at the chain level and not at the hotel level, thenumber of DMUs – hotel chains – investigated in this empir-ical work is relatively small. The number of hotel chains in amarket like France is limited. Moreover, small chains run-ning hotels in only one region for instance, do not commu-nicate their performance indicators. These previous

elements contribute to explain the size of the populationunder investigation: fifteen hotel chains. Among these hotelchains, only five of them are from the French leader groupAccor. Thus, this group is not over-represented in the sam-ple and thus, the sample allows for comparisons. Even if itremains a research limitation, DEA methodology can be ap-plied to small DMU population (Evanoff and Israilevich,1991). For instance, Wang et al. (2005) explored the relativeefficiency of sixteen banks in China whereas Brønn andBrønn (2005) worked on only six �large� Norwegian banks.However, the number of variables entered in the DEA modelmust be reasonably defined. Following Dyson et al. (1998),the following convention was respected for defining thenumber of inputs and outputs entering in the DEA modelas regard to the number of DMUs in the sample. With Nthe number of inputs, M the number of outputs and J thenumber of DMUs, Dyson et al. (1998) suggested that the fol-lowing rule would be fulfilled: J P N*M.

Three complementary data sources were used to collectdata on fifteen hotel chains: the ACFCI directory that re-cords the franchising chains in France whatever the branchof industry is concerned, the Coach Omnium directory thatdescribes the hotel chains in France, and the French review,HTR, specialist of hospitality management, that publishes aranking of hotel chains located in the French market.

Plural form definition

As far as the organizational form of hotel chains is con-cerned, there is no best way to precisely define a pluralform chain, except the formulation of a certain coexistenceof franchised units and company-owned units within thesame chain. The rate of company-owned units (k) actuallyfaced different thresholds in the academic literature:k = 9% (Ehrmann and Spranger, 2004), k = 15% (Cliquet,2000), k = 22% (Lafontaine and Shaw, 1999), k = 33% (Penardet al., 2003. Such as these authors, we chose to use a quitestrict definition of the plural form. We thus considered that:(1) a hotel chain is a plural form chain if the rate of com-pany-owned units is between 30% and 70% (30 6 k 6 70);(2) a hotel chain is a predominantly franchised chain if thesame rate is less than 30% (k < 30); (3) a hotel chain is a pre-dominantly company-owned chain if the rate of company-owned units is more than 70% (k > 70).

Output and input selection

The implementation of DEA models requires the selection ofinputs (resources or costs) and outputs (transformation ofresources or benefits). Several criteria are usually employedin this selection: literature survey, practitioner opinionscollection, relevancy, and of course availability. In prac-tice, experience in formulating and implementing operatingplans as well as data availability are the two main criteria inthe input and output selection (Hwang and Chang, 2003).

OutputsIn most cases, it is easy to identify and select the adequateoutputs. Indeed, the dictum ‘‘more is better’’ has to beapplicable (Barros and Alves, 2004b). Sales are often usedas an output in the retailing research papers. In the partic-ular case of the hotel industry, there are two main kinds of



sales (Hwang and Chang, 2003): (1) Sales linked to accom-modation, and (2) sales associated to meals. Other minorsales include those from laundry, lease of store spaces,night clubs, service fees, all of which do not exceed 20%of total revenues. In the present investigation, the variableoccupancy rate is firstly used as an output in order to referto the sales exclusively linked to the accommodation of thehotel chain. This variable is also actually a managerially use-ful outcome variable because at midnight, a vacant room isequivalent to one lost night, as it cannot be stocked as mer-chandises. Secondly, the variable ‘‘total sales’’ adds somecomplementary information to the first output. The amountof total sales captures room revenues, food and beverageones, and all the other revenues such as those from laundry,phone and fax or Internet services.

InputsAs far as the input identification and selection are concerned,no such consensus is possible. A wide variety of variables caninfluence the hotel chain efficiency. All these potential in-puts: starting date of franchising, or chain age, number of ho-tels in the chain, number of rooms in the chain, number ofhotel openings during the year, royalties and ranking, repre-sent important business processes within a hotel chain andover which the franchisor has some responsibility and control(except for the variable ‘‘chain age’’). The inputs selectedfor this research according to their relevancy and also theiravailability can be classified into five categories:

– The experience category is expected to be positivelyrelated to the sales and the occupancy rate of the hotelchain. Experience is measured by chain age. Old hotelchains are supposed to perform better than young hotelchains because of knowledge acquisition over time onmarket and on consumer expectations, and also brandname reputation. The variable age has been already usedas an input in retailing papers (Thomas et al., 1998).

– The labor category represents the possible labor intensityof each hotel chain. A large size hotel chain can beexpensive in terms of building or management costs butcan establish high possibilities in terms of lodging poten-tial and also in terms of brand name image when the ter-ritory is widely covered. The variable size has beenalready used as an input in retailing articles (Campoand Gijsbrechts, 2004). We chose to operationalize thevariable size of the hotel chain by the number of roomsand not the number of hotels. We considered that thenumber of rooms better illustrates the size of the hotelchain than the number of hotels. Indeed, for instance,when the maximal capacity of a particular hotel chainis mentioned, it refers to its maximal number of rooms.Moreover, the occupancy rate that constitutes an impor-tant indicator of the quality of the hospitality manage-ment is computed from the number of rooms and notthe number of hotels. This choice resolved the possibleproblem of the heterogeneity linked to hotel size withina same chain and avoided multicollinearity between thenumber of hotels and the number of rooms.

– The expansion cost category, captured here through thechain expansion and measured by the number of newhotels opened during the previous year, is expected tobe positively related to the sales and the occupancy rate

of the hotel chain. Indeed, a chain having opened somenew units during the previous year is supposed to be aperforming chain able to invest in the chain developmentand to expand its territory coverage.

– The royalties used in the study are supposed to increasewith the chain performance. Indeed, the franchisor of aperforming hotel chain can require high royalties becauseof the brand name image, as a signal of predictable highrevenues for the franchisee (Gallini and Lutz, 1992).

– The quality category, observed through a ranking of theperceived quality of the hotel chains published by HTR,a specialist journal of hospitality management, is sup-posed to increase the performance of the chain. Theranking figures are inversely entered. A well ranked hotelchain attracts more customers and consequentlyimproves its sales and occupancy rate.

Table 1 summarizes these different categories of inputsas well as the outputs used for the DEA modeling.

The DEA requires all inputs to be positive and positivelyrelated to at least one output. In this study, the significantcorrelations between inputs and outputs are positive as re-minded here: chain age and sales (0.908), number of roomsand sales (0.877), royalties and occupancy rate (0.616), andranking and sales (0.625). Nevertheless, the number of hotelopenings was neither positively, nor significantly correlatedto any of the two outputs (�0.019 with occupancy rate and�0.033 with sales). This expansion variable is therefore ex-cluded from the analysis. Thus, with a sample size of fifteenhotel chains (J = 15), with four inputs (N = 4) and two out-puts (M = 2), the conventional rule proposed by Dysonet al. (1998) is respected (J P N*M).

The DEA model can be thus presented as displayed inFigure 1, where the four inputs enter the DMU (the hotelchain) to provide the two outputs defined above. The objec-tive is now to obtain information on the efficiency in con-verting inputs to outputs of each DMU.

A brief description of the fifteen hotel chains studied inthis paper is presented in Table 2. For each hotel chain, fig-ures are displayed on its organizational form, its age, itssize, its expansion, its percentage of required royalties,and its ranking. The occupancy rate and the total salesare also indicated in this table.

Among the fifteen hotel chains, six of them are consid-ered as having a plural form (P) with a rate of company-owned units between 42% for Mercure and 70% for Novotel.In this group, two–third of the hotel chains are members ofthe Accor group. Five hotel chains are predominantly com-pany-owned units (C). The hotel chains Campanile andPremiere classe are considered as predominantly com-pany-owned hotel chains because of their high rates of unitsunder a management contract that are similar to company-owned units. Only one of them (Formule 1) is from the Accorgroup. Then, the last four hotel chains are predominantlyfranchised units with a k rate between 0 and 22%. None ofthem is a member of the Accor group.

Results

The Table 3 presents the relative efficiency scores for eachhotel chain. Some information about the hotel chains with



the best practices and the reference sets are also provided.For each hotel chain considered as inefficient, i.e., with ascore less than 1, the hotel chains that constitute its refer-ence set are mentioned. For each hotel chain consideredefficient, with a score equal to 1, the number of timeswhere this hotel chain is considered as a benchmark is indi-cated in brackets.

Efficiency results

The first efficiency score in the Table 3 is the overall effi-ciency of each unit. It provides a measurement of its perfor-mance both in its technical and scale dimension. Over theeight chains that are 100% overall efficient or CCR-efficient,five are plural form chains (Akena, Bleu Marine, Ibis, Mer-cure and Novotel), two are predominantly company-ownedchains (Campanile and Mascotte) and one is a predomi-nantly franchised chain (Clarine). Three of these efficienthotel chains are members of the French leader group Accorand are plural form chains. As this French group is rankednumber 1 in Europe and in the top five in the world, it isimportant to focus on the performance of the hotel chainsbelonging to this group in order to check about a potentialgroup effect that could biased the results. Only one pluralform chain gets a CCR-efficiency score less than one butclose to unity (Etap Hotel: 0.954). This hotel chain is amember of the Accor group. The hotel chains with a CCR-

efficiency score comprised between 0.80 and 0.90 are allpredominantly company-owned, namely, Premiere Classe(0.851), Formule 1 (0.832) and B&B (0.812). The chains withthe lowest CCR-efficiency scores are all predominantly fran-chised: Balladins (0.582), Nuit d�Hotel (0.615) and Climatde France (0.745). The company-owned chain Formule 1(0.832) is from the Accor group. Thus, from these first re-sults, we can expect that the empirical approach will givehighlights on the impact on the hotel chain�s organizationrather than on an Accor group�s effect.

The second score is the technical efficiency of each hotelchain, i.e., a measure of its performance without any scaleconsideration. As the VRS-best-practice frontier is closer tothe data set than the CRS-frontier, more hotel chains aredeclared efficient. Among the fifteen hotel chains, onlythree of them are technically or VRS-inefficient. They exclu-sively deal with predominantly franchised chains, namely,Climat de France (0.786), Nuit d�Hotel (0.616) and Balladins(0.591). The hotel chains of the French leader group, Accor,are all technically efficient.

The last score is the scale efficiency of each hotel chain.It compares the technical efficiency score to the overallefficiency score to extract information on the scale perfor-mance of each hotel chain. Among the fifteen hotel chains,nine of them are 100%-scale efficient. Among the six hotelchains with a plural form, only one of them is scale ineffi-cient, namely Etap Hotel (0.954). Considering the com-

Table 1 Definition and basic statistics for the inputs and outputs.

Minimum Maximum Mean St. Error AGE SIZ EXP ROY RAN OCC SAL

Inputs1 Experience: age of the hotel chain in years

Chain age AGE 4 32 14.667 8.088 1 0.760** �0.3 0.02 0.551** �0.124 0.908**

2 Labor: number of rooms in the chainChain size SIZ 521 26,000 9809 8,213.081 1 -0 0.13 0.766** 0.257 0.877**

3 Expansion costs: number of hotel openings during the yearChain expansion EXP 0 17 4.933 5.105 1 0.21 0.239 �0.019 �0.033

4 Franchising contract: Royalties in percentageRoyalties ROY 2 6 3.877 0.878 1 0.267 0.616* 0.025

5 Quality: chain rankingPerceived quality RAN 1 50 14.067 13.478 1 0.288 0.625*

Outputs1 Room revenues: Occupancy rate in percentage

Occupancy rate OCC 58.1 78.2 67.02 6.421 1 �0.0362 Other revenues: Total sales in millions of euros

Total sales SAL 7.16 509.78 157.33 175.92 1* Significant correlations at level 0.05.** Significant correlations at level 0.01.

input 1 : Network's age

input 2 : Network's size DMU : output 1 : Occupancy rate

input 3 : Royalties Hotels' Chain output 2 : Total sales

input 4 : Network's ranking

Figure 1 The DEA model.



Table 2 A description of the fifteen hotel chains.

Hotel chains Organizationalform

% ofcompany-ownedunits (k)

% offranchisedunits

% ofmanagedfranchiseunits

% ofother

Date offranchisebeginning

Chain age # ofRooms

# ofhotelopenings

Royaltiesin %

Initialranking

Rank Occupancyrate in %

Salesin M€

1. Akena P 50 40 0 10 1992 7 1,257 3 3 33 18 68 7.772. B&B C 97 3 0 0 1990 9 3,856 9 6 15 36 77.2 31.563. Balladins F 0 98 2 0 1985 14 4,356 5 4 13 38 63 50.314. Bleu marine P 64 36 0 0 1992 7 1,124 1 2 31 20 60.7 24.545. Campanile C 27 8 65 0 1976 23 18,843 0 3.2 4 47 68 382.496. Clarine F 2 84 14 0 1995 4 3,612 17 3.7 16 35 58.1 46.57. Climat

de FranceF 12 82 6 0 1980 19 8,648 7 3 7 44 59 131.41

8. Etap hotel P 67 29 4 0 1991 8 7,954 13 4 8 43 75.2 68.149. Formule 1 C 97 3 0 0 1985 14 20,408 1 4 3 48 74.4 132.7810. Ibis P 43 53 4 0 1974 25 26,000 8 4 1 50 70.3 454.4511. Mascotte C 75 25 0 0 1988 11 521 0 4 50 1 63.4 7.1712. Mercure P 42 51 7 0 1973 26 21,631 8 4.25 2 49 63 509.7913. Novotel P 70 18 12 0 1967 32 15,063 0 4 5 46 63.8 411.6114. Nuit d�Hotel F 22 40 38 0 1988 11 3,150 0 4 17 34 63 16.4615. Premiere

classeC 18 5 77 0 1989 10 10,712 2 5 6 45 78.2 85.07

With P: plural form chain; C: predominantly company-owned chain; F: predominantly franchised chain.

Plural

form

chain

andefficie

ncy:

Insigh

tsfro

mtheFre

nch

hotelch

ainsan

dtheDEAmethodology

275


pany-owned hotel chains, two of them are 100%-scale effi-cient (Campanile and Mascotte). The other three hotelchains are scale inefficient: B&B (0.812), Formule 1(0.832) and Premiere classe (0.851). For the franchised ho-tel chains, the Clarine chain is scale efficient, the Nuit d�Ho-tel chain is close to scale efficiency (0.998) and the twoothers are scale inefficient but with a score close to 0.95:Balladins (0.983) and Climat de France (0.948). For the ho-tel chains from the French leader group, Accor, three ofthem are scale efficient while the two other are scale inef-ficient, namely Etap Hotel (0.954) and Formule 1 (0.832).

Now, if we consider each hotel chain over all the effi-ciency measurements, some of the hotel chains are onlytechnically inefficient as Nuit d�Hotel, some are only scaleinefficient as B&B, Etap Hotel, Formule 1 and Premiereclasse. Some others are both technically and scale efficient:Akena, Bleu Marine, Campanile, Clarine, Ibis, Mascotte,Mercure and Novotel.

Benchmarking

The Table 3 provides also information on the hotel chainsthat can serve as benchmarks to the inefficient units andhow many times these benchmarks are proposed as refer-ence for improvement of units� efficiency.

When we consider the overall efficiency and scale effi-ciency measures, the hotel chains that are often referredas benchmarks are: Bleu Marine and Clarine (quoted sixtimes as a benchmark), Akena (quoted four times), Mercure(quoted three times) and Ibis (quoted twice). Four of thesefive chains are plural form ones and two of them are fromthe Accor group. If we focus only on the technical efficiencymeasure, the hotel chains that are often used as bench-marks are Bleu Marine (three times) and Akena and Campa-

nile (twice). Two of these three chains are plural form onesand none of them are from the Accor group.

Campanile is proposed twice as a benchmark for techni-cal efficiency improvement but only one time as benchmarkfor the scale efficiency improvement. Mercure is consideredthree times for the scale efficiency but only one time fortechnical efficiency while Clarine is referred as a bench-mark six times for scale efficiency and only one for technicalefficiency. Akena is more proposed for scale efficiency thanfor technical efficiency (four to two times) as Bleu Marine(six to three times). Ibis is only a reference for scale effi-ciency. At the opposite, Etap Hotel is only referred as abenchmark for technical efficiency.

Kruskal–Wallis test

As the DEA approach is a nonparametric one, i.e., withoutany a priori distributional assumption on the variables, wehave implemented the nonparametric Kruskal-Wallis testto analyze whether predominantly franchised, predomi-nantly company-owned and plural form chains exhibitedstatistically different efficiency levels. The Kruskal-Wallistest provides an analysis of the ranks of the efficiency scorefor each group of chains with the three different organiza-tional forms. The null assumption is that the location ofthe ranks is the same among the scores for each group.The test provides a chi-square statistic for testing this nullhypothesis. The results reported in Table 4 indicate thatthese three groups reveal overall efficiency scores signifi-cantly different at the 0.05 level and technical efficiencyscores significantly different at the 0.01 level. The oppositeresult is provided for the scale efficiency. There is no signif-icant difference among hotel chains whatever their organi-zational forms.

Table 3 Efficiency scores.

Hotel chains Organizational form Overall efficiency Technical efficiency Scale efficiency

Score Benchmarks Score Benchmarks Score Benchmarks

1. Akena P 1 (4) 1 (2) 1 (4)2. B&B C 0.812 1; 6; 12 1 (0) 0.812 1; 6; 123. Balladins F 0.582 1; 4; 6; 12 0.591 1; 4; 5; 8; 12 0.983 1; 4; 6; 124. Bleu marine P 1 (6) 1 (3) 1 (6)5. Campanile C 1 (1) 1 (2) 1 (0)6. Clarine F 1 (6) 1 (1) 1 (6)7. Climat de France F 0.745 4; 5 0.786 4; 5 0.948 4; 58. Etap hotel P 0.954 4; 6; 10 1 (1) 0.954 4; 6; 109. Formule 1 C 0.832 4; 6; 10 1 (0) 0.832 4; 6; 1010. Ibis P 1 (2) 1 (0) 1 (2)11. Mascotte C 1 (0) 1 (0) 1 (0)12. Mercure P 1 (3) 1 (1) 1 (3)13. Novotel P 1 (0) 1 (0) 1 (0)14. Nuit d�Hotel F 0.615 1; 4; 6 0.616 1; 4; 6 0.998 1; 4; 615. Premiere classe C 0.851 1; 4; 6; 12 1 (0) 0.851 1; 4; 6; 12

Note: In the ‘‘score’’ column, the score varies between 0 and 1.In the ‘‘benchmarks’’ column,– when the ‘‘score’’ is equal to 1 (let�s take the example of Akena), the number between brackets (here 4) means that this DMU (Akena)serves as a benchmark for 4 other DMUs.– when the score is less than 1 (let�s take the example of B&B), the numbers listed in the ‘‘benchmark’’ column (1 = Akena; 6 = Clarine;12 = Mercure) represent the benchmarks for this particular DMU (B&B).



Plural form chains and predominantly company-ownedchains are technically efficient. There is no difference be-tween these two kinds of chains. The predominantly fran-chised hotel chains are the only chains that aretechnically inefficient (0.749). The findings show a possibleimprovement of these chains through a decrease by 25% oftheir inputs. Plural form chains are the most efficient hotelchains as regard as their overall performance which is acombination of technical and scale efficiency. Predomi-nantly company-owned hotel chains are as technically effi-cient as the plural form and their scale efficiency is notsignificantly different from those of plural form chains.However, they do not succeed as well as the plural formchains in the mixing of these two dimensions of their perfor-mance. Their overall efficiency score is 0.899. They cantherefore reduce their inputs by about 10%. They performlesser than the plural form chains as regard to the technicaland overall efficiency. A conclusion can be drawn from thisanalysis on scale efficiency, whatever the organizationalform, the measurement of predominantly franchised hotelchains� inefficiency is mainly a technical one. They receivea quite similar score of technical and overall efficient, with0.749 and 0.736, respectively.

Discussion

Concerning the two propositions we tested, the above re-sults totally confirm that plural form hotel chains are thenmore efficient than predominantly franchised chains. Prop-osition 1 finds support for technical and overall perfor-mance. Results show that plural form chains performbetter than predominantly franchised chains. As plural formhotel chains are as technically efficient than predominantlycompany-owned chains, the proposition 2 is only partly sup-ported by empirical analysis provided on the French hotelchains. Plural form hotel chains are more performing whenmixing technical and scale efficiencies. Results do not pointout an Accor�s group effect. Hotel chains from the samplethat are members of this group and plural form chains aremore efficient than the company-owned chain from thisgroup, namely, Formule 1.

Additionally, most of the plural form hotel chains areboth technically and scale efficient. They are most often

referenced as benchmarks for scale efficiency improve-ments than for technical efficiency improvements. Theyconstitute the chains with the best practices within the pop-ulation under investigation as regard as the scale of theiractivity.

This difference in terms of efficiency can be explained bythe fact that franchisors having a plural form chain will usethe company-owned units as laboratories for testing theinnovation, as locations for training the new franchisees,as direct touch points with the final customers to get infor-mation about the market, to control the brand diffusion andits extension and its evolution. This part of the chain com-posed of company-owned units will enable them to becomemore efficient because they can benefit from direct contactwith the customers and use the company-owned stores aslaboratories. At the same time, these franchisors will bene-fit from external criticisms and feedbacks coming from thefranchisees, more dynamism and responsiveness stemmingfrom franchisees running their own business. The coexis-tence of two organizational forms within a same chain willmaximize the efficiency.

The findings of the empirical analysis that indicate thatplural form chains perform better than predominantly fran-chised chains and partly better than predominantly com-pany-owned chains, have implications on managerialpractices of franchising entrepreneurs (Kaufmann and Dant,1998). First, the franchisor has to well manage the percent-age of franchised and company-owned units during thechain development since the coexistence of both types ofunits within a same chain contributes to enhance the chainefficiency. In this paper, this efficiency has been consideredin terms of input minimization. This can be illustrated withtraining costs. Company-owned units can be used, for regio-nal training and managers, as guides for the franchisees.Training costs are then minimized for the franchisor. Com-pany-owned units also provide the franchisor with direct in-come whereas franchised units offer only additionalrevenues (entry fees and royalties). Furthermore, workingin a plural form chain can get a chance for real or prospec-tive franchisees to be more efficient. They will benefit fromeconomies of scale and good managerial practices as well asbrand name recognition, daily know-how, etc. For instance,input economies can be realized in advertising or training.

Table 4 Kruskal-Wallis test results.

Efficiency score Management form N Mean Standarddeviation

Minimum Maximum Kruskal-Wallistest

Overall-efficiency score Predominantly franchised 4 0.736 0.190 0.582 1.000 v2 =5.808Plural form 6 0.992 0.019 0.954 1.000 Sig=0.055Predominantly company-owned 5 0.899 0.093 0.812 1.000 (0.05 level)Total 15 0.893 0.147 0.582 1.000

Technical-efficiency score Predominantly franchised 4 0.749 0.189 0.591 1.000 v2 =9.485Plural form 6 1.000 0.000 1.000 1.000 Sig = 0.009Predominantly company-owned 5 1.000 0.000 1.000 1.000 (0.01 level)Total 15 0.933 0.144 0.592 1.000

Scale-efficiency score Predominantly franchised 4 0.982 0.024 0.954 1.000 v2 =3.665Plural form 6 0.992 0.018 0.954 1.000 Sig = 0.160Predominantly company-owned 5 0.899 0.093 0.812 1.000 (0.15 level)Total 15 0.958 0.068 0.812 1.000



Also, paying high royalties can be justified by a higherperformance.

However, this research work has some limitations. Thefirst one deals with the definition of the concepts of effi-ciency and of plural form. Efficiency is only one componentof the productivity measurement of a hotel chain. Pluralform chains are defined based on arbitrary thresholds thatcould be reconsidered since no universal threshold exists.

The second limitation of this contribution is on the se-lected methodology. The DEA approach gives a good evalu-ation of hotel chains which is relative and not absolute. So,we know how well hotel chains are doing compared to theother hotel chains in the sample peers but not to a ‘‘theo-retical, ideal or possible optimum’’. An hotel chain couldperform better than the best hotel chains in the sample.

The third limitation is obviously the sample size. Only fif-teen hotel chains are studied. It would be an interesting re-search development to test the two propositions on pluralform chain superiority on larger and more diversified chainpopulations.

Finally, the last limitation is that no information aboutthe capital was available. No variable linked to the capitalhas been inserted into the DEA modeling.

Concluding remarks

A theoretical contribution of this paper deals with the con-cept of plural form chain. Literature about this franchisingconcept exists but remains limited concerning chain perfor-mance. New research works are encouraged to explore andbetter understand this preeminent chain organizationalform in other sectors.

This paper highlighted the advantage, in terms of perfor-mance and more specifically efficiency, of mixing both fran-chising and company ownership within a same hotel chain.Indeed, plural form hotel chains have higher overall andtechnical efficiency scores than predominantly franchisedchains and higher overall efficiency scores than predomi-nantly company-owned ones. Moreover, plural form hotelchains are often referred as benchmarks for efficiencyimprovement of inefficient hotel chains.

The concept of efficiency was estimated through the DEAmethod that appeared a relevant indicator of the hotel chainperformance. The efficiency of a particular hotel chain iscompared to hotel chains of the studied sample with a refer-ence to the efficiency of the best practices and not to sam-ple-average efficiency. One advantage of this methodologyis that hotel chains are directly compared to peers. DEAhas been only applied at the unit level in the franchising lit-erature so far (Anderson et al., 1998; Donthu and Yoo, 1998)and so, applying it at the chain level constitutes aninnovation.

Thus, we hope that the present paper will encourage fur-ther investigations useful to study the plural form superiorityin a general perspective, and to provide some guidance tohotel franchisors in their strategic and managerial choices.

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ROZENN PERRIGOT is an Associate Professorin the Marketing Department of the Gradu-ate School of Business Administration at theUniversity of Rennes 1 and at the ESC RennesSchool of Business. She is a member of theCenter for Research in Economics and Man-agement (CREM UMR CNRS 6211). She hasbeen also a member of the InternationalSociety of Franchising (ISoF) since 2001. Herresearch papers, published in academic

journals, conference proceedings and as books chapters, deal withfranchising and retailing.

GERARD CLIQUET is a Professor in theMarketing Department of the GraduateSchool of Business Administration at theUniversity of Rennes 1. He is a member(past-director) of the Center for Research inEconomics and Management (CREM UMRCNRS 6211). He is the editor/author of 11books, either in French or in English. Hisresearch papers, published in academicjournals, conference proceedings and as

book chapters, deal with retailing and franchising.



ISABELLE PIOT-LEPETIT is a Microecono-mist Research Scientist in the EconomicsDepartment at INRA (National Institute forAgricultural Research). She is working at theCenter for Research in Economics andManagement (CREM UMR CNRS 6211). Sheholds an Accreditation to SuperviseResearch diploma. Her research fields relateto the introduction of environmental con-straints and dynamics into the microeco-

nomic modelling of producer behaviour. Part of her research,published in academic journals or as book chapters, deals with theDEA (Data Envelopment Analysis) efficiency measurement.


Plural form chain and efficiency: Insights from the French hotel chains and the DEA methodology

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