On Re-Using Knowledge: The Consequences of Adaptation of Franchising Knowledge for Local Network Growth by

The issue of knowledge utilization is a fundamental societal and practical concern that has received considerable attention in many branches of the social sciences. In the field of strategy there is widespread agreement that the ability to leverage, or re-use knowledge assets could be a fundamental source of competitive advantage. Such issue has been especially prominent for the management of the multinational corporation where the possession of idiosyncratic knowledge has long been offered as a key explanatory factor for the existence and success of MNCs. A key issue that arose in that context is to what extent should firms attempt to adapt those resources to fit local conditions. There are cogent arguments and suggestive evidence in both directions. However, much of the debate has thus far examined the issue of standardization versus local adaptation in terms of products and brands leaving a gap where processes and knowledge is concerned. This study intends to partially fill that gap. We explore this issue in the context of a naturally occurring, repeated measures quasi-experiment. The setting is Mail Boxes, Etc. (MBE), the largest non-food franchise organization in the world, with over 4000 outlets in the US and over 700 outside of the US. The experiment unfolded naturally from August 1995 when the MBE franchise network in Israel was established until July 2001. We document the extent to which Israel's Master Licensee significantly adapts knowledge transferred from MBE headquarters during that period. The specific 'manipulation' in the natural experiment is the adaptation of key principles or pieces of knowledge MBE headquarters transfers to Master Licensees. Specifically, we observe three different phases. In the first phase, the Israeli Master Licensee attempts to create a unique approach to building the network that departs in important ways from the proven one recommended by MBE. Lack of growth forces the Master Licensee to revise the approach motivated by the success of the Italian Master Licensee who follows the original system quite closely. Following that approach the Israeli operations become the second fastest growing Master Licensee within MBE, going from 2 to 17 stores in two years. In a third stage, a second attempt to deviate from MBE's business model to accelerate business unit growth halts network growth once again. While the network was projected to reach 24 stores by July 2001, it actually shrinks to 14 stores. We conclude by drawing implications for the management of knowledge assets …