Aegean Isles Essay

335 WordsNov 19, 20142 Pages
Aegean Isles Restaurants 1. The allocation of decision rights differs between these two organizational forms. A franchisee has more decision rights than an employee manager in a company owned organization. For example, the franchisee is free to purchase food and supply items from his local economy, including fresh produce, domestic beer and wine, and cleaning supplies. The restaurant managers of Aegean Isles, however, order the bulk of their food and supply needs through the parent company’s purchasing unit, which maintains a central warehouse for inventory. The employee managers are only allowed to purchase some food from their local economy when quality and stock-out issues are at stake. 2. One of the most significant agency risks Theodore faces when opening a new restaurant is the person operating the restaurant makes minimal efforts. Under a company owned organization, the likelihood of low effort risk is definitely higher than under a franchisee organization. The employee manager may have incentives to put in less effort than wanted by the owner because the possible bonus based on restaurant operating profit would only be a small benefit from putting in more effort. The low effort risk of the employee manager has a high magnitude because Theodore is the owner of the restaurants and he makes the profits of the company. Therefore, he wants the employee manager to provide high efforts to be more profitable. The likelihood and magnitude of such risk are low for a franchisee. Gil, the franchisee, will likely put in high effort because he keeps 95% of gross revenues, after paying 5% of gross revenues to Theodore. The low effort risk is not significant to Theodore because he only receives a small amount of the revenues. Another significant agency risk Theodore faces when opening a new restaurant is not operating the same way as the standardized operations of

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