Hotel franchising presents a unique network context for investigating inter‐organizational collaboration. Franchisees and franchisors must collaborate closely but face incompatible incentives in allocating financial and human resources to invest in three types of operations: centralized, network‐level operations run by the franchisor; distributed, outlet‐level operations managed by franchisees; and coordinated operations, which use franchisee and franchisor inputs. This study employs a mixed‐methods design to empirically examine the effects of these three types of investments on outlet‐level performance while considering franchisees' dependence on the franchisor for sales. To ground our understanding of the phenomenon, we interview US hotel industry experts, then test the conceptual model with a panel data set of 3500 franchised US hotel properties. We find that franchisee dependence moderates the impact of all three types of investments. Specifically, a high‐dependence franchisee's centralized investments and coordinated investments, and a low‐dependence franchisee's distributed investments are associated with higher levels of outlet performance. We discuss how structural embeddedness drives these effects and explore its implications for service supply chain design and collaborative operations management.
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