Harnessing innovation in franchising

In franchising, there are many innovations and a system through which they are harnessed.

The forth element of innovation in franchising are the relational dynamics. The basic features of the franchise relationship are embodied in the franchise agreement.

This way of regulating a relationship between two independent businesses operating under the same trademark is in itself an innovative way of making business ownership possible for many individuals who were unable to enter business in other ways and who would otherwise never have been able to have salaried employment.

The training and ongoing support given to franchisees emphasize the innovative nature of the franchisor/franchisee relationship whilst independence is maintained.

Fifth is capital. Franchising is an innovative method of expansion that enables businesses to expand rapidly with minimal capital. In fact, franchising uses “funding” from the franchisees. Compare this method of expansion with other methods used by businesses wishing to expand.

They must sell shares of stock, borrow etc. This form of funding also slows their expansion.

The sixth innovation is the issue of motivated “managers”. The franchisee is not an employee but manages the outlets. He/she buys with his/her own money the rights to own and operate a business similar to the one created by the franchisor. As a business owner the franchisee is at risk.

He/she must commit time and energy, as well as capital to the success of the franchised business. Compare this to a normal retail chain where the manager does not have this commitment.

Seventh is buying power. The collective buying advantage of franchising is the ability to pool funds for marketing and obtaining products and services cheaper.

Whilst this may also accrue to normal chains, the innovation is that the benefit accrues to individual businesses and not just to a corporate head office.

Finally, flexibility. Franchising adapts remarkably well to a variety of corporate situations, structure and goals.

The innovation aspect is that every franchisee takes personal responsibility for the implementation of or adaptation to a change. In a central point. Through franchising the adaptation is more effective, efficient and immediate.

Franchising is in itself an innovation and the ability for a franchise system to realize further continuous innovation, is important to survival.

Harnessing innovations in franchising is mainly the role of the franchisor.

But this doesn’t mean that franchisees don’t innovate. Although the franchisee cannot implement any innovations at the exclusion of the rest of franchise system, franchisees are encouraged to share their innovations with the franchisor and other franchisees through the franchisee advisory council.

The innovations are sieved through and those agreed upon are tested by the franchisor in the prototype outlet, systems developed for them and finally released to the entire franchise system.

The reason for this rigidity is to ensure uniformity though out the franchise system and to reduce the risk of failure. If every franchisee was allowed to implement their innovation at their franchised outlet, there would be as many different service levels as there are franchisees in the franchise system. The risk of failure is real.

The franchisor, before attempting to franchise, would have tried and failed in many ways before finally settling on the innovations that work.

Being new to the business, franchisees are normally excited to try what they would have tried if they were operating on their own. Some of these innovations would inevitably fail, thereby denting the faith of other franchisees in the system.

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