Innovative elements in franchising

Like in any business that seeks sustainability, innovation is very important in franchising for it sustains a competitive and profitable franchise network. There are many innovations in franchising and a process through which they are harnessed.

There are different points at which innovation is required. Despite the franchisor’s initial innovative effort to adopt the franchise business model when everyone else runs the traditional brick-and-mortar models, there are different stages of the franchise system that require and apply different levels of innovation.

The competitive environment, for instance, changes regularly and this requires innovative thinking and actions to maintain a competitive advantage.

Considering the closeness of the franchisee to its customers then innovative actions are crucial. We explore the innovations first then how they are harnessed. Some innovative activities in franchising will include the following.

First, franchising is a strategic alliance which in itself is an innovation. The franchisor and the franchisee are distinct legal entities.

They establish an alliance for a predetermined period in order to gain a competitive advantage over other businesses in their respective markets. This relationship is an innovation in the field of product and service distribution.

The strategic alliance as a unique way developing a business concept is characterized by four basic features, namely joint dependency of alliance members, collaboration between alliance members, an impact (presumed positive) on the competitive position of alliance members and longevity of relationship.

Competition in the marketplace is about product quality and novelty rather than price. To survive, new products and services need to develop.

The strategic alliance between the franchisor and franchisee makes it possible, through the combined effort to respond to market opportunities in an innovative and novel way.

The strategic alliance also makes it possible to manage successful franchise system innovation, effectively and efficiently to ensure the competitive advantage.

For instance, restaurants need to change their menus regularly to compete with new competition (or adapt for cultural reasons), but more importantly, to accommodate client taste. In the services industry changes in technology require constant adjustment.

Second, product and process innovations.

Product innovations are new products and services (franchise concepts) needed to meet market demand and/or to create a demand or niche market. Good examples are in the hotel industry.

Holiday Inn, Marriot and other hotels have different categories of hotels appealing to different market segments.

Process innovations are new ways by which the products and services are made and sold. In the fast food industry some brands such as Pizza Hut and KFC developed new ways of reaching their customers such as home delivery.

Drive Thru’s at franchises such as McDonalds and KFC were, similar to the home delivery service aimed at taking advantage of the customer’s convenience to attract sales.

Third is the trademark-brand. The franchisor and franchisee (distinct entities) share a common trademark.

The two must manage the part of the relationship that centers on this shared asset. This is a business innovation as the parties are independent businesses and both derive their profit from the same trademark running the same business model the trademark represents.

This creates the bond between the franchisor, the brand owner, and the franchisee.

It takes both the franchisor and franchisee to achieve market acceptance of the brand and concept.

The writer is a Franchise consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.