Franchising

Course Description: The course introduces franchising as a method of retail business in which the
investor/franchisee makes an investment in the form of a franchise fee in exchange for the right to
promote goods, services, and/or processes directly to the public. A franchise usually has a
recognizable name or trademark. Franchising involves the integration of independent companies at
different levels and in different areas of production and distribution. This integration permits more
effective sales and advertising.

Topic4: Franchising: Controlling Quality

Learning objectives

 Define Quality
 Understand the relevance of controlling quality to building a good franchise system


Controlling Quality

What is Quality and how does it affect the franchise?

• Quality is a degree and a measure of excellence

• Conformance to requirements (Philip Crosby)
• Fitness for use (Joseph M. Juran)
• Uniformity around target value (Genichi Taguchi)
 The characteristics of a product or service that bear on its ability to satisfy stated or implied
needs( American Society for Quality)

So given the definitions above what do you think is the relationship of controlling quality to building a
successful franchise system?

According to Siebert (2016), Effective franchisees are the heart of almost every successful franchise
network. He stated that quality control is the heart of success of every franchisee and franchisor. It is
represented in an equation below:

Franchisee Success = Quality Control

The Quality Control Myths

Siebert (2016) said that when it comes to franchising, one of the most common misconceptions is that
corporate stores outperform franchise outlets when it comes to quality. A franchisor cannot regulate
a franchisee the way they can control their own hired manager that is why they arrive at this
perception.
However, Siebert (2016) stated that there are reasons why sometimes franchisees outperform store
managers:

 Franchisees are often hired from a selection of higher quality applicants than store managers.
In order to buy a franchise one must have enough capital and some of them are well-equipped
about business practices.

 Usually franchisees purchase in a franchise because they truly believe in the idea and wish to
be affiliated with the brand. While managers tend to apply because they need a job and they
want to be compensated.

 Franchisees are encouraged to pursue the scheme because they know it works and fear that if
they don't, they might destroy all their investment. While managers follow the rules and the
system because they are afraid to lose their job.

 Franchisees are inspired by their investment. While managers see their job as a milestone of
their career.

 Franchisees have pride of ownership. While managers see it in another perspective.

 Franchisees plan to remain with a franchise for a long time to gain knowledge and expertise
and allow them to run their operations better. While managers see their job as a short term
plan.

 Franchisees cannot make the switch in most franchise agreements and operate for your
competitors. While good managers are often pirated by other companies.

 For someone who purchases a franchise the overall goal is to buy it for a profit. Franchisees
know this is not feasible unless the company performs at a high standard. Hence, they are
driven to ensure the high quality standard in the company. While managers do not think this
way and is not greatly motivated by this.

Though franchisor’s control over franchisees is reduced they could still maintain the quality standards
imposed by the franchisors and could outperform corporate branches. According to Siebert (2016)
franchisees can do a better job when it comes to managing expenses by:

 Better people management

 Better inventory management (effective and efficient replenishment of inventory stocks,
decreased spoilage)
 Boost profitability and opportunistic purchases

As a matter of fact, franchisees do not only outperform corporate branches when it comes to sales
they can also perform better when it comes to managing the operations (Siebert 2016).

Pillars of Quality
Franchisee Success = Quality Control

4 Pillars of Quality Control according to Siebert (2016)

 Franchisee Selection
It is vital to screen all franchisee applicants to ensure the growth and success of the
organization. Selling your franchise to someone who is not capable of handling it will lead to
failure in the long run.

 Documented Systems
There should be a detailed documentation of the franchise system to provide a plan for the
franchisees.

 Training and Support

Provide franchisees with needed support because this is important to cope up with the
franchise system imposed by the franchisor.

 Legal Documentation
Legal controls and contracts related to the franchise.

As stated by Siebert (2016) as a franchisor you need to critically consider the 4 Pillars of Quality
Control because of the costs associates to them:

 The increased marketing expense resulted from a more focused selling process.
 The expense of creating detailed documentation of best practices over time.
 Expense of recruiting workers for training and supporting your franchisors.
 The legal costs affiliated with the development and enforcement of your franchise
agreements.

The Franchise Operations Manual

The What and Why of Franchise Operations Manual (slideshare.net)
(58) How to Create a Franchise Operations Manual - YouTube

Siebert (2016) said that a good franchise operations manual should be:

 An excellently-written operations manual for potential franchisees would serve as a valuable

selling tool. This will show the prospective franchisees how franchisors document their
system.

 The operations manual will play a critical role in educating the franchisees and will serve as
your training manual. Franchisee can read it and educate them while at home; it can also give
them a better understanding of the training that they are going to undertake.

 The operations manual will serve as a continuous learning material for existing franchisees. A
good manual will taught them how to address any questions and concerns regarding products
and services.
  One of the major objectives of the manual of operations is to act as a legally legislated quality
assurance manual. The franchise agreement requires the franchisees to abide to your
standards, not complying with the rules will be considered as a ground for franchise
termination.

 A very well-written operation manual can help in saving money for your franchisees by
enhancing and systematizing your operations (labor control, purchase controls and etc.)

 A well-written operations manual will entail systems (local marketing and advertising
specifications, sales scripts, etc.) which enable the franchisee to boost sales. It will increase
profits for the franchisee and generate higher royalties for the franchisor.

 This will result to profitable franchisees, reduced franchisee turnover/failure rates, decreased
support costs, increased franchise marketability and decreased litigation.

 A successful manual of operations can protect the franchisor escape vicarious liability by
clearly defining the franchisee as an independent contractor and describing essential
enforcement areas.

Keeping Your Operations Manual Confidential

As stated by Siebert (2016) this is commonly referred to in the legal documents as the 'Confidential
Franchise Operations Manual,' and must be considered as a protectable trade secret. Consequently,
most franchisors allow their franchisees to retain their manuals, providing copies of related parts to
employees only as required for training.

Training your Franchisees

According to Siebert (2016) the following questions should be answered in order to train your
Franchisees:

 Do they have industry-specific knowledge?

 Do they have the skills in sales and management specifically?
 Would the franchisor have to view his franchisee as a first time learner?

As stated by Siebert (2016) this training is composed of different phases such as: (Explanation below)

 Pre-training (research, reading assignments or online learning) this is done before the
classroom training.
 Classroom training ( done at the franchisor’s office)
 Onsite training ( grand opening assistance)
 Ongoing training ( meetings, conventions, seminars)

Siebert stated that you should also decide and answer the following questions:

 Location of the training?

  What will be the schedule of the training? (regular schedule or as needed?)
 Who will be there to lead the actual training?
 Who should attend the training?
 Who might attend the training?
 How long will it be?
 How much time will be given to discuss each topic?
 What combination of forms will be used during the training?
 How are you going to test the trainee’s knowledge?
 What will happen if they fail? Shows bad attitude or not attend the training?

Training at the Franchisor’s office

This type training starts by giving franchisors an eye view of how the franchise operates corporate
offices and a brief introduction of the staff and their roles. Normally, franchisors focus on several
topics like introduction of company history and philosophy, location selection, rent negotiation (if
place will be rented), pre-operating procedures, day to day operations, insurance requirements,
vendor relationships and report requirements (Siebert 2016).

On-site Training

On-site workshops should be conducted at the franchisee's place. Training will concentrate on helping
the franchisee become more acquainted and familiar with day-to-day business operations (Siebert
2016).

On-going Training

As a long-term franchisor, the franchisees must stay up-to - date with industry trends and adjust to
market changes, integrating new products, technologies, promotions and operational processes into
their companies. To mitigate the deterioration of program quality over time related to a lack of
preparation, you may want to recommend requesting regular recertification of core competency
issues for franchisors and their main team members (Siebert 2016).

Web Based Learning

Advantages of Web Based Learning to Franchisors and Franchisees as stated by Siebert (2016)

 They encourage the franchisor to pre-train their franchisees before the actual training begins.
 This online training helps franchisors save costs associated with an extended training cycle on
site.
 LMS helps the franchisor to reduce continuous training expenses and the costs of educating
franchisees about improvements on the program.
 Enhanced LMS software enables the franchisor to check and record the tests for competency.
 These software application offers additional value to the information housed on an LMS
because it is both instantaneous and sortable.
 Since this training is password-protected and user-customized, it can be easily used to move
the learning down to the institution's lowest levels.
Testing for Competence

According to Siebert (2016) training without evaluation assumes two things that may not be valid.
First, it means that you have done a decent job in teaching, as the franchisor. Second, saying that the
franchisee learned all the information given by the franchisor. To prevent having wrong assumptions
between the franchisor and the franchisee, the franchisees should be given a written/practical exam
showcasing what they learned during the training.

How much Training?

Training is an investment. Training requires a lot of money, time and effort from the franchisor and
the franchisee, this is very costly. The longer the training the more expensive, the more you grow the
more people to recruit and more trainings to come. An excellently-crafted training plan should involve
a roadmap to the management staff about how to educate franchisees from skilled technical tasks to
organizational and administrative operations on anything (Siebert 2016). According to him while doing
your training you may want to ask the questions below:

 Could you cover all the content within a specific time frame?
 Are you going to discuss long or short topics?
 Are your franchisees doing well in their exams and are they learning?
 Is added training needed?

Train the Trainer too

As stated by Siebert (2016) the purpose of the franchisor's pre- launch training scheme should allow
the franchisee to effectively conduct a business and also to educate new employees at the
franchisee's business location. It is essential to educate the franchisee on how to train their
employees. Showing a franchisee how to do conceptualize training is different from training the
franchisee to learn a particular subject.

Start Up Assistance

According to Siebert (2016) franchisees need adequate support from franchisors by helping them in:
site selection, preparation, start-up programs and ongoing operations. For franchisors with a business
model that at least partly relies on real estate. As stated by Siebert (2016) there will be a range of pre-
opening issues that need to be answered as part of the strategic planning process:

 What role will franchisor play in finding a suitable location? Will it locate the site? Provide site
Guidelines? Approval of sites?

 Would the franchisor accept a contract for the franchisee? Provide clear terms of the lease?
Would you need the regular letter of intent or lease form to be used? Does it have feedback
on acceptable rental prices?

 Will the franchisor possess any real estate, or any of it? Would it go on some or all of the main
leases given by the franchisee? Should it take advantage of those leases?
  Will the franchisor demand that the franchisee use a particular architectural layout to design
the space? Does it require a specific contractor to use it? Will it actually play some part in the
build-out? And if so how is it going to bill for that?

 Does it suggest that the franchisee partner with different third-party dealers or develop-out
"store-in-a-box" firms? So if so, who'll cover the related costs?

 Will the franchisor support the franchisee request to acquire his/her initial machinery?
His/her initial inventory?

According to Siebert (2016) the program continues to grow, the requirement for additional forms of
pre - launch help that become evident, focused not only on the needs defined by franchisees but also
on the assessment of the franchisor 's deficiencies in the pre-opening assistance program. Typical
areas in which the franchisor could provide additional support include publicity, grand opening, public
relations, services to help the franchisee recruit skilled employees, or advertising campaigns
implemented by the franchisor.

Ongoing Support

Siebert (2016) stated that continuous support can come in many ways like: field support On-site
meetings, new product creation, publicity and buying assistance, public programs, public relations
programs, technical growth, Marketing programs and back stage support. The success of a franchisee
also depends on the support of the franchisor.

Site Support Visits

Role of site support visits according to Siebert (2016)

 Brand compliance and quality control officer

 Field trainer
 Operations consultant
 Marketing expert
 Business planning expert
 Cheerleader
 Brand ambassador

In developing a staffing plan Siebert (2016) suggested answering the following questions:

 Will your field representatives do scheduled visits or unexpected visits occasionally?

 How frequent they will visit the franchisees? will the number of visits decrease over time as
the franchisee improves their skill?
 How many franchisees can a single field agent manage, depending on the frequency of visits,
the duration of visits, the size of the market, the nature of the franchisees and the grouping of
the franchisors?
 What other forms of messaging are to be introduced into the daily routine of the field
representatives?
  Which steps will be undertaken in the case of non-compliance? And what follow-up should be
arranged?
 Can the person entrusted with the training handle this role? What do you need to recruit
additional personnel? And what specific credentials do they need?
 How do you establish the position? Do you need to create a field support manual for members
of in area? How do you educate and evaluate members from those fields?

Products or Services Purchasing Programs

As stated by Siebert (2016) the primary advantage of many franchise schemes is access to
procurement agreements for the franchisees with key vendors arranged by the franchisor. Purchasing
plans can offer franchisees with very tangible advantages, and can have a direct positive effect on
both franchise revenue and franchisee profitability.

Approved and Designated Suppliers

As a franchisor, you need to check on the suppliers of your franchisees and must impose strict
standards to preserve the quality of goods or services produced by the franchisees (Siebert 2016).

Advertising and Marketing Support

Franchisors are finding ways to increase profitability. They normally give advertising assistance to
their franchisee to increase its popularity. Franchisees pay in order to use the franchisor 's market
image and credibility, and usually rely on the franchisor to enhance the brand by formulating national,
regional and local advertising campaigns, as well as providing the franchisee with local-based
advertisement and marketing campaigns (Siebert 2016).

Research and Development (Siebert 2016)

Developing an R and D team is beneficial to the franchisor because it helps them innovate their
products and services. It also helps them change their business strategy and develop a good concept
(Siebert 2016).

Other forms of support by Siebert (2016):

 Some advertising or publishing franchises may support their franchisees with editorials, ad
design, and printing services.

 Some franchisors can help their franchisees fund their payrolls, enabling them to exploit their
assets better.

 The franchisor can provide assistance in manufacturing and direct selling models by helping
franchisees resell products.

 Franchisors can give back-room support services such as: call centres, national accounts
systems, direct marketing, routing and arranging meetings, structured accounting and even
collections.
Assessment:

References: Siebert (2016)