section is concerned with how much money it takes to start the headquarters franchise

system. The human resource management section is focused around the staffing and
human resources needed to run the franchisor business.
1. Operations: This includes advertising, accounting, pricing suggestion, marketing,
production, training, distribution, operations, field staff, market research, and
management. These operations systems are needed to encourage and promote unity,
harmony, and direction throughout the franchise system. In addition, the franchisor
should develop an incentive system that will encourage and support the franchisees.

The most important ingredient for success of a franchise system is the interdependence
between franchisor and franchisee. The franchisor develops the profitable way to produce, sell,
or distribute a product, and must monitor or oversee every unit within the franchise system. On
the other hand, the franchisee desires a business venture that can be managed effectively and
profitably. The franchisee expects to receive an accepted business name, a product to sell or
distribute that has a positive image, and ongoing training and other assistance from the
franchise system.

Characteristics of a successful franchisor would typically include a high degree of managerial

ability, extensive knowledge of competition and market conditions, keen sensitivity to operating
costs and quality control, and the ability to motivate people.

The Six Major Organizational Developmental Tasks

1. Identify and define market niche for franchise firm
2. Develop products and/or services through prototype unit
3. Develop policies and plans for franchising
4. Acquire resources, solicit and train franchisees
5. Refine operational systems to accommodate franchisee units and develop management
systems to oversee, monitor, and guide franchise system development
6. Develop an understandable and acceptable franchise organization culture

Each franchisor is an entrepreneur, and each entrepreneur is an innovator. A franchisor, as an

innovator, is seeking to find newer or better ways to meet the customer’s needs. The ultimate
test is customer satisfaction. The success of a franchise system will rely heavily on the
capabilities and ingenuity of the system’s management–franchisor and franchisees.

The typical reasons stated for business failure are lack of business know-how and under-
capitalization. However, the real underlying reason for business failure resides in the concept of
“fit”. People excel in activities that use their natural talents and abilities, but struggle or fail in
activities that rely on talent or skills not possessed by the person.

The franchisor should consider developing an approach consistent with the strengths and
weaknesses of its ownership/management, to determine what needs to be done and by whom
in order to accomplish the objectives of the franchise organization. The figure below depicts an
approach a franchisor can use to systematically plan the development of the organization.
Organizational Development

Strategic Planning Process Useful to Franchisors

First step: scanning/assessing the environment from each of two perspectives: external and
internal. External influences include customers, lenders, stockholders, competitors, suppliers,
and government regulatory agencies. These can help the firm clearly identify the competitive
issues it confronts. Being alert to changes in national and international economic conditions,
change and advances in technology, and changes in social conditions or in the business climate
enables the franchising firm to understand the trends affecting the industry as well as the firm,
and can help the management team to discover untapped market opportunities. Internal
influences include the firm’s capabilities in functional areas of business, its facilities, location(s),
and business image, as well as the firm’s management, structure, and culture. This internal and
external analysis provides objective information for the management of the franchised business
to make appropriate choices and develop tactics to reach the firm’s goals. This two-part analysis
is what many would call a situation audit. A situation audit is the attempt to determine the
franchised business’s current operating situation in the context of the environmental factors
(external and internal) that affect operations.

Second Step: development of the strategic plans for the franchised business. The firm’s mission
and analysis of past results should be carefully assessed and refined if necessary.

Third Step: implementation of strategic plans, can be categorized as long, medium, or short
range, depending on the time frame in which it is to take place. The overall purpose of this step
is to allocate the firm’s resources to achieve the best possible market response. Reallocation of
resources may be necessary to complete this step.