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MANAGING FRANCHISE ORGANIZATIONAL DATA-

The customer service life-cycle approach

Gartner Group recently published a research report (Baker, 2001) on e-business strategy, in which it specifically points out that companies need to harness the Internet to become “Edge companies” that “concentrate at least 80% of its resources on the touch points it has with customers and suppliers.”  The report also predicts that Edge Economy companies will dominate 95% of all markets by 2010.  Thus, the ability of using the Internet to transform the business into an Edge company becomes the new challenge facing many companies today.  In this section we propose an e-business strategy for franchise organizations in the era of Edge Economy.  This strategy is based on the Customer Service Life Cycle (CSLC) model developed by Ives and his colleagues (Ives and Learmonth, 1984; Ives and Mason, 1990).  The model is developed to harness the Internet to serve the customer of the business and can be extended to serve the customer’s customer.  In the case of franchising, we define the franchisee as the customer of the franchiser and the franchisee’s customer as the customer’s customer of the franchiser.  The CSLC model consists of four major stages of customer services (i.e., Requirements, Acquisition, Ownership, and Renewal/Retirement) and thirteen sub-stages.  When applying it to the franchising industry, the CSLC can be presented like the one shown in Table 1.

Table 1. The Customer-Service-Life-Cycle Model in Franchising.

The eleven sub-stages in Table 1 are based on two the well-known franchising books by Justis & Judd (2002) and Thomas & Seid (2000).  The model in Table 1 provides a comprehensive guide for a franchise system to develop its Web site, especially at the stages of Requirements and Acquisition.  For example, Quik Internet, a leading Internet business using franchising as a growth strategy, presents a list of bullet points on their Web sites as the “touch points” to address customer concerns at the CSLC sub-stages.  However, the company doesn’t address the questions related to sub-stages “Understanding How Franchising Works,” “Preparing Business Plan,” “Financing the Franchised Business,” and “Signing the Contract.”  Since prospective franchisees may be interested in important information such as how franchise system may help finance the franchise investment, it would be useful to provide the answers on their Web sites.  In order for these “touch points” in Table 1 to work, a franchise system usually needs to partner with suppliers, e.g., banks, in sub-stage “Financing the Franchised Business” to deliver the services.  Besides examining what its web site is lacking, Quik Internet may use the CSLC model to compare its e-business strategy with the competitors.  As the industry progresses, best practices based on the CSLC model will evolve and become a standard for franchise companies for benchmarking and enhancing their web sites.

Among those eleven sub-stages in Table 1, “Building the Relationship between the Franchiser and the Franchisee” has drawn the most attention in the franchising literature (Lambert and Lewis, 1986; LaVan, Latona, and Coye, 1986; Justis, Haynes, and Judd, 1989; Spriggs, 1991; Bradach, 1992; Dant, Li, and Wortzel, 1993; Nevin and Spriggs, 1994; Achrol, Etzel, and Gundlach, 1996; Justis and Judd, 2002; Schreuder, Krige, and Parker, 2000; Cormack, Hammerstein, and Justis, 2001).  Schreuder, Krige, and Parker (2000) propose a Franchisee Lifecycle Concept (FLC) as a new paradigm in managing the franchisee/franchisee relationship.  The four phases in FLC – Courting, “We,” “Me,” and Rebel – are shown as bullets in Table 1.  To understand how the franchisee goes through the four phases, one needs to know the business environment the franchisee is in, which consists of the following four crucial parties:

  • Customers.  The operation of a franchisee outlet consists of making sales to customers, managing people who make sales to the customers, marketing and advertising to customers, and dealing with financial issues such as accounting and finances.  It is obvious that customers should be the center of the attention, and we can classify customers into frequent customers, infrequent customers, and potential customers.  Frequent customers are the ones the franchisee should do the best to keep, infrequent customers are the ones the franchisee needs to provide incentives to encourage them to purchase more, and potential customers are the ones the franchisee likes to have start buying. 
  • Franchiser headquarters.  To support operations in the franchisee outlet, a franchiser headquarters provides help desk services on issues happening during the outlet operations, personal demonstrations from visiting field representatives, and training and continued education from the management group of the franchiser.
  • Suppliers.  Suppliers provide more than just the raw materials for producing goods and services to the franchisee outlet.  They also include marketing agents, accountants, insurance providers, attorneys, information systems vendors, real estate agents, and human resource management companies. 
  • Government.  The franchisee outlet is subject to the regulations of the government, including taxes and various business laws.

In the Courting phase, the franchisee is new to the system and is eager to learn all the ins and outs related to the above-mentioned four parties, thus there is a strong desire to maintain good relationship with the franchiser, especially in the 1st year of the franchise contract.  In the “We”-phase, the franchisee has learned most of the rules in the business environment and is relying less on the franchiser, thus the relationship starts to deteriorate; but the franchisee still values the relationship.  This phase typically happens in the 2nd year of the contract.  In the 3rd year, the franchisee moves into the “Me”-phase when the franchisee starts to question the reasons for payments related issues, e.g., ongoing royal and marketing fees, with the attitude that the success so far is purely of his/her own hard work.  The relationship gets worse in the Rebel phase, happening typically in the 4th year, when the franchisee starts to challenge the restrictions placed upon them and demand for more independence.  A franchise faces its biggest crisis when many franchisees move from the Ownership phase into the Rebel phase.  The major challenge is to move them further from the Rebel phase into the Renewal phase where they can continue to be a productive “Professional” in the system.  Although granting multi-units in certain territories (Lafontaine and Sun, 2001; Azoulay and Shane, 2001; Shane and Foo, 1999) and providing various co-branding opportunities to maximize the return of the outlet investment (Justis and Judd, 2002) are two common approaches to cool down the “rebellious” attitude of the franchisee, more innovative approaches of asset leveraging are often needed to continue the “family” relationship for the expansion and growth of the franchise system.  The Franchise Realty Corporation of McDonald’s mentioned in the Introduction section is an example.  More examples will be discussed in the section entitled “LEVERAGING FRANCHISE ORGANIZATIONAL KNOWLEDGE”.

As we can see now, the CSLC approach shown in Table 1 provides a comprehensive framework for a franchise organization to model the data needed to serve its customers, i.e., franchisees and their customers.  Thus, a well-designed DNS in the Empowerment and Collaboration Phase shall empower the franchiser and the franchisees to collect, use, renew, store, retrieve, transmit, and share the organizational data needed to do the collaborative work in different phases of the CSLC model.  Specifically, three types of data are needed:

·         Operational data.  This is related to the daily activities at (1) the franchiser headquarters, including six major entity types: employees; business outlets owned by franchisees or companies; prospective franchisees; product development; suppliers, (e.g., marketing agents, accountants, insurance providers, attorneys, real estate agents); and government offices, (e.g., taxes and worker compensation); and (2) the franchisee business outlet, including six major entity types: customers, employees, contacts with the headquarters, product inventory, suppliers, and government offices. 

·         External data.  This is related to the relationship management activities in the franchise community, including three major entity types: the relationship with customers, the relationship with partners and suppliers, and the performance benchmarks in the industry.

·         Legacy data.  This is related to the activities that have been working well or gradually adapted since the franchise system came into existence.  Examples include (1) rewarding activities to the top performers among the franchisees; (2) efficient procedural activities for the employees at the headquarters supporting the franchisees; and (3) effective and friendly face-to-face activities for the field representatives to serve the franchisees at their outlets.