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CAPABILITIES DEVELOPING IN FRANCHISE ORGANIZATIONS

The previous section shows that the five crucial elements of influencing others in the franchisor/franchisee “family” relationship are the basic mechanisms that enable the franchisor and the franchisee to learn and progress from the Beginner stage, to Novice, Advanced, Master, and finally Professional.  In the process of learning, the franchisor and the franchisee gradually develop the working knowledge profiles to deal with the issues related to the daily operations in the franchise business environment [15,16], including the franchisor headquarters (the major focus of the franchisor), the franchisee business outlet (the major focus of the franchisee), and the franchise community.  For the franchisor, the biggest challenge dealing with a franchisee in the Rebel Phase of the franchisee life cycle is to convince the franchisee that there are good rewarding reasons to continue abiding the rules of the franchise contract, e.g., paying the royalty fee monthly.  Although granting multi-units in certain territories [17-19] and providing various co-branding opportunities to maximize the return of the outlet investment [1] 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 continuous desire of asset leveraging is the major driver enabling the franchise system to develop dynamic capabilities and value-creating strategies.  The asset here is referring to the working knowledge profiles such as those shown in Table 2.  Those profiles, continuously being improved, provide the foundation for the asset leveraging, especially when the franchisor or the franchisee has reached the Professional stage.  Consider below some of the working knowledge profiles as the examples:

• Site Profile.  Recall the site selection working knowledge at McDonald’s as was mentioned in the Introduction section.  The Franchise Realty Corporation real estate business, a result of site selection asset leveraging, is the real moneymaking engine at McDonald’s.  A recent value-creating strategy based on these real estate capabilities is the so-called Greenberg’s law [20], named after McDonald’s Chairman and Chief Executive Officer: “The more stores McDonald's puts in a city, the greater the overall number of transactions per capita in that market.”  McDonald’s can execute this Greenberg’s law for market penetration strategy because of its strong capabilities of real estate.
• Franchisee Profile.  Take Subway, ranked as #1 franchisor in 2001 and 2002 by Eentrepreneur.com, as an example.  In the process of recruiting experienced and hard-working franchisees, Subway’s founder Fred DeLuca found a very unique and difficult problem facing the prospective franchisees, i.e., getting a loan from banks to invest on Subway’s franchise.  DeLuca [21] then set up the Micro Investment Lending Enterprise (MILE) program to lend money to those qualified people to start their own small businesses.  The MILE program might be one major reason why Subway can expand so quickly, 15,816 restaurants in 74 countries! (www.subway.com).  The MILE program shows how a “Professional” franchisor can leverage the franchisee profile by turning problems into opportunities.
• Event Management Profile.  Consider the International Center for Entrepreneurial Development (ICED) (www.iced.net) as an example.  ICED is home to a variety of franchise systems, including Kwik Kopy, American Wholesale Thermographers, Copy Club, Franklin, Inkwell, Women's Health Boutique, and Parcel Plus.  To find a location to house the training programs and related activities for the variety of franchises is a big challenge.  Over the years, ICED has developed its own training center and learned how to host large conference events for its franchisees.  Now, ICED has created a very profitable new line of services through the Northwest Forest Conference Center (www.northwestforest.com), catering and housing training and meeting events for companies as well as weddings, receptions, banquets and reunions for individuals.

In his 1999 best-seller book Business @ The Speed of Thought, Bill Gates [22] wrote “Information Technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without talking about the other.”  When it comes to knowledge management in franchise organizations, Gates’ point is especially true.  The lesson from the three examples above is that the capability of leveraging the assets of franchise operations into profitable products or services is at the heart of a successful franchise.  Thus, any effort to build a “meaningful” knowledge management system in franchise organizations must take this lesson at heart as well.