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INTRODUCTION

 

Franchising is defined (Justis and Judd, 2002) as “a business opportunity by which the owner (producer or distributor) of a service or a trademarked product grants exclusive rights to an individual for the local distribution and/or sale of the service or product, and in return receives a payment or royalty and conformance to quality standards.  The individual or business granting the business rights is called the franchiser, and the individual or business granted the right to operate in accordance with the chosen method to produce or sell the product or service is called the franchisee.”  Franchising has been popular as a growth strategy for small businesses (Justis and Judd, 2002), and this popularity will only grow in today’s e-commerce centered global economy.  Take Entrepreneur.com, for example; in early 2001 the company has included a category called Tech Businesses into its Franchise Zone that contains subcategories in Internet Businesses, Tech Training, and Miscellaneous Tech Businesses.  At the time of the writing, 25 companies are on the list of the web site of Entrepreneur.com.  A recent Jupiter report (2001) said it the best: “The gap in global Web development will ignite a fierce battle for leadership in the international Internet development and service space…While it is imperative for sites to gain foothold in these markets, they need to avoid a ‘must build’ mentality, and enter these markets through strategic partnerships such as joint ventures and franchises.”  A good demonstration of this type of strategic partnership is Online bank Juniper’s allowing its customers to deposit checks at the franchise chain Mail Box Etc (Porter, 2001).

Leaders of other industries recognize the benefits of such co-op or symbiosis as well.  In his 1999 best-seller book Business @ The Speed of Thought, Bill Gates (1999) 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 Data Mining in Franchise Organizations, Gates’ point is especially true.  A case in point is the well-known hamburgers franchise giant McDonald’s and its real moneymaking engine, but little-known real estate business, Franchise Realty Corporation.  In the book, McDonald’s: Behind the Arches, Love (1995) revealed the secret: “What converted McDonald’s into a money machine had nothing to do with Ray Kroc or the McDonald brothers or even the popularity of McDonald’s hamburgers, French fries, and milk shakes.  Rather, McDonald’s made its money on real estate and on a little-known formula developed by Harry J. Sonneborn.”  Just months before he died, Ray Kroc, the founder of McDonald’s, further commented (Love, 1995): “Harry alone put in the policy that salvaged this company and made it a big-leaguer.  His idea is what made McDonald’s rich.”  The lesson from McDonald’s is that the ability to leverage the assets of franchise operations, real estate in the case of McDonald’s, into profitable products or services is at the heart of a successful franchise.  Thus, any effort to obtain “meaningful” information in franchise organizations must take this lesson at heart as well.  Furthermore, a tool that will “recognize” meaningful patterns from both internal and external data source can afford those in charge not be sidetracked by the tedious process of sifting through mountains of data and see the big picture.

The process of leveraging franchise assets to gain competitive advantages must be built upon sound fundamental practices.  Among the many fundamental practices for franchise growth, developing good relationship between the franchiser and the franchisee is believed to be the most important one (Justis and Judd, 2002).  This relationship is developed during the time when a franchisee learns how the business operates.  Typically a franchisee goes through five stages (Justis and Judd, 2002): Beginner, Novice, Advanced, Master, and Professional; and a “family” relationship is gradually built up.  This “family” relationship is built upon five crucial elements (Justis and Vincent, 2001): Knowledge, Attitude, Motivation, Individual Behavior, and Group Behavior.  Since all of these elements are learned from working knowledge, we can state that working knowledge is the base of the franchise “family” relationship; and through the learning process, working knowledge is disseminated throughout the system.  The working knowledge is generally accumulated from information that is deciphered from data analyses.

            In this paper, we propose a framework for leveraging franchise organizational data, information, and knowledge assets to acquire and maintain a competitive advantage.  The framework is based on the concept of Digital Nervous System (DNS) suggested by Bill Gates (1999; pp. xvii-xviii).  According to Gates, a DNS “is the corporate, digital equivalent of the human nervous system, providing a well-integrated flow of information to the right part of the organization at the right time.”  A DNS “consists of the digital processes that enable a company to perceive and react to its environment, to sense competitor challenges and customer needs, and to organize timely responses,” and it “requires a combination of hardware and software; it’s distinguished from a mere network of computers by the accuracy, immediacy, and richness of the information it brings to knowledge workers and the insight and collaboration made possible by the information.”  The development of a DNS goes through three phases: (1) Empowerment and Collaboration Phase, (2) Business Intelligence and Knowledge Management Phase, and (3) High Business Value Creation and Implementation Phase.  Specifically, we address the following questions in the franchise industry:

  1. How is franchise organizational data being collected, used, renewed, stored, retrieved, transmitted, and shared in the Empowerment and Collaboration Phase?
  2. How is franchise organizational information deciphered from data analyses, i.e., OLAP analyses and Data Mining, in the Business Intelligence and Knowledge Management Phase?
  3. How is franchise organizational knowledge being leveraged to acquire and maintain a competitive advantage in the High Business Value Creation and Implementation Phase?
  4. What Application Service Providers can do to help the management of franchise organizational data, information, and knowledge become more effective?
  5. What are the implications for companies using franchising as an e-commerce growth strategy in the global market?