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The Franchise “Space Programme”

(Published in ETRetail.com on 6 December 2013)

Franchising isn’t rocket science, but advanced space programmes offer at least one parallel which we can learn from – the staging of objectives and planning accordingly.

A franchise development programme can be staged like a space launch, each successive stage being designed and defined for a specific function or role, and sequentially building the needed velocity and direction to successfully create a franchise operation. The stages may be equated to Launch, Booster, Orbiter and Landing stages, and cover the following aspects:

  1. Launch: assessment of the franchiser’s own readiness to launch and manage a franchise network in the target geography
  2. Booster: having the franchise pack ready to target the appropriate geographies and franchisee profile
  3. Orbiter: franchisee recruitment
  4. Landing: operationalising the franchise location

Stage 1: Launch

The first and perhaps the most important stage in launching a franchise programme is to check whether the organisation is really ready to create a franchise network. Sure, inept franchisees can cause damage to the brand, but it is important to first look at the responsibilities that a brand has to making the franchise network a success. Too many brands see franchising as a quick-fix for expansion, as a low-cost source for capital and manpower at the expense of franchisee-investors. It is vital for the franchiser to demonstrate that it has a successful and profitable business model, as well as the ability to provide support to a network of multiple operating locations in diverse geographies. For this, it has to have put in place management resources (people with the appropriate skills, business processes, financial and information systems) as well as budgets to provide the support the franchisee needs to succeed. The failure of many franchise concepts, in fact, lies in weakness within the franchiser’s organisation rather than outside.

Stage 2: Booster

Once the organisation and the brand are assessed to be “franchise-ready”, there is still work to be put into two sets of documents: one related to the brand and the second related to the operations processes and systems. A comprehensive marketing reference manual needs to be in place to be able to convey the “pulling” power that the brand will provide to the franchisee, clearly articulate the tangible and intangible aspects that comprise the brand, and also specify the guidelines for usage of brand materials in various marketing environments. The operations manual aims to document standard operating procedures that provide consistency across the franchise network and are aimed at reducing variability in customer experience and performance. It must be noted that both sets of documents must be seen as evolving with growth of the business and with changes in the external environment – the Marketing Manual is likely to be more stable, while the Operations Manual necessary needs to be as dynamic as the internal and external environment.

Stage 3: Orbiter

Now the brand is ready to reach out to potential franchisees. How wide a brand reaches, across how many potential franchisees, with what sort of terms, all depend on the vision of the brand, its business plan and the practices prevalent in the market. However, in all cases, it is essential to adopt a “parent” framework that defines the essential and desirable characteristics that a franchisee should possess, the relationship structure that needs to be consistent across markets (if that is the case), and any commercial terms about which the franchiser wishes to be rigid. This would allow clearer direction and focussed efforts on the part of the franchiser, and filter out proposals that do not fit the franchiser’s requirements. Franchisees can be connected through a variety of means: some will find you through other franchisees, or through your website or other marketing materials; others you might reach out to yourselves through marketing outreach programmes, trade shows, or through business partners. During all of this it is useful, perhaps essential, to create a single point of responsibility at a senior level in the organisation to be able to maintain both consistency and flexibility during the franchise recruitment and negotiation process, through to the stage where a franchisee is signed-on.

Stage 4: Landing

Congratulations – the destination is in sight. The search might have been hard, the negotiations harder still, but you now – officially – have a partner who has agreed to put in their money and their efforts behind launching YOUR brand in THEIR market, and to even pay you for the period that they would be running the business under your name. That’s a big commitment on the franchisee’s part. The commitment with which the franchiser handles this stage is important, because this is where the foundation will be laid for the success – or failure – of the franchisee’s business. Other than a general orientation that you need to start you franchisee off with, the Marketing Manual and the Operational Manual are essential tools during the training process for the franchisee’s team. Depending on the complexity of the business and the infrastructure available with the franchiser, the franchisee’s team may be first trained at the franchiser’s location, followed by pre-launch training at the franchisee’s own location, and that may be augmented by active operational support for a certain period provided by the franchiser’s staff at the franchisee’s site. The duration and the amount of support are best determined by the nature of the business and the relative maturity of both parties in the relationship. For instance, someone picking up a food service franchise without any prior experience in the industry is certainly likely to need more training and support than a franchisee who is already successfully running other food service locations.

Will going through these steps guarantee that the franchise location or the franchise network succeeds? Perhaps not. But at the very least the framework will provide much more direction and clarity to your business, and will improve the chances of its success. And it’s a whole lot better than flapping around unpredictably during the heat of negotiations with high-energy franchisees in high-potential markets.

Celebrating Entrepreneurship

Creating an entrepreneurial ecosystem is absolutely critical to a healthy and vigorous society and economy.

Creating a “democratic” entrepreneurial ecosystem is even more critical to sustaining that health. A democratic entrepreneurial system is like all other democracies – inclusive and widespread – and vital to improving the baseline quality of life.

As we’ve pointed out elsewhere, retailing is not just a fundamentally entrepreneurial business, it also offers up a platform for the birth and growth of other entrepreneurial businesses.

Obviously, big retailers offer a change for companies to scale up faster, once they meet the performance criteria set by the retailers.

The interesting thing is that small retailers offer an even more interesting growth opportunity since, as their own business grows, they grow their supply partners as well.

Countless companies and brands have been launched on the back of the likes of Wal-Mart, Carrefour, Tesco, Marks & Spencer, and in India retailers such as Pantaloon’s and Spencer’s (and even some of the early modern retailers in India that don’t exist anymore).

In view of this, it is wonderful to see 2-9 February 2008 being celebrated as Entrepreneurship Week (on the National Entrepreneurship Network’s website) and also its powerfully worded pledge.

Creating an effective supply-chain mechanism

(This was a Case Study Analysis for The Financial Express on the justification for implementation of ERP in a start-up modern (organised) retail business – 15 April 2006)

Most consumer, product-supply chains have evolved into fairly complex chains for two main reasons. Firstly, despite all the talk about removing intermediaries, there are still many people involved in the entire supply chain at different levels — for no reason but that they do add some value in the steps they are handling. Whether this is breaking of bulk, or handling of disparate products, shipping or storing goods, or providing bridge finance, each intermediary is in the chain because he has a role to play.

Secondly, and more importantly, product diversity has increased tremendously. Whether it is the number of brands available of biscuits, or the number of types of melons, or the package sizes of shampoos, the growing market has created more suppliers, more product segments and more variety for the retailer to handle.

With perishable items, a third factor gets added in: date of production and shelf-life. Clearly, even in a developing market like India which has lax regulation and low compliance, consumers are increasingly aware of perishability of products. And as companies grow in size and profile, their vulnerability to litigation also increases.

The retailer, who is the critical link between the consumer and the rest of the supply chain, must effectively manage not just the diversity and the perishability, but also communicate with and manage with the rest of supply chain. And given the nature of the complexities, Mr Paul’s business would have no choice but to implement an effective IT system that would keep the company’s executives clued into the information on as near-time a basis as feasible. For a company that is planning operations at a certain scale, even the opening of one store without the IT system would create a huge gap to overcome in subsequent growth.

However, the IT system alone cannot guarantee the success or failure, and certainly not the profitability of the venture. Technology may be seen as the easy quick-fix, or as the stick with which to drive process discipline. But to me it is the last link in a chain that begins with ‘People’ and leads to ‘Processes’. Without the right orientation, training and skills, effective processes cannot be created. Without effective processes, the best IT system in the world is, at best, very effectively enabling a bad organisation.

The advantage of an existing branded product is that it is more ready for roll-out than a bespoke (custom-developed) system would be. Not just would it take more time to create a bespoke solution, it would also require the involvement of senior management. Senior management time is a rare commodity in the best of times — in a start-up business, it is even more scarce.

There is also the premise that a branded IT product that has been implemented across other companies will have some amount of best practice built in. With the assumption that poor practices are not also built into the system, it might actually help the management to leap-frog the business learning curve.

On the other hand, Mr Paul may be paying for features and capabilities in the branded IT product that his fledgling business will not use for a long time. Customisation and implementation needs may also push the cost over the limit.

Therefore, the ERP system must be evaluated just like any other business investment or expense.

There must be a clear rationale for it, a very clear set of objectives and deliverables, and a well-structured programme and project plan for implementation. Like any other investment, IT must also be evaluated for returns.

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