How to Engage Your Network: The Franchisor-Franchisee Relationship

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Using Encouragement Not Enforcement Tactics in Your Franchise Network

Not long ago, the franchisor-franchisee relationship was viewed in similar terms to any other employer-employee dynamic: The franchisee owed responsibilities to the franchisor. The franchisor needed to closely monitor and enforce standards to ensure that the franchisee kept working as hard as possible to improve their business and drive sales. But new research, and the development of increasing levels of both education and sophistication on the part of both franchisors and franchisees, have led to a change in that relationship.

The Evolution of the Franchisor Franchisee Relationship

In the modern world, the employer-employee relationship continues to evolve. The best managers, business owners, and entrepreneurs now understand that by forming a collective effort - where every employee knows that they're a valued part of the team, and are working towards a communal goal - far great results can be achieved than with the old fashioned model.

The same is true of the modern franchisor-franchisee relationship. And a huge volume of literature and studies has grown up around the subject.

Why Concentrate on the Franchisor Franchisee Bond At All?

It has been argued that:

“Strengthening and protecting franchisees’ interests in an effort to take care of unit owners is usually in the franchisors’ best interest.”

The above-mentioned increase in sophistication increasingly means that both franchisor and franchisee expect more out of the relationship than a hard and fast formal business arrangement.

Developments in franchise law mean that franchisees have increased legal rights, as well as the knowledge that they don't have to put up with franchise systems which enforce and twist their arms rather than offering encouragement and the promise of combined efforts toward unified goals.

This is only exacerbated by the general increase in costs associated with buying into a franchise system, and the ever-increasing distances between links on any modern franchise network.

In short, franchisees are:

  1. Getting smarter and more sophisticated
  2. Investing more money
  3. Operating over increasing distances from their parent brand

The Franchisor Response

One of the most common franchisor responses to these developing circumstances is to hammer down the terms of their franchise agreements - effectively doubling down on the enforcement tactics of old.

But, as the huge amount of research on the subject - and the large number of ongoing franchisor-franchisee disputes in most franchise networks operated in this fashion - shows, this tactic is not the way to engage with an audience of modern franchisees.

Any franchise arrangement should also be recognised as being a social one - one in which the dynamics of the relationship itself should be considered - as well as being an economic partnership.

Again, in short:


If you're still doing things the old way, you're going to be holding your network back from achieving the biggest profits in future.

Here are some aspects of the franchisor-franchisee relationship to consider:

1. Recognising Dependency

The first stage to come to terms with as a franchisor, is recognising that both sides in a franchise agreement are dependent upon the other. This can sound simple or condescending when written down, but through the lens of the former "enforcement" strategies the franchisor is always viewed as subservient to the needs of the franchisor.

This should be understood to not be entirely the case.

Both parties want to maximise the amount of profit they want to get out of the relationship. To do so, they are dependent on each other:

  1. The franchisee is dependent on the franchisor for experience and knowledge
  2. The franchisor is dependent on the franchisee to effectiveness, and investment in the system

This makes the relationship noticeably different from the old fashioned employer-employee model.

2. Trust

Trust is perhaps the defining aspect of any relationship, and in this case particularly the relationship between franchisor and franchisee. The effectiveness of the relationship - and thus the level of profit which can be extracted from it - will depend largely upon the level of trust.

Old fashioned enforcement methods rely upon formal agreements rather than trust. Modern methods and circumstances result in less direct supervision of the franchisee though, and necessitate the building of trust.

The simple formula is this:

Greater Trust = Greater Commitment = Greater Profit

A franchisee's level of initial trust in a franchisor will depend largely upon:

  1. Franchise market positioning (is the franchise marketed as an affordable or luxury brand, for example)
  2. Effectiveness of franchise's Organisational Systems
  3. Franchisor's experience, knowledge, and management system for franchisees

One of the best ways to increase the initial level of trust is to select franchisees with common goals when choosing new members of your franchise system. You should also select a franchisee who is already on board with your brand values.

By building trust, you will encourage cooperative action between yourself and your franchisees, and build greater Commitment to and engagement with your system.

3. Formal Basis of Relationship

To a certain extent, Trust has - in some cases by necessity - replaced some systems of formal monitoring between franchisor and franchisee.

But trust can take time to build - it doesn't appear overnight. To begin with then, having a formal basis for the relationship is very useful.

This is your franchise agreement.

Your agreement specifies the responsibilities of both parties to each other, and thus lays the groundwork of expectation as to what form the relationship will take.

Managing expectation and providing a framework for it is key here - which is why good Communication is so important. Even in a formal, legal document like your franchise agreement.

Here you will lay out your goals to make sure they are consistent with your franchisee's goals. Here you will lay out how you will monitor and measure their success, so that both sides know what is expected of them.

The Formal Basis is the start. It's what you're going to build your franchisor franchisee relationship upon.

4. Communication

Key to building Trust, is effective Communication.

Understanding why and how your franchisees are going to act in any situation is vital when knowing how to proceed in the relationship. The reverse is true as well, of course:

The more accurate the information a franchisee has - as to expected turnover, for example - the more they will be content when their investment pays off as well as, or even better than, they were expecting.

Effective franchise network communication is a many-faceted and ongoing task. But it is vital to your survival and profitability as an enterprise. Honesty and transparency will always serve you well here - especially when you are seen as having delivered on your promises.

The better network communication and the more trust you have, the more you will drive franchisee Commitment to your network.

5. Commitment

Commitment, in terms of the franchisor-franchisee relationship, is mentioned here in two capacities:

  1. Willingness to commit to the system
  2. Desire to commit to and thus preserve the relationship itself

Commitment is partly a result of the qualities of the individual personalities involved on both sides of a franchise relationship. But it has been seen in studies time and time again that the more effective Communication processes transmit the expected outcomes in the first place, and the more Trust is built as those outcomes are successfully delivered over time...

The more commitment will grow.

6. Organisational Systems

This aspect considers the size of the franchise network, as well as the systems in place through which a franchisee will be conducting day to-day processes.

As we've seen above, a franchisor's experience and knowledge - and more particularly a prospective franchisee's perception of these - will directly affect how much Trust a franchisee has in a franchise system.

Using effective Communication - both ongoing through a franchisor's roles as consultant and mentor, and through your written materials (Franchise Manual and guides) and initial training systems - will display to a franchisee that they can trust you to have the most effective system.

This will reinforce their Commitment to your system, as they come to understand it is the most effective one possible, and will achieve the best results for them

7. Ability to Adapt to Partner

The Ability to Adapt to the other partner is a form of Commitment which speaks very loudly.

Adapting in this instance is taken to mean a serious change in the way you do business - this means either changing systems or processes to take a partner's needs into account.

By adapting in this way, you are showing the amount you care about the long-term relationship, and that you are willing to put the effort in to make it work.

Whether this happens initially to get a highly desired franchisee on board, or as the final step that cements a relationship, adapting to your partner can be a huge signal to your franchisee that you're willing to engage with them, if they're willing to engage with you.

Resources:

  • http://www98.griffith.edu.au/dspace/bitstream/handle/10072/42392/74237_1.pdf;sequence=1
  • https://www.diva-portal.org/smash/get/diva2:747116/FULLTEXT01.pdf
  • http://researchrepository.napier.ac.uk/4383/1/BusFran.pdf
  • http://digitalcommons.kennesaw.edu/cgi/viewcontent.cgi?article=1663&context=etd
  • http://hospitalitylawyer.com/wp-content/uploads/Joint_Franchisor-Franchisee_Relations Article.pdf
  • https://emnet.univie.ac.at/uploads/media/Croonen_Brand_05.pdf
  • https://www.franchise.edu.au/__data/assets/pdf_file/0005/577175/Matching-franchisor franchisee-roles-and-competencies.pdf
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