Managing Challenges: Franchisee-Franchisor Collaboration

All franchise systems face significant challenges at one time or another. How those challenges are managed and even used to strengthen the franchise system separates the great franchisors from the rest of the crowd.

The types of challenges that franchisors encounter are many and varied, but this article will focus on three distinct types and how working collaboratively with franchisees can greatly help franchisors manage the challenge and achieve a positive outcome.

Implementing Significant System Change

Because consumer demands are constantly changing, franchisors must effectively implement changes to their franchise systems to enable them to proactively stay at or near the forefront of change rather than wait and react to the competition. Obviously, this is easier said than done.

Too many franchisors demand that franchisees make designated changes simply based on the fact that the franchise agreement gives the franchisor the right to implement changes to the system. This approach typically does not produce the desired results as franchisees will push back at being told what to do. A franchisor who tries to go “solo” and impose material changes on the franchise system will be met with strong resistance from franchisees, which can easily derail the entire process. A key to implementing material changes to the system is getting the franchisees’ buy-in and acceptance of the changes. To accomplish this, the franchisor needs to get franchisee input and work collaboratively with the franchisees to implement the changes.

Whether the change involves adding a new product line or service or a major rebranding effort, it is critical that the franchisor seeks franchisee input from the very start of the process, as the franchisees are on the front line and interacting with brand customers every day. When considering implementing significant changes, the franchisor should conduct market research and/or customer surveys which support the business case for change in addition to getting direct input from franchisees. If the proposed change is focused on improving unitlevel economics, the chances of getting franchisee buy-in are greatly improved. Whenever possible, the franchisor also should involve its franchisee advisory board. The franchisor should also “test market” the proposed changes before implementing them on a systemwide basis. Asking franchisees to invest in an untested program will be viewed as unreasonable and likely will generate push-back.

Acquisition of a Franchisor

The change of ownership of the franchisor, especially when the change will result in a change of management, can understandably cause great anxiety within a franchise system. Sometimes, when there has been a lack of trust with the old management, such a change, if handled properly, can be the basis for a fresh start, improved franchise relations and re-engagement. Whatever the pre-existing circumstances, significant effort must be exerted to communicate and work with the franchisees to facilitate a smooth transition. Ideally, this communication will be on the part of both old management and new management.

One of the aspects that makes this challenge different than other challenges is the inability to communicate fully with the franchisees at the initial stages of acquisition negotiations. Typically, franchisees are not made aware of the acquisition discussions until the general public is made aware of the proposed transaction. How the proposed deal is communicated is critical. There must be openness and transparency, as well as a sincere desire for dialogue.

What are the strategic reasons for the merger/acquisition? What will be the impact on unit economics? What will be the likely impact on the individual franchisees and the system as a whole? The franchisor should work closely with the franchisee advisory board and with other key franchisees to work through the issues and to address the franchisees’ concerns.

One best practice to consider following an acquisition is a franchisee “roadshow” where key executives of new management actually go out and spend time with franchisees in their businesses. If the acquisition will involve merging with or being acquired by a competitive brand, the issues and concerns will be more significant and will require greater franchisee collaboration.

Crisis Management

One of the most difficult challenges to manage in a franchise system is an unexpected crisis that results in widespread bad press. Examples include videos going viral showing an employee doing inappropriate things to food, an outbreak of E. coli illnesses or other food poisoning, or criminal conduct by an employee of a franchisee. In this day and age, news of these types of incidents spread like wildfire over the Internet on sites such as YouTube, as well as chat rooms, blogs, social networking sites and virtual worlds. These unexpected crises can pose a serious threat to the brand and the franchise system.

Collaboration between the franchisor and franchisees can help manage such a crisis. This collaboration would include a number of components. Ideally, the franchisor and franchisee advisory board, with the assistance of the franchisor’s public relations firm, will have established a crisis management protocol in advance. This is very important so that there can be quick response. Each franchisee in the system needs to be instructed about how to respond to media inquiries. Typically, the best option is to generally refer all inquiries to a designated management person at the franchise headquarters.

A crisis management team should be formed to provide support to the management team. This team should be composed of relevant personnel from the franchisor team (depending on the exact nature of the crisis, food safety, operations, legal counsel, public affairs) and representative franchisees. It is critical to communicate with and involve the franchisees right from the start of a crisis. After the initial crisis has subsided, the franchisor and franchisees will need to continue to work together to deal with the aftermath. This could involve new advertising campaigns, legal action against the person or entity that caused the crisis, and an examination of what could be done to prevent similar crises in the future.

What it Takes to Work Collaboratively

Working in collaboration with franchisees to manage a particular challenge will not be effective unless the groundwork has been established before the challenge arises. In other words, there needs to be a structure and a culture that will support collaborative efforts between the franchisor and the franchisees.

Communication is one of the fundamentals of building such a culture. There needs to be culture of active listening and mutual respect. There also needs to be transparency and responsiveness. Likewise, there needs to be fairness and accountability and the franchisor must keep its commitments.

Once the culture of mutual respect and trust has been established, a collaborative working relationship between the franchisor and its franchisees will come naturally.

Beth Brody, CFE, is counsel with Faegre Baker Daniels law firm and a member of the IFA Franchise Relations Committee. Find her at fransocial.franchise.org via the directory.