The FCA and the impact of franchises on the Australian economy

With the world-wide success of franchising, why is it that franchising techniques are not more widely applied by Government? It is now beyond rational argument that franchising principles can deliver enduring competitive advantage in all parts of the private sector. At the recent Franchise Council of Australia National Convention in Canberra the Prime Minister and the Leader of the Opposition both enthusiastically acknowledged the substantial contribution of franchising to the Australian economy. Indeed, the first recorded franchise in Australia was granted by the NSW Government in relation to rum. Yet in over 100 years since Federation we have seen no moves that I can think of to introduce franchising techniques into the operation of Government itself.

There are clear structural impediments to the proper application of franchising principles to the public sector. But they are not insurmountable, and there is growing public demand for greater efficiency in service delivery, lower compliance costs, less regulation and better financial management. People are becoming increasingly frustrated with the costs and complexities involved in dealing with multiple levels of government and bureaucracy, particularly where rules are different across state and even local government boundaries.

If our Founding Fathers were developing the principles of Federation in 2005 one wonders whether they might seriously consider the application of franchising principles to the operation of Australian Government. We should remember that in 1900 there were only very modest means of communication, and the vast expanses of Australia must have seemed daunting from a logistical management perspective. At the same time the Founding Fathers enshrined in the Constitution a number of principles that have served the test of time, including the principle that prohibits the free flow of goods and services between states.

Ironically it is state and local government regulation where the worst breaches of this principle can be found.

By enacting inconsistent legislation state and local governments impose transaction costs that add a barrier to interstate trade and inhibit the expansion of organisations nationally. This is contrary to the intention of the Founding Fathers, and indeed offends even basic principles of common sense and efficiency. Yet we see vested state interests and parochiality ever present, with the consequence that business and society generally has to endure these inefficiencies.

Our current governmental structure is somewhat like a cooperative. Few legislative changes can be introduced without getting everyone’s agreement. As a consequence there is a tendency towards lowest common denominator decision-making, and compromise rather than leadership. It is a structure few of us would endure in our franchise networks. For those franchise systems that have moved from a cooperative model to a pure franchise model the benefits gained will be obvious. Perceived as a useful combination of business and democracy, the cooperative model is now generally viewed as less efficient than alternative business models. Logic dictates that the current government structure is similarly less efficient.

Today road, sea and air transportation has transformed Australia, and connected even the remotest parts of the country. Our telecommunications infrastructure facilitates sophisticated communications between everyone – we have never been more connected. State and local government boundaries set during times of far greater geographical isolation are far less relevant today. It is therefore logical that we should consider restructuring our regulatory environment to seek greater efficiencies and an arrangement more suited to the 21st century.

If government was run along franchise lines, how might it work? We would probably have one franchisor in charge of establishing the rules, systems and processes and setting out the framework for the laws across Australia.

At one level you could argue that the state governments, as master franchisees, are redundant to a structure if the processes were sufficiently efficient. However, if we assume that state governments are an essential part of the process, their role would be very much like master franchisees – in charge of implementing the system within their state, suggesting local variations and adaptations as appropriate, monitoring system compliance and generally acting as the franchisor’s representative in the territory. The franchisees, whether they be in fact local government, amalgamations of local government bodies or states themselves, would manage the interface with the customer, being the general public in its various forms. Like every well-run franchise system there would be strong communication processes between franchisee and franchisor to ensure that the franchisor was fully informed about customer requirements and to enable the franchisor to receive all the benefits of the franchisee’s innovation and a greater customer focus.

This structure is clearly aspirational in the current political environment, and there is probably far too much self-interest in the way of any material progress in this area. However the recently announced federal government enquiry into red tape does at least provide us with an opportunity to table the problems and efficiencies, and make the case for greater levels of consistency between the various governments that interface with the business community. This is an important opportunity. I urge all members of the franchising community to think about ways that government could operate more efficiently, and to share the specifics with us so that we may make comprehensive input into this new process. The franchise sector is uniquely placed to provide input to government on these issues, as most franchise systems operate across state boundaries. Although it may be inspirational to ask the government to embrace franchising techniques, we want to at least embrace the thinking behind some of our most successful franchise systems.

There is much more information available on buying a franchise and running a franchise.