Franchise Point and ROCG Asia Pacific talk accreditation in the franchise sector

What degree of uptake of FIQA would you like to see in the sector?

Michael Anthony (of Franchise Point ): Of the 850-odd franchise systems in this country, 400 are actively looking for franchisees. We would anticipate that somewhere in the region of 40 to 80 such systems would aim to achieve FIQA status – either full FIQA accreditation or being provisional subject to certain areas of the business being improved over the ensuing six months.

Nathan Rose: We would like to see a minimum of five systems per month in Australia and subsequent to that, the concept would be replicated around the world. Obviously there is a need to prove it in Australia first, but once the first 20 or 30 systems assume FIQA status I think there will be a fairly rapid uptake overseas. After all, relatively speaking franchising is a fairly small sector globally, and given that systems here will be exporting master franchises overseas, and vice-versa, the word will soon get out and momentum in terms of the number of systems seeking FIQA accreditation will increase. However, it goes without saying that first of all people need to understand the key benefits behind the concept.

Has the FIQA system been in any way influenced by an existing overseas model?

Rose: It is totally unique. Unfortunately, we persistently hear of disputes between franchisors and franchisees, and as a result we felt there was a pressing need to put something in place that would help resolve the issue. Having said that, we do not believe there is a need for anything as sophisticated as, say, the ISO (International Organisation for Standardisation) standards. After all, some franchise systems are relatively small and they would not be able to spend $50,000 to $200,000 on a compliance application. We certainly do not want a lot of red tape to be associated with a system being accredited. We do, in contrast, want it to be affordable, and are trying to work around a figure of approximately $15,000 which, we think, is within the reach of most franchise systems.

We believe that if we assess a business strategically and then benchmark it strategically, we will be contributing to the development and achievement of best practice. We will be able to set a standard in terms of where a given system needs to be to achieve best practice and as a direct result of this that system will be in a position to attract a better quality franchisee.

Anthony: It is important to remember that the company will also have the ability to actually open up its FIQA results to potential franchisees, and in so doing be completely transparent. That, I believe, is an excellent way to start a relationship.

Has accreditation the potential to engender the same degree of transparency that now (hopefully) applies to publicly listed companies?

Rose: It will certainly have the opportunity to do that and in my view it really has to go in that direction. Why? Because a business sector that comprises 850 franchise systems with 55,000 franchisees and employs 720,000 people is a very significant part of the national economy.

What criteria will form the basis of assessment?

Rose: I’m currently up to 195 questions and these are broken down into a number of key management areas so that we can gain an in-depth understanding of the competency of the system management itself. The questions also take into consideration the relationship between franchisor and franchisee and, indeed, the next step in the pursuit of best practice is to actually benchmark franchisees. Clearly the aim of FIQA is to facilitate commitment among franchisors to pursuing best practice and business improvements, and at the end of the day the only way to achieve that is by working a lot closer with franchisees.

What in your personal views makes for a best-of-breed franchisor?

Anthony: It is a combination of the business itself, business opportunity, and the cultural processes that the franchisor creates to establish a dynamic organisation – the implementation of the internal structures of the organisation and also its ability to communicate externally to the wider marketplace, to its customers, and so forth. Best practice franchisors have set up those processes and as a direct result deliver an exciting, learning-oriented culture, as well as a vehicle for the growth and development of the system’s franchisees. Such processes ensure transparency and that franchisees are benchmarked and the information is shared among franchisees. This in turn creates motivation and incentive for franchisees to improve all aspects of their business. In other words, the processes in such an organisation push quality. Domino’s, I think, is a good example of an organisation that is very quality focused.

Rose: Such internal processes also help to ensure that the franchisor has a very good grasp of business and business concepts, and I must say that some of the work I have looked at indicates that there is a vast discrepancy between franchisors and their knowledge of certain areas of business. As such, FIQA is not going to merely be an average of responses to some 200-odd questions. Rather, we will look at the external business positioning and how the business is run internally from a strategic and operational aspect. We will measure all of these things and set a benchmark that they need to achieve in each area. On top of that we will also need to look at financial benchmarking, as I think there is a need for a franchisor to be financially sound.

Anthony: There is also a real need to produce a profitable business model for franchisees and, once again, this falls into a benchmark range of best practice in franchising. One of the keys to the FIQA concept derives from many of the entrepreneurs that have used the franchising distribution model to rollout what in their view is a truly wonderful business idea. They have employed fabulous consultants to pull their franchising package together, but when it comes time to go out into the world and start talking to potential franchisees the trouble begins. It is significant that FIQA is not a tool that only some will have access to. It will be available to any company that is interested in understanding what they need to do to implement best practice and quality. For those that do not achieve the benchmarks, what we see as a result will enable us to deliver a road map with regards to what needs to be implemented to obtain accreditation.

Will you be taking an ‘if not why not’ approach?

Rose: Eventually, perhaps, but I don’t think it will ever appear that way. Hopefully our process will upskill. The partners are not interested in creating a policing tool but, rather, a development tool through which organisations will be able to improve and become more effective. In turn, this will improve the sector itself.

Anthony: It is important to note that we see the evaluative function with regards to the policies and processes that will deliver accreditation eventually being handed over to a steering panel. As such, an accredited consultant will actually take an organisation through the process. However, whether a particular organisation is finally delivered FIQA – or alternatively administered accreditation under condition that certain issues are resolved within six months – will be controlled by a committee that, perhaps, will comprise an industry body, a government body, and franchisors themselves. Implicit in this is that there will not be any particular person who is the ‘great rubber-stamper’. Rather, it will be a collective, with the industry itself affecting how it grows within the marketplace.

Is there a risk of operators seeing FIQA as just another layer of compliance?

Rose: We don’t want to force it on anyone. What we are saying is that we are trying to upskill and the franchisor will have a better system and attract a better quality franchisee.

Why has it taken so long for such a system to be implemented?

Anthony: The implementation of the industry Code of Conduct in 1998 legitimised what was a fairly ‘creative’ sector at the time, giving process and benchmarking certain things that had to be in place. It did not, however, really look at the business processes of the businesses themselves. It led to best practice being implemented in disclosure documents and franchise agreements – in fact, the detail within that documentation has become a real skill in itself – but with more and more systems out there, how do the ones that are committed to quality now differentiate themselves? Perhaps now is the time, with the dramatic increase in the number of franchise systems looking for franchisees, for a new and additional quality accreditation to come into the marketplace.

What, if any, advantages would achieving best practice deliver in a legal context?

Anthony: From a legal perspective there are potentially tangible benefits if you are benchmarking the organisation in terms of quality and delivering improvements to franchisees. Much of the trouble Lenard’s endured (see Franchising September/October 2005) could have been avoided if the system had applied financial and non-financial benchmarks across its franchisees. From a legal perspective it would have been very clear whether the franchisee in question was compliant and operating within system guidelines.

A culture is created whereby the benchmarking process starts to engender improvement in the system to the point where franchisees begin to run their own businesses better and as a result there is no longer this lack of responsibility over a poorly performing operation which, in my opinion, is the biggest bugbear in franchising. Even though Lenard’s finished up winning on appeal, going through the legal process was still damaging.

Rose: If you implement proper benchmarking between the system and franchisees and create best practice you will create two very efficient operations – the franchisor will be more efficient and the franchisee will be more satisfied.

To date what has been the most surprising aspect to have emerged from the testing of FIQA?

Anthony: During the testing of FIQA what emerged and what was really quite incredible was the disparity in areas where we would have presupposed that any franchise system would have needed to rank at least seven to eight out of 10. Instead, some not insignificant brands – one with some 470 franchisees – ranked two to three.

Rose: Alarmingly, in every system we looked at there was no business succession plan in place. In a system with 100 or 200 franchisees, what is going to happen to that franchise if someone dies? It is a major concern.

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