What I have learned about franchising

By Sarah Stowe | 29 Oct 2015 View comments

Having researched the franchise sector for almost two decades, I’ve seen the Australian sector mature.

When I completed the first Australian PhD in franchising in 1998 there were only around 700 franchises operating in the country.

Today, according to the latest Franchising Australia biennial research, conducted in 2012 by Griffith University’s Asia-Pacific Centre for Franchising Excellence, the Australian franchise sector is now home to nearly 1200 franchises and more than 70,000 franchise units.

Franchising research and knowledge has also increased significantly and with it, the evolution of best practice.

Probably the greatest insight I’ve had in the last few years from my research relates to the role of conflict in the franchise relationship.

Role of franchise conflict

Research reveals that franchisor-franchisee conflict is not only inevitable, buy actually a necessary part of a dynamic business relationship. In fact, some conflict can actually be healthy for the relationship as it may provide the impetus for positive change. If systems and procedures were never challenged, they may be slow to evolve.

Sometimes franchisee suggestions may improve operations, however this will not always be the case. Regardless, it is healthy to have and encourage open debate.

It is equally important to note, that while some conflict can be positive, this is not always the case and franchisors and franchisees still need to take steps to minimise conflict. This includes open and timely sharing of information throughout the franchise relationship and good two-way communication.

And according to the Centre research, funded through an Australian Research Council linkage grant with the Australian Competition and Consumer Commission, the steps to minimising conflict actually start before the Franchise Agreement is signed.

The research reveals one of the major causes of franchise conflict is a lack of due diligence by franchisees before buying a franchise, which leads to unrealistic expectations.

Common areas for mis-matched expectations often relate to profit potential and the quality and extent of franchisor-provided services.  Further, the more inexperienced or under-resourced a franchisee is the less business advice they generally seek before signing a franchise agreement. This creates a situation where a franchisee lacks understanding of the franchise relationship, its limitations, requirements, financial returns and risks.

As a result these franchisees are likely to have limited performance, a lack of commitment, a poor relationship with their franchisor and higher levels of non-compliance – all of which create conflict.

Minimising franchise conflict

To minimise franchise conflict franchisors need to work with prospective franchisees to clarify the expectations of both parties before the franchise agreement is entered into.

To assist this process (and in response to the research findings which revealed a strong need for pre-entry education to better equip potential franchisees) the Centre  developed a free, online short course, the ‘Pre-Entry Franchise Education Program’.

The program, which is funded by the Australian Competition and Consumer Commission, has had more than 5,000 registrations since launching in July 2010 and is designed to give small business operators and prospective franchisees a realistic understanding of franchising.

Research released late last year compared the experiences of franchisees who had completed the program and those who hadn’t, and confirms education performs an important role in better preparing prospective franchisees.

The research, funded by The Treasury, reveals people who complete the pre-entry franchise education program enter franchising with much more realistic expectations resulting in higher satisfaction levels, and a greater appreciation of factors that influence their franchise unit’s performance.

So although franchise conflict may be unavoidable there are still steps franchisors and franchisees can take to minimise and effectively manage conflict, and education performs an important role in this process.

Fortunately, a number of franchisors are already incorporating the pre-entry franchise education program into their franchisee recruitment processes, and based on the latest research findings the Centre is also working to further enhance the pre-entry program.

Looking back over the last 20 years I’m pleased at how far franchising has come and am looking forward to watching and conducting further research as the franchise sector continues to evolve.