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ITHACA, N.Y. – Cornell University's assistant professor of food and beverage management Benjamin Lawrence says from what he has seen, franchising myths have not yet given way to the day-to-day realities of franchise operations. In particular, independent franchisee associations are an important and contributing part of franchise networks. But he adds that these groups have their problems. A pioneer in researching the dynamics of franchisee relations and distribution, in which few studies and literature exists, Lawrence says that these franchisee groups need to strengthen social ties, communicate frequently and use the right governance model to have staying power.
Professors Benjamin Lawrence and Boston University's Patrick Kaufmann authored "Identity in Franchise Systems: The Role of Franchisee Associations," in the Journal of Retailing. Our journal has been a fan of Lawrence's research since he was a PhD candidate at Boston University's School of Management in 2009. We continue to watch his research and career with considerable interest.
Lawrence spent time with Blue MauMau to discuss how franchisors need to not only identify how customers perceive the brand, but also how franchisees view them. He argues that many franchisors have yet to understand that the brand matters to franchisees. In fact, franchise owner-operators often view themselves as more long-term stewards than the employees of the brand, including its CEO. Lawrence has observed that franchisees will take over some of the stewardship of the brand if franchisors are careless. The Cornell School of Hotel Administration professor discusses why franchisors need to understand and engage franchisee-based groups in highly collaborative structures or else risk being handicapped in the marketplace.
Summary: Independent franchisee associations are an important group in representing the needs of franchisees and can be a healthy and constructive force for franchise systems.
Lawrence: If you have a healthy franchisee association, it's a good thing. Franchisees feel some independence and that independence helps generate leadership and innovative ideas to help the system grow. It should be pointed out that there are some advisory councils out there that also help franchise systems succeed when a franchisor listens intently to them and acts collaboratively by following through.
Having said that, many franchisees say advisory councils do not work because they do not have the legitimacy of being independent. Councils do not raise their own war chest money in case franchisees need to go a different way than the franchisor as the case when the franchisor abdicates its brand responsibility or designs a bad contract.
As a franchisee association develops a relationship with the franchisor, a franchisor can suddenly change. In the example of Burger King, the company was bought out by a private equity firm from Brazil. The new view may be different than its previous owners. The private equity firm will have to pay back the money that they borrowed to buy the system. To do that, they are looking at growing the system. In this case, if you don't have an independent franchisee association that is already formed, it is hard to react to those new owners if you simply are a franchisee advisory council and the franchisor has the ability to disband or rearrange the council.
Form strong social ties among group members, find ways to fund the association and know that the passage of time all help the start-up independent franchisee association.
Lawrence: When you look at start-up franchisee associations like [now defunct] Curves or Candy Bouquet, one of the challenges they face is that they have very limited financial resources. Larger associations tend to have large, multiunit operators that have more financial resources. Their deeper pockets help associations have enough capital in their early days. The other thing about Curves and these smaller associations is that they had no mechanism to generate funds from sponsors.
If you are a Burger King or a KFC, franchisees have their annual conferences, which can generate significant amounts of money for their associations.
Associations obviously need experts. Sometimes they need marketing experts. They need lawyers. And these individuals are expensive. So one challenge that these small, start-up associations have is how do get financial resources. A lot of small, mom and pop shops are just trying to survive so even $50 or $100 in membership fees is a lot. Large associations typically do not survive on such fees. They survive by getting money from large sponsors that are willing to help them in order to get access to their franchisee members.
The second thing is that when some associations start, their leaders are autocratically appointed because that is the easiest way to facilitate an organizational structure. Over time they fail to develop that organizational structure to a democratic governance model. Franchisees begin to wonder who truly represents them. Why is that person appointed? And did that person get to lead because he/she has a special relationship and special benefits from the franchisor? If the governance model isn't totally transparent, then you lose franchisee trust in that leadership.
One of the things that financial resources provide as well is for avenues for association members to meet. Someone like Curves has an annual conference, but it is managed by the [franchisor] corporation. Associations should organize meetings so members can get together and talk and develop relationships among themselves. That develops a social structure, which then builds trust among franchisees, and develops a unique identity to that organization. It allows them to draw up their own awards and award franchisees for contributions to the association.
One of the things that you don't find in Curves and that is hard to find in small systems is stability over time. When franchisees are constantly changing, it's very hard to develop a social structure for an association. Those social ties help them later survive if a franchisor goes against them — by, say, trying to enforce certain contracts that are clearly abusive to franchisees. Many older groups have stronger associations simply because the franchisees have been there longer and have had longer to bond together. In some cases, franchisees have passed down their franchise to second and third generations. It's much easier to develop a social structure when my son and your son had a relationship when they were kids, and now they are franchisees.
Having some kind of stability among franchisees is important. Smaller systems have a real tough time developing the mechanisms needed to maintain an organization, especially in the face of franchisors with funds.
Leaders of independent franchisee associations have a fine line to walk in not being too radical in opposition to the franchisor and yet not looking like a sell-out to the franchisor. The association must be transparent and communicate often with franchisees. Flexibility is key.
Lawrence: When there is an independent association that is deemed to be a puppet of the franchisor, or one that is too radical in its constant opposition to the franchise system, it will not be able to survive long term. It is very hard to transition to the right balance when either type of polarized identity is developed.
Quiznos [Toasted Subs Franchisee Association] is one such example. It is an association that was built around fighting the franchisor for many legitimate reasons. At the end of the day, those types of associations have a hard time transitioning to become a trusted partner of the franchisor, so there are new associations that develop to take that role [e.g. the Quiznos Franchisee Association].
Sometimes the goals of the franchisor and the goals of the franchisee cannot be aligned. And sometimes the franchisor just wants to get rid of the independent franchisee association. The franchisor may consider that they are not deemed to be a credible partner. In these cases, it will be difficult to try to convince existing franchisees to re-invest in the system in the long term. That lack of investment by those in-the-know leads to lower sales and a system that gets old and has a hard time regenerating itself and its assets.
I would give associations this advice: its leaders have to be flexible enough so that it can relate to the franchisor in a credible way that it is a legitimate voice for the franchisee body. That's no easy feat when franchisors are often not interested in dealing with an independent franchisee association.
How does one gain credibility? It is important to be transparent and to communicate with the franchisee body. Certainly with the Internet today, franchisees can have continual information flowing through their association.
Associations should have official publications that come out at least once a month. They can have online sites that inform their members and the general population about what they are doing and what news is important to their members.
Lawrence: Associations need to be communicating on a regular basis; once a year is not enough. Franchisees should have access to information from their franchisee association at least once a month.
These groups should talk about their leadership and publish bios of franchisees who are important to the system. They should talk about awards. There should be personal interest stories about franchisees. These groups should talk about political action committees, how they can influence the political vote, and how they can influence Washington and their state. Almost everything they send out is a reinforcement of why franchisees need their association and why franchisees need to provide support to the association over time. Associations also get money through vendor advertisements and sponsorship in their publications. Newsletters and sites are a great mechanism to communicate with the franchisee body.
Smaller associations should strive to have an annual conference together, to meet each other and communicate. A lot of these small system members do not have the money to travel so regional association meetings are a good way to start.
The other important thing about associations succeeding over time is that they grow organically. They develop a sort of localized association that develops into a national association that deals with larger issues. Many independent franchisee associations have grown that way.
Coming: Part 2.Cooperatives and Democracy Are More Trusted
Prof. Ben Lawrence consults and researches franchise systems. He can be reached via email or call him at 1 (607) 254-1669.