FRANCHISOR OPERATING SYSTEM

A Franchisor generally has less control over franchised outlets than it would have over company-owned outlets. Maintenance of high and relatively uniform standards throughout a network is of significant value to those Franchisees that voluntarily maintain system standards and perceive system standard as a valuable element of their franchise.

 

If a Franchisor fails to establish and maintain system standards, its competitive position and the value of its franchise will decline. The most productive and successful Franchisees may break away and the ability of the Franchisor to sell franchises and to expand will be impaired.

 

The franchise relationship can be inflexible. Franchisees may resist changes needed to adapt their businesses to changing markets by upgrading their business facilities, changing the products/service mix, modifying operating procedures, adopting different marketing strategies and modifying the standards at company-operated outlets.

 

A Franchisor must implement policies, systems and procedures that help maintain standards by rewarding compliance and enforcing system standards where positive motivation proves to be insufficient. Many Franchisors make effective use of peer pressure by other Franchisees to achieve compliance with system standards.

 

Inspection reports should be reviewed with Franchisees and realistic timetables should be determined and agreed upon for correcting appearance and operating deficiencies. Follow-up inspections should be timely conducted and a Franchisor should be prepared to offer assistance to a Franchisee who is making a bonafide attempt to bring the appearance and operation of his business into compliance with system standards.

 

The tension between a Franchisor’s need to control the appearance and operation of the Franchisee’s business and the heavily promoted “independence” of the Franchisee is not always satisfactory resolved.  Independent business ownership is promoted as a positive aspect of the franchise relationship, but the requirements of quality control and uniform image impose limits on such independence.

 

If a Franchisor fails to secure voluntary compliance from the great majority of its Franchisees, it faces potentially difficult and costly enforcement obligations.  Longstanding neglect of system standards can result in loss of ability to effectively implement those standards.

 

Non-complying Franchisees may damage the reputation of a franchised network. Termination of franchise relationships can be difficult and expensive. In some instances, a Franchisor may have to buy a non-complying outlet to achieve a quick end to substandard appearance and operations.

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