The role of innovation in franchising
Dec 22, 2015
There are no doubt those for whom the title of George Ritzer’s book, The McDonaldization of Society, resonates as they watch the relentless expansion of franchising. For these people – I have their names! – franchising is the antithesis of innovation. Franchising is, to them, simply the expression of formulaic uniformity – the routine rolling out of a distinctive business concept across city, state, and even national borders which is harmful to cultural diversity. The standardised, predictable and uniform look and feel of both the product and its delivery is not always welcomed.
Standardisation and uniformity are of course inevitable in business format franchising – they both characterise and drive its development. While we may take this practical reality for granted today we should not forget that the development of franchising little more than half a century ago was a massive innovative development. The US House of Representatives Committee on Small Business has described franchising as “one of the greatest inventions of western capitalism”. William Davis, author of The Innovators, has described franchising as “the most dynamic business arrangement since the emergence of the corporation”.
New forms of franchising
Franchising was born from need and innovation, as a solution to the challenges that those seeking to develop disciplined distribution systems faced, and its ongoing development is one of continuing innovation. The writer has written elsewhere that franchising’s capacity for reinventing itself – to continually adapt to changing circumstances and market conditions – is a major factor in its increasing global influence.
New forms of franchising have evolved from the original model to address particular distribution challenges – master/sub franchising, area development franchising, co-branding/combination franchising, multi-unit franchising, multi-concept franchising, multi-brand franchising, community franchising, social franchising, freedom franchising being the obvious examples. It is franchising’s capacity for adaption and innovation which drives its relentless development.
Innovation in franchising is of course not limited to the franchising strategy itself – it is an essential prerequisite for all franchise systems. Australia’s 1000+ franchise systems today serve every industry sector. The low hanging fruit has long been picked.
A prospective entrepreneur wanting to establish a hamburger or pizza chain for example will have to do more than simply offer hamburgers or pizzas. Prospective franchisees and customers demand much more. The concept needs to be shaped by and infused with innovation across all aspects of the operation.
Small business strategy
It is in this process of course that an answer to the McDonaldization movement lies. Without franchising – without a strategy that enables small business to compete effectively against a limited number of larger and entrenched competitors – the marketplace would be a lot blander, more concentrated with fewer competitors, and offer much less diversity.
William Davis suggests – and few in the franchise sector will disagree – that although innovation is the most exciting part of business life it can also be one of the most frustrating but “there is nothing to compare with the thrill of finding a new idea and turning it into a concrete reality”.
While no sector or type of organisation has a monopoly on innovation the franchising sector is well placed to exploit the innovation advantage. The entrepreneurial underpinning of franchising supports and nurtures innovation. Large companies of course can, and do, innovate – in fact the massive R&D outlay required for innovation in some sectors effectively means that small companies will not lead the innovation game.
But the bureaucratic structure that characterises many large corporations frequently acts as an obstacle to innovation. The smaller franchising company, headed by a founder with entrepreneurial flair, is usually more agile, more responsive, more flexible and more willing to try new ideas and develop innovative strategies to establish and entrench a market share.
That new franchising systems develop to compete with the older, established and entrenched systems speaks loudly to the power of innovation.