Franchisees as an Important Source of Innovation - Article Example

"Franchises are a valuable source of innovation" - this ment has been discussed in this essay, with special emphasis on the fact that franchisesare heterogeneous in nature and they have the flexibility to bring changes within themselves so as to meet the local demand where it is geographically located. The paper starts with explaining the basics of what a franchising organization as well as innovation is. It goes on to discuss innovation versus standardization, because standardization is one of the key concepts of franchising and the brand name purchase from the franchisor. Next, it contemplates on how innovation has become a complex question and tries to explain it through the various models of innovation. Lastly, the various sources through which a franchising organization can practice innovation have been discussed. THE FRANCHISING ORGANIZATION The franchising organization is one in which the franchisee has purchased the rights to use the business methods, ideas and values that the franchisor has built for his company, organization, product or shop. It is like a person sells his business philosophy to another. The franchisee usually opens up the franchise in some other geographical location than the one where the original brand exists. This actually lays the foundation for the franchisee to use innovation within the franchise. When the franchise will be in a different geographical location, the customers who will be coming to that franchise will be totally different, culture-wise, social-wise, and behavioural-wise. Thus, to bring changes within the franchise system would become easy. Examples of franchises are McDonalds (the food industry), Benetton (the clothing industry), the Starbucks (the food industry), television shows like Pop Idol, Who Wants to be a Millionaire (the media industry), Body Shop (the cosmetics industry), Onebiz Group (consultancy franchisee) and others. Therefore, be it be any industry, the franchising option is available to all and sundry. This is because franchising is a form of business beneficial to both the franchisee and the franchisor. The franchisee-franchisor relationship is complex, yet it is made up of basic components. Some of the basics of the brands of the franchisor need to be the same, so as to not eliminate the essence of the original brand. The various rights that the franchisee gets are that he can distribute the products of the franchisor, use the same techniques which they use to produce the products or market them. Moreover, even trademarks and patents are shared, since the franchisee becomes a representative of the franchisors product in some other geographical region. But when it comes to the invaluable intangible goods like trademarks and patents, the franchisee has to pay a certain amount of monthly fees for using them. This fee is separate from the fees that has to be paid for such rights in the first place. (Cox, 2007) Training is also one of the major things which the franchisor makes available to the franchisee as part of the rights that he gets. The franchisee-franchisor agreements will continue for minimum five years and maximum thirty years, after which the agreement will have to be renewed, if felt suitable by both the parties. In cases where the franchisee does misuse of the rights granted to him by the franchisor, the agreement has such clauses through which it can be easily terminated, for the benefit of the franchisor. INNOVATION In a world of intense competition, where companies are going global and where numerous companies are making strenuous efforts to get the attention of the consumer, it is immensely important to differentiate oneself from the rest so as to become noticeable. Consumers are the one who decide the brand or the company which is the market leader. It is the sales of the product which will ultimately make a product gain market share and then declare itself as the market leader, chosen by the customers themselves. For this purpose, it is extremely essential to get inside the minds of the consumer so as to gauge their needs and wants and then act accordingly by making the right marketing offer. But in these changing times, it is not easy to capture the attention of the consumer whose mind is always in a war of brands, where they cannot decide which one to go for. Therefore, it is vital for today's corporate world to innovate. And franchises have become a major source of innovation since it encompasses moulding its ways according to the customer's needs and wants. (Stanworth, 1996) Innovation is to produce something new, whether it is an idea, a method or a device. Innovation opens the horizon for new dimensions to be explored and also fulfill some market niche which was unexplored and touched upon before the innovation. Moreover, innovation is not just about introducing a new thing; it is also about improving something old by adding an element of freshness and newness to it. Innovation is all about creativity. Furthermore, he needs to have the knowledge and information necessary for creativity in a field. If a scientist is expected to innovate, we expect that he will be fully equipped and aware of all the scientific terms, chemical formulae and the terminologies that can be used to being an innovation and produce a product with the help of science which will somehow help mankind. (Sundbo, 2001) Innovation can happen in any field but mostly it is important in the field of business because that is where competition is intense and companies are fighting to gain the attention of the firm and they need to get a competitive edge somehow to come to notice. Innovation gives them that. Innovation requires creativity, and for a product to be successful ultimately, we need to make sure that it is functioning properly and is fitting the purpose for which it was created. Innovation cannot be the mere result of just coming up with an idea and implementing it as it is. It's viability and worth for the company has to be first thoroughly examined and a decision has to be taken whether it will be fruitful or not. (Trott, 2008) INNOVATION VERSUS STANDARDIZATION When it comes to the franchising organization, the franchisor has trusted the franchisee with providing him with his business philosophy, ideas, techniques, methods, patents, trademarks, training and what not. Therefore, the franchisee has to make sure that there is standardization of the way things are done, products are made and services are provided and the franchise is an exact replica of what the franchisor's product, store or organization is. But when it comes to innovation, franchising organizations are the most valuable sources of innovation. This can be said because franchisees have the leverage to be flexible enough so as to meet well the demand of the local citizens where the franchisee has opened. For instance, if McDonalds has a breakfast menu in one country and it does not have a breakfast menu in another, this shows the cultural preferences for one country for breakfast over the others. A standard has to be maintained to keep the essence of the brand name, but according to the customers of that particular geographical area, there is enough room for innovation. Companies innovate so as to get noticed in the eyes of the customer, companies innovate so as to follow one of porter's competitive strategies (Gratton, 2007) The model of Cox and Mason talks about the centrality that has to exist between the various franchises of the brand and its original outlet. They can be divided into core and peripheral. If we take the example of the franchise of Pizza Hut, we can say that their core product deliverable is the basic menu and that they have to be really accurate about their work. On the other hand, the peripherals are the parking available and the hours of operation in which they have to work. Within this system, franchises can bring in innovation easily by designing a totally deviated and classy menu, a menu which will differentiate the local franchise from that of the franchisor's outlet. Or the accuracy of work can be increased by improving productivity. INNOVATION: A COMPLEX QUESTION Innovation is a concept which has been studied by managers and analysts time and again because of the importance that it holds within itself. This vitality was gained because it has the power to actually help and successfully let them get a competitive edge over there fiercest competitors in the marketplace. When it comes to the franchising organization, innovation becomes a complex question because of the heterogeneity of franchise organizations. (Incremental and Radical Innovation Strategies - http://www.johnstark.com/in1.html) When a certain franchise of a known company opens up in some country, they can easily be flexible enough to meet the local demands of the residents living in that country and thus innovating within that continuum becomes a complexity. The models of innovation will be of use in such circumstances, so as to decide whether the particular franchise wants to adopt some other innovation led by the sister franchise in some other country or it simply wants to be the leader and do diffusion innovation. The models of innovation have been designed keeping in view that innovation takes the shape of only one model and the organization can actually be focused as to which model they are a part of and what are the elements of the model that they are part of. Such information and knowledge is pretty essential so as to rightly implement the innovation and creativity inside the heads of the Research and Development Department. (Clegg, 1999) The two important and prominent models of innovation are: Adoption Model This model emphasizes on the fact that the organization needs to actually adopt innovation from its surroundings without the need for a personal research and development department. This model is a very idealistic model and is purely based on theory. Basically, the adoption model needs creativity and out of the box thinking which should stem from outside of the organization so that it can effectively adopted by the organization. Our environment is very complex and therefore innovation is a continuous part of this general environment. We possess excellent thinkers, people with vivid imaginations that ultimately lead to a successful product and creative people who know where to use their creative side. This innovation might not always be present in our organization but it is a duty of the organization to learn from others and adopt what they feel they could. Innovation through adoption also gives pretty successful results. The model tells the company various processes and ways in which it can practice this innovation. (Cushman, 1993) For instance, the franchising of "Who Wants to be a Millionaire" in India meant that they could always use the same music, the same format and the same layout of the set that was there in the original British version. This is called the usage of the adoption model. Diffusion Model The diffusion model is a model where the company is one of the first to pioneer and come up with the innovation and then spread it to other firms and places to be adopted by others. This model has its own branches, ways, methodologies, practices, processes and variants. The model is a winner because it is practical and is based on empirical research. This research has been conducted various times and proves that the diffusion model is a better model of innovation and gives a solid proof of the company taking on the position of the market leader. This position is granted to the company because of its innovative products by the customer and because the customers felt loyal to the product and felt greatly impressed the innovation brought about by the company. The diffusion model makes a leader and therefore, requires greater hard work, attention and perseverance. (Dearden, 2006) As far as the application of this model is concerned to the real life world of franchising, McDonalds is a good example. McDonalds is the world number one franchisor and it uses a diffusion model by innovating its menu according to the taste of the local people where it has opened its franchises. If Japanese are not fond of having a breakfast, the special breakfast menu that McDonalds has all over the world is eliminated. SOURCES OF INNOVATION IN THE FRANCHISE ORGANIZATION Innovations can be made on a variety of processes, products and ideas. Innovation can take place in every field; therefore there are many different types and classifications of innovation. Strategy Innovation One of the first classifications in innovation is when innovation takes place in the strategy of the firm. Strategy is how an organization plans itself overall so as to have a strategic fit with the environment, to fully use its strengths, overcome its weaknesses, exploit its opportunities and negate its threats. In a franchising organization, strategic innovation is very important. For instance, a franchise tries to strategize geographically. For instance, it sees that the demand for its products is increasing but it does not have much space to cater to that demand so it opens the delivery and take-away service, through which much of the demand can be satisfied and the franchise would not have to depend on the limited geographical area on which the franchise is operational. (Millson, 2007) Business Innovation Business innovation takes place when the management tries to bring innovation in the way the business is done or new changes are brought about in the way the business activities are carried out. A business activity is any activity that directly or indirectly affects the profitability of the company or in the earning of profits for the company. In terms of the franchise organization, for instance, changes and innovation can be brought about in the way the food is prepared. Innovations in which the time to prepare the food is minimized and the quality is maintained simultaneously. (Hohmann, 2006) Organizational Innovation Bringing about organizational innovation is a big change that any organization will endeavor to bring. It will need the help of specialist who will practice effective change management in the organization. This innovation requires a change or bringing of something new to the organization via changes in its culture or the way it operates on a daily basis. This kind of innovation is a big breakthrough for the franchising organization to achieve. The franchising organization may usually have an informal culture, but innovation like total change of culture; for instance, task to task reporting to the supervisor will be a difficult and big innovation to bring. (Clegg, 1999) Product Innovation Product innovation takes place when a company launches a product, after bringing an innovation in it. It can be a completely new product or an alteration of the old one with some good new changes. This kind of innovation is usually always needed by the franchising organization. This is because, if we consider the food franchises, that their items get very monotonous. They need to bring such innovation for the public to keep flowing in. Even if new product innovations in the face of new food items on the menu are for a limited time, it is bound to raise curiosity among the people and pull them in. (Bradach, 1998) Technology Innovation Technology is that part of a company's infrastructure which aims to help them in the process of production and manufacturing whatever products they are producing. Innovation in technology ultimately can lead to innovation in the product. Use of new technology can give the franchising organization the impetus to produce something new. Technology innovation has always given the company a competitive edge over others. For instance, if new technology is imported from some foreign country, then products with a faster processing time will lead to many other things like speedy delivery. Thus, technology innovation is like a vicious cycle which leads to many other kinds of innovations for a franchising organization. (Cliquet, 2004) Process Innovation Process innovation involves the usage of an entirely different process to do something. For instance, if in a food franchise, French fries were first deep fried, process innovation would be to come up with a process that makes the same quality of French fries, but it has low fat in it. Thus, this kind of process innovation is bound to attract customers. (Leonard, 1998) Marketing Innovation Marketing innovation is brought about when there is a change in the way you market your product and then through that, differentiate it from your competitors. The franchising organization, like any other organization, can bring about marketing innovation by using the new methods of marketing which have been said to be connected with emotions. All consumers will respond if the marketing effort has something to do with his subconscious mind or the emotions that he goes through. (Stanworth, 2003) CONCLUSION In conclusion, it can be definitely concluded in affirmative that franchisees are an important source of innovation for the corporate world. Innovation, being a complex phenomenon, requires that the company thinks out of the box and uses the various ways through which innovation can be done. This is easily achieved by the franchising organization because of the way it can be flexible with local demand and circumstances. As long as the innovation keeps intact the values of the company, it will not do any harm to whatever has been built by the franchiser in the brand name of the organization. BIBLIOGRAPHY Journals: Cox, J. & Mason, C. (2007) Standardisation versus adaptation: geographical pressures to deviate from franchise formats, The Service Industries Journal, 27:8, pp 1053-1072 Stanworth, J., Price, S., Purdy, D., Zafiris, N. & Gandolfo, A. 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(2004) Handbook of organizational change and innovation. OUP. Websites: Incremental and Radical Innovation Strategies. Innovation Management. http://www.johnstark.com/in1.html accessed 4th April 2009 Read More