Multi-Unit Franchisee Magazine Issue I, 2014 | Page 94
FranchiseMarketUpdate
By Jacob Grosshandler
10 Rules for Managing
Franchisee Innovation
Develop a system-wide vetting process
W
ho is responsible for
innovation? For many
franchise concepts, innovation is the sole domain of the franchisor as it safeguards
the brand’s equity: “Do only things that I
say, and do them exactly as the operations
manual specifies.”
Franchisor-led product innovation is
most prominently seen in food-related
brands in the form of the centralized test
kitchen. However, franchisor-led product
innovation often leaves an invaluable resource untapped: the franchisee. Think
McDonald’s Filet-O-Fish, invented in 1962
by franchisee Lou Groen to make up for
slow Friday burger sales.
Also, despite the positives provided by
franchisor-led product innovation, a brand
runs the risk of becoming entrenched in its
own singular manner of thinking—a competitive threat in the face of ever-changing
consumer tastes.
So how does a franchise system unlock
the profitable insights from franchisees
without unleashing a Pandora’s box of
compliance issues and risk erosion of its
brand equity? Our interaction with many
franchisors on the subject suggests that
the answer resides in placing boundaries
around the type of product innovation
allowed by franchisees. The following
10 rules provide a roadmap to unlocking the value of franchisee-led product
innovation.
• Rule 1: Stick to the brand’s core. No
franchisee should be allowed to tamper with
the core product set that defines the brand.
The Big Mac is sacred to McDonald’s and
will remain untouched, and KFC’s secret
recipe still needs to be in every bucket of
fried chicken.
• Rule 2: Leverage existing inventory
and the system’s supply chain. Franchisors
should encourage franchisees to first con-
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Multi-Unit Franchisee Is s ue I, 2014
sider ways to create products with existing
inventory and equipment. This minimizes
additional unit investment and training,
ensures that the existing supply chain can
be leveraged, and limits how far the new
products can wander from the brand’s core.
• Rule 3: Filter ideas. Not all ideas
are good ones. Franchisors should establish
preliminary metrics to measure the viability
of ideas in a uniform and structured format.
This will keep down the cost of evaluating
product innovation, while empowering and
encouraging franchisees to envision new,
profitable revenue streams. It will also take
the emotion out of determining whether
a new idea has merit. Franchisees should
be allowed to proceed with piloting new
product offerings locally only after franchisor approval.
• Rule 4: Innovation is not for everyone. To avoid sidetracking new franchisees
from learning the fundamentals, franchisors should limit the option to undertake
product innovation to only franchisees in
good compliance standing and with several years of operating experience. In most
cases, this means a greater likelihood that
multi-unit franchisees will be the operators
encouraged to test new ideas.
• Rule 5: Reinforce compliance.
Franchisors should establish and communicate clear guidelines for any variance in
consistency and compliance. Testing new
product offerings could mean a new ingredient in the pantry or crowding in the
store, but compliance in all other metrics
and procedures must be followed to ensure
brand consistency.
• Rule 6: Share the costs. Operational
constraints and inefficiencies in testing and
introducing a new product could negatively
affect a franchisee’s operations and costs.
This isolates the costs and risks of a new
product launch, which could have value
to the whole system. The question “Who
should pay?” must be be clearly addressed
up front as part of the procedures a franchisor uses for innovation.
• Rule 7: Test and retest. Franchisors
should leverage their own test kitchen and
company units to formalize and streamline
scale and operational issues for a large product rollout. This shows that the franchisor
is invested and has the best intentions for
the entire system.
• Rule 8: Leverage social media.
Social media is an invaluable tool that can
be used to promote new products cheaply,
as well as to collect real-time feedback on
customer reaction. Subscriptions to social
media aggregating tools have increasingly
become more affordable; some cost less
than $500 a year, putting them in reach
of franchisees and franchisors.
• Rule 9: Don’t be afraid to pivot.
Innovation can be messy and unstructured and is not always successful. We
all remember New Coke, right? If a new
product clearly is not work [