Multi-Unit Franchisee Magazine Issue II, 2012 | Page 82
FranchiseMarketUpdate
By Darrell Johnson
Time for Benchmarking
All that’s needed is the will
I
am convinced that someday the franchising community
will finally get around to unleashing its biggest competitive
strength: unit predictability. If a franchisee had the benefit of
knowing how every other franchise unit performed over time,
could look at what worked and what didn’t, and could build their
business with that knowledge, the efforts of franchisors would become much more effective. Think how much more powerful this
approach would be than being “advised” by training and field support staff rather than shown the results of best practices.
Franchising is uniquely structured to utilize benchmarking
capabilities—first, because of the consistency in how the model
is applied, and second, because of the size of the unit universe (in
excess of 450,000 business format units). Some brands would argue that’s what their training and field support programs do now.
However, I believe there’s a distinction between telling someone
how to do something and showing actual cause and effect. Training and field support are a form of consulting: do it this way and
you’ll have a good outcome. Yet business decisions that must be
made in real time with constant change are easier to make when
the decision-maker is being given real-time quantitative and qualitative information.
I think we are beginning to see a gradual conversion from
advising franchisees to providing them with information that
enables them to understand how to make better decisions. The
technology has been there for years. What is lacking is the cultural
adjustment that encourages it. There are examples of its power,
but they have yet to take hold in a substantial way. This surprises
me, since the economic argument is powerful. I’ve worked with
a benchmarking company involved with businesses associated
with the cooperative business model. It has generated millions
of dollars of revenue enhancements and expense savings in disparate industries. And they have forecasting models that guide
business decisions.
Some franchising systems have made good progress with unit
benchmarking. In the franchise community—where openness to
change is there, where sharing ideas is a hallmark, and where success becomes readily apparent to others fairly quickly—I would
have thought the benchmarking leaders would gain a lot of attention. So far it hasn’t happened, so I’ve looked at industries where
it is integrated into the business fabric.
I’ve observed with fascination how one part of the franchising
community—the hotel industry—has built a participatory benchmarking program that has powerful economic benefits to hotel
operators. They have created the capacity to understand pricing
and demand changes in real time. This doesn’t make being a hotel
franchisee easy, but it certainly makes it easier.
The IFA understands the power of benchmarking information
in the franchise business model and is trying to gain traction with
franchisors to help them run their businesses. That continues to
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Multi-Unit Franchisee Is s ue II, 2012
be a challenge. FRANdata has tried several times to design benchmarking programs and will continue to do so because the economic
benefits of doing so are so compelling. Yet all these efforts have not
produced significant results.
Getting started
That brings me to multi-unit operators. As a stand-alone business
group, you have a powerful opportunity to step outside the regulatory and cultural practices of the brands you’re associated with
and consider new ways to share information. The upcoming MultiUnit Franchising Conference is a big contributor to information
sharing. The question I pose is this: Are multi-unit operators ready
to take information sharing to a level that the hotel industry, and
some using the cooperative business model, have been benefiting
from for years?
There seem to be three main barriers to overcome. The first is
cultural—sharing confidential information. Franchisees have long
applied a line between information that is required to be shared
with the franchisor under the franchise agreement and all other
information. Somehow the hotel industry franchisees got over that
so it can be done. If multi-unit operators form their own benchmarking program, franchisors wouldn’t even be involved.
The second barrier is price in relation to value. Regardless of
what a benchmarking program costs, it’s hard to show definitively
that the value is there until the benchmarking is being used. That
means there’s an element of faith, regardless of how well expectations can be articulated.
Finally, there’s perhaps the biggest impediment—the painful
gathering of necessary data and information by the operators. I
have yet to have anyone tell me they look forward to starting the
actual work of a benchmarking program. Mostly it’s perception,
but there is some reality to it as well. The perception is that each
operator will have to change how they collect data, just to accommodate a benchmarking program. That isn’t always the case. I’ve
worked with firms that make translating your data into a common
chart of accounts their problem and don’t force you to change your
behavior. Yet the reality is that there is work involved to get the
benefits of a good program.
I do think there is a consistent and gradually increasing drumbeat for benchmarking. Perhaps multi-unit operators can take that
on. I strongly suggest having those conversations at the upcoming
Multi-Unit Franchising Conference. I’d appreciate your thoughts.
See you there.
Darrell Johnson is CEO of FRANdata, an independent research company supplying information
and analysis for the franchising sector since 1989.
He can be reached at 703-740-4700 or djohnson@
frandata.com.