Thursday, July 21, 2011


Introduction to White Paper by Author
Putting the Internet to Work was published in the Spring of 1997.  Today, 14 years later, this White Paper remains both current and relevant.  More than anything, the passage of time shows that while technology may continue to advance, basic business principles do not change.  Looking back from today, it is surprising how long it takes society to adapt to these technological changes.

Other than slight changes to current terminology and references to companies no longer in existence, this White Paper could have been written today.  Back then there was a battle between “push” and “pull” technologies for distributing news.  While the technology for distributing news is no longer in flux, it remains unclear just who will survive in this new era and who will bear the ongoing costs of gathering the news.  Companies that were giants of their day, such as America Online (AOL), are now shadows of their former selves while new entrants such as Google, Facebook, LinkedIn, Twitter and Groupon are all working to ensure that they do not suffer the same fate as earlier Internet casualties.  While all these companies appear to be commercial successes today, most have yet to prove they serve a viable long term purpose for which individuals (or businesses) will continue to pay for access.

Throughout my career, I have worked with many different businesses in multiple industries.  A couple of these businesses warrant mention as being successful at utilizing Internet technology.  I am particularly proud to have led the team that envisioned, developed and implemented the business model for distributing press releases online.  This model, first introduced by Canadian Corporate News (now Marketwire) in 1996 has since been adopted by other newswire companies throughout North America.  Other information companies that have been successful at transitioning their services to the Internet include Lexis-Nexis, CCH, Reed Elsevier and Thompson Reuters, to name just a few.  What these companies have in common is that all have adapted to the Internet without devaluing their content.  The success of these companies should be studied.  It contrasts with the experience of the newspaper industry which continues to see declining revenues resulting from how they first decided to use the Internet more than fifteen years ago.

Of all the companies I have worked with during my career, the one that has most impressed me with their longevity and ongoing viability is Inquiry Management Systems (IMS).  This business provides support services to the publishing industry.  Throughout my 20+ year relationship with this company, I have seen the benefits of their long term commitment to understanding and utilizing the Internet throughout its business operations.  To my knowledge, they have never focused on Internet fads that are of questionable value.  A low tech data gathering operation when it first started in 1979, IMS invested the time and resources to figure out the best way to integrate computer and Internet technologies to improve their internal operations and as a delivery mechanism for their clients.  Their continued success is a testament to this strategy.  Had I written this White Paper today, it probably would have focused on how IMS has embraced these technologies.

This White Paper continues to present a current look at how companies can make effective use of the Internet.  While the Internet of 2011 is a vastly different mechanism than in 1997, it is clear that many businesses have been slow to understand how they can utilize this technology as an integral part of their internal operations, marketing strategy and for customer service.

There is an important lesson here for franchisors.  The Internet is far more than an advertising medium or mechanism for bringing customers through the doors of their franchised businesses.  I consider this to be the low hanging fruit for those that fail to understand the true potential of the Internet.  It provides a short term justification for “embracing” the Internet without really understanding the true value of this medium.  Advertising may even be effective for some businesses.  However, the more valuable benefits of “embracing” the Internet require more effort.  Improved internal operations, better internal communications and enhanced customer relations are all more likely to lead to long term success than short term advertising initiatives.  Those that invest in these opportunities are more likely to succeed even if the Internet is found not to be an effective advertising medium for their businesses.

I have chosen to republish this White Paper through the FranchiseFacts web site as an aid to franchisors in understanding how the Internet can be better utilized within their businesses.

Perry Shoom
FranchiseFacts



Putting the Internet to Work

A Model for Business - Consumer Relations
using the Internet

written by: Perry Shoom,
                                                                 Information Retrieval Systems

Initial Publication: Spring 1997
Republished without revision: July 2011


Introduction

Consider the Internet---not the constant hype but something far more practical. Sending computer files and messages around the world is now as easy as making a telephone call. We now have “noncompatible” computer systems working together to provide seamless data communication which is less costly than voice communications. Just four years ago, this was not within the realm of discussion.

Despite these developments, we seem to have lost our focus. We are forever waiting for the next technological breakthrough, be it newer browser features, Java, full motion video, or greater bandwidth.  In a rush to have the latest and greatest, we seem to have forgotten why we need the Internet.


The Promise

Instantaneous data communication has been a long sought after goal. From postal delivery to private courier to fax machines, daily business communication has become both faster and easier. The Internet now provides a reliable, inexpensive and fast delivery mechanism for information which exists in an electronic form. Since most information originates or resides on a computer, the Internet can reliably support over 90% of the country’s non voice communication.

But the Internet is capable of much more. It allows for what I describe as dynamic interaction. Unlike television, radio and print media, the Internet offers the capability for two way communication. From sales, marketing and advertising to customer service, research and database marketing, businesses constantly strive to communicate with the customer. The Internet simplifies these communications while providing a mechanism for direct feedback. The technology is here. It is inexpensive and accessible to businesses of all sizes. We must learn to use it.

Perhaps technology has advanced too quickly. Security and data privacy, Internet vs. intranet, fee based services, and other distractions make it difficult to focus on the real issues.

To be fair, there are a handful of success stories; Netscape, Amazon.com, Yahoo, Lycos, inquiry.com to name a few. Most organizations, however, do not yet understand the Internet, particularly what it can accomplish for them. Websites are often developed because of some vague understanding of potential benefits rather than a sound communication plan. These Websites emulate the familiar. Most often, corporate Internets exist for the sole purpose of putting out an electronic version of a corporate “brochure”. Other Websites attempt to generate income through the placement of advertisements. Both approaches assume that consumers and businesses respond to what they see on the Internet much as they would a printed brochure or an advertisement in a magazine or newspaper.

These approaches fail to recognize two important differences. First, advertising through non-Internet channels is usually unintrusive and without cost to the recipient. On the Internet, individuals pay for time spent on-line. Many are justifiably sensitive to unsolicited advertising which slows down their access to a Website and the information they seek, and to unsolicited e-mail transmissions. Websites that are simply advertisements for a company or its products are inappropriate in this business climate. The lack of business success on the Internet is detailed in a paper titled “Hope, Hype or Happening” by Dan J. Wasserman, Interactive Insights: A Multimedia Compendium, NAB’97. This paper clearly identifies the vested interests behind the current Internet hype, and provides evidence questioning the true dollar valuation of Internet-based revenues.

Building on where “Hope, Hype or Happening” leaves off, this paper presents a practical business model for sustainable implementation of Internet technology. The model is presented in the form of a case study for a fictional company named “Shoom-Mart”. Shoom-Mart is a retailer, perhaps a supermarket or department store. The shopping and purchasing habits of “Sharon Shopper”, a hypothetical consumer, are analyzed as she makes use of the Shoom-Mart Website. The second part of this model reflects how Shoom-Mart’s Internet successes are brought in-house in the form of an intranet. The lessons learned from Shoom-Mart are relevant to most business organizations, more so to service organizations and those developing Internet-based businesses.


Shoom-Mart earns the business of Sharon Shopper

Sharon Shopper visits the Website for Shoom-Mart. She may have learned of Shoom-Mart’s Website from an Internet search engine, a hyperlink listing at another Website or from Shoom-Mart’s own marketing efforts.

Sharon likely has a good reason for visiting Shoom-Mart’s Website. Perhaps she wants to contact the company, or a specific individual, and prefers to do so via the Internet. She may want to get a store address or its hours. To many, this is preferable to dealing with sophisticated corporate telephone systems and their often extended wait times. Sharon may find the Internet faster and more economical than the telephone. Perhaps Sharon has no pressing need for information and inadvertently found the Website while surfing. Regardless, Shoom-Mart now has an opportunity to assist Sharon, encourage a sale and perhaps gain some valuable information that can aid in future contact with her.

Better still, Shoom-Mart can do all this in a productive manner which reduces its own costs. No long distance charges are incurred by either party while assisting Sharon, and no staff time is required.

Assuming Sharon finds what she needs (which should be easy to do on a well designed Website), Shoom- Mart may also have reduced its print and postage charges plus the manpower required to prepare any mailing. In sufficient volume, these benefits are justification enough for Shoom-Mart’s Website. But this is just the beginning of a long term, mutually beneficial relationship with Sharon.

Shoom-Mart desires to be Sharon’s primary destination for products it carries. Its business is not about entertainment, and it has no interest in Internet surfers disinterested in its products. As such, Shoom- Mart has developed a Website which is practical, provides information often requested by telephone and mail, and is devoid of contests, games and “freebies”. The company has been most successful by focusing on bringing people into its stores. Once there, product selection, store layout and shelf presentation sell the products. Shoom-Mart’s experience is that consumers are unwilling to purchase products through other channels. Past catalog and telephone sales efforts have not been effective. Consequently, the Shoom-Mart Website does not attempt to sell any products or services through the Website.

Shoom-Mart has found that ongoing promotion of special offers is extremely popular, and has chosen to maintain this strategy on the Internet. It also views the Internet as a possible solution to one problem exposed during recent market research; consumer frustration at finding sale items out of stock. Shoom-Mart’s Website is designed to increase store traffic and assist consumers by identifying out of stock items.   Sharon, or anyone visiting Shoom-Mart’s Website, can register for a weekly e-mail service providing information on discounted products for the coming week. Since hundreds of items may be discounted in any given week, each registrant can select those product types of interest to them. A second service allows visitors to determine if the product(s) they require are in stock at the store location of their choice. After selecting a product category (from the list), then the product in question and store location, they are informed if the product is presently available or out of stock. If unavailable, an estimated availability date is provided along with a list of alternate store locations with the product in stock.

Shoom-Mart also wants to know more about Sharon. Making use of the weekly e-mail service involves a registration process. Sharon is required to answer a series of questions including basic demographic information, her product type interests, and her opinions on Shoom-Mart and its products. Sharon agrees to provide this information in order to receive the weekly e-mail notifications. Other than her e-mail address, Sharon remains unidentified. Sharon also agrees to allow Shoom-Mart to send her periodic email messages about special offers.

Shoom-Mart makes good use of this information. Each week, Sharon receives an electronic flyer, or “eflyer”, detailing product specials in her region for the coming week. The items in her custom e-flyer are limited to product types listed in Sharon’s custom profile. Periodically, Shoom-Mart will notify Sharon of special offers in those stores within her city. Sometimes, Sharon will receive discount coupons redeemable at her local store. Shoom-Mart also works closely with its suppliers. Product manufacturers allow Shoom-Mart to inform Sharon of special manufacturer discounts for those product types listed in Sharon’s custom profile. Unlike a typical direct mail list, Sharon retains full control over this process. She can change her product interests, or discontinue the service, at any time.

It’s absolutely amazing. This Website has turned into a strategic competitive advantage for Shoom-Mart. With little more than 30 minutes of additional manpower each week and no other expenses, Shoom-Mart is able to attract Sharon Shopper and thousands of other people into their stores. No added advertising or marketing costs. Just better use of pre-existing information from their databases. Shoom-Mart’s competition, which either sees no value in having an Internet Website, or has developed an ineffective Website, sees Shoom-Mart growing at their expense and is unable to determine the reason for its success.

Table one describes some rather unique Internet services offered by real corporations.

Table 1 Unique Internet Services

Company and Feature
Comments
USAir offers seat sales to select destinations.

Amazon.com sells books.


PeaPod offers Internet grocery shopping and delivery to the home




inquiry.com integrates lead generation efforts by IT companies with information
management requirements of IT customers.  Revenue is earned from placing listings and
forwarding qualified leads to vendors.

PointCast provides free access to category-based news and information. Service includes an innovative screen saver display carrying paid advertising.

Quote.com sells access to current news and financial information from multiple sources.

A great way to fill excess capacity. Free to consumers.


Greater selection than bookstores at lower cost.
Likelihood of survival: excellent

Many food products are purchased on impulse and presentation. Non Internet food shopping services
have had limited success.
Likelihood of survival: poor


Services an existing need more effectively than paper based lead generation services. Ideally suited to users of technology. Likelihood of survival: excellent




Advertisers may find a low response rate to advertisements on PointCast. Likelihood of survival: poor

 
Most consumers are probably satisfied with current
sources for this information. Corporations and serious
investors may have an interest in this up-to-the-minute
information. Likelihood of survival: good



From Internet to Intranet

More recently, intranets have received considerable press. Shoom-Mart began to wonder if their Internet technology could aid in internal communication. After some research and discussion, it implemented firewall technology so that internal materials could not be accessed through the Internet, and allowed individual departments to launch intranet initiatives. Five departments either introduced or became dependent on intranet services over the following six months. Table two summarizes each department’s use of the intranet.

Table 2 Internal intranet Applications
Human Resources
  Staff Directories
  Corporate Policy Manuals

Sales and Marketing
  Product and Company Information
  Inventory and Price Lists
  Delivery Schedules

Investor and Media Relations
  Financial Statements
  Annual Reports
  News/Press Releases
  Analyst Reports


Human Resources introduced an electronic staff directory including telephone extensions and e-mail addresses, electronic versions of two large documents; the company policies manual and health plan documentation. Once a week, the department posts a list of staff training sessions including locations and times. Updating a document or directory on the intranet normally takes no more than 20 minutes. Before these materials were placed on the intranet, even minor modifications meant that complete manuals and staff lists had to be reprinted. Printing costs are now much lower. And productivity savings in the form of reduced administrative hours have allowed this department to implement an expanded staff training program.

Operations maintains inventory schedules. Each store can look at the schedule to see when they receive their next delivery, and what items are to be delivered. Schedules are updated daily. Errors are corrected prior to shipping. Courier and shipping costs have dropped since this application went live. The budget for temporary help required to address shipping errors has dropped by 90%.

Category Managers make use of inventory schedules and the out of stock feature to determine which products are most in demand. This assists them in planning changes to product offerings and purchase volumes. As a result, inventory turnover has increased and product shortages are less common. Suppliers find they now ship larger volumes of popular products, and have fewer product returns from Shoom-Mart.

Investor Relations is a time consuming task. As a publicly listed company, Shoom-Mart must maintain ongoing communications with investors, industry analysts and the media. The Investor Relations area serves as liaison between these interest groups and the company’s senior management. Since placing the company’s financial information on the intranet, these materials have been made available to all through the Internet. This has resulted in a reduced volume of telephone inquiries. Mailing and print costs have also dropped off. Furthermore, inquiries to and from senior management and outside interest groups are now handled within hours rather than days.

Retail Sales Staff also have access to inventory schedules. They are able to advise customers when out of stock items will be delivered. They can also use the Internet out of stock feature to assist in securing items that are in stock at another store. In the future, they plan to assist customers by placing special orders through the Internet. Customers will also be able to check the status of their orders through the Internet. Staff report less customer frustration in relation to product availability.

Summary

Though Shoom-Mart is a fictional organization, its internal and external communication requirements are real. The company’s use of Internet technology to optimize its relationships among staff, customers and suppliers illustrates what can be achieved in today’s competitive marketplace.

Table 3 Ten Reasons Why Websites Fail
1. Lack of strategic planning involving corporate visionaries
2. Emphasis on technology over practicality
3. Website not valued as a strategic asset
4. Control of Website residing in the company’s technology or MIS department(s).
5. Assuming that technology will market itself
6. Use of “bleeding edge” technology limits usefulness & value
7. Emphasis on appearance over functionality
8. Graphic intensive Websites too large for today’s technology
9. Use of existing company literature instead of re-writing for the Internet
10. Lack of accountability for maintaining/updating Website

Two major challenges face organizations wishing to address complex communications issues through the use of Internet technology. The first is defining in concrete terms what it wants to achieve. In Shoom-Mart’s case, for example, one goal was to develop a database of customer interests and preferences so that its marketing initiatives are more targeted. This goal was achieved by incorporating a customer registration form on the Website.

The second challenge is involving the right people in the project. In my work, I find that most organizations assign the task of developing an Internet Website solely to the department handling technology/MIS issues. The resulting product often looks good but is ineffective. (Table three provides the ten main reasons why Websites fail.) While technology specialists bring valuable skills to the table, they may not be in tune with the issues driving a business. Designing an Internet/intranet Website like that of Shoom-Mart requires a cross-disciplinary project team, e.g. marketing, customer service, operations, technology, and a clear understanding of the organization’s goals.

About the Author
Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry.  The company also publishes a Report incorporating the results from its National Franchisee Survey.  The 2010 Annual Report, and the Franchisee Survey that is currently in progress, can both be found at www.FranchiseFactsUSA.com. The survey is open to all franchise owners and store managers.  FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

At the time this paper was written, Perry Shoom was an Internet and Business Consultant operating under the name of Information Retrieval Systems.  Perry continues to provide business and information management services as an independent consultant at this time.

Monday, May 9, 2011

How the Franchise Industry misused the Internet - Part 5 of 5

This is the fifth and final article that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.

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The problems outlined in this paper have been twenty years in the making. They are the result of decisions made by tens of thousands of individual business owners. As a group, these business owners have not fully understood the implications of their decisions to utilize Internet communications in the way that they have chosen. It is now up to this same group to move forward in a more effective way. While some may find it convenient to blame current problems on unscrupulous franchisors, the franchisors should not be faulted for continuing to do business while franchisees have changed the way in which they operate. It is the franchisee institutions that have degraded and need to be rebuilt.
Changing the current status quo can only take place with a concerted effort by franchisees, and this change will take time. It took more than twenty years of steady decline to reach this point. It may take another decade before significant changes in the other direction are evident.

Here are three steps that franchisees can take to help restore balance in the franchisee/franchisor relationship.

1. Encourage and Support Independent Franchisee Associations

Where a franchise has an existing Independent Franchisee Association, support it as a paying member. Consider the association to be a long term investment to protect your interests when major changes to your franchise are being considered. Allow the association to serve as the voice of franchisees for all franchisee initiatives. Do not assume that a Franchisee Association financially supported by the franchisor will be looking out for your interests.

Where an Independent Franchisee Association does not exist, work to create one for your franchise. You can contact the International Association for Franchisees & Dealers (IAFD - www.Franchise-Info.ca) for information on how to begin the process.

When evaluating the value of an Independent Franchisee Association, do not be focused on short term considerations. Its true value is not in providing new vendors, creating new products/services or distributing a monthly newsletter. It is essential when a franchise is considering changes to a franchise agreement, new pricing models, technology initiatives and other long term determinations. These situations do not come up frequently. When they do come up, it is essential that your Independent Franchisee Association is fully funded and operational so that it can quickly marshal the expertise and resources necessary to evaluate, and then respond to, these opportunities or threats on your behalf.

2. Educate Yourself

Do not rely on information provided by a franchisor and do not assume that someone else is looking out for your welfare. Develop a broader perspective on your industry and the franchise industry in general.

Blue MauMau (www.BlueMauMau.org) is a great site for franchise industry news and information. Read their articles, participate on the discussion boards and share your knowledge with the community.

FranchiseFacts (www.FranchiseFactsUSA.com) runs a National Franchisee Survey each year and publishes an Annual Report. Participate in the survey, review the Annual Report.

These businesses are providing services that used to be provided by Franchisee Associations in the past. They are evolving as they determine the best way to support the Franchise Industry as it adapts to the technological changes outlined in this paper. With your support, these newer institutions will continue to develop.

3. Be Professional in all your Public Communications

Any group is only as strong as its weakest link. Unfortunately, too many weak links present themselves on the Internet. Individuals who would never write a proper letter will draft a short message in support of or opposed to something that has been published on a web site. For whatever reason, online posters seem comfortable with making statements they would never make to someone in person. Many of these messages are not grammatically correct, contain numerous spelling and/or factual errors, make slanderous accusations and include all types of outlandish comments. The vast majority of these individuals choose to remain anonymous. Some feel that they are doing a service to others by stating what they feel has been left unsaid. What many of these posters fail to recognize is that the content, presentation and tone of their message discredits the vast majority of franchisees in the eyes of those reading such a message. It is entirely likely that franchisors monitor many of the public discussion boards as one method of determining the pulse of their own franchisees. These poorly considered messages are unlikely to sway a franchisor nor are they likely to be considered reliable by other readers.


Three Suggestions to Improve your Online Posts

Identify Yourself - If you are uncomfortable with disclosing your identity, perhaps what you are saying needs to be reconsidered or presented differently. Don't use anonymity in place of preparing a more thoughtful and considered message. Anonymous posts are not and should not be considered to be credible. Instead of serving to advance dialog, anonymous posts more often result in a less than professional discussion of the topic at hand. Traditional print media learned long ago that the best way to promote thoughtful comment is to only publish those letters from an identifiable individual. In the online world, this lesson has yet to be enforced.

Read your message three times before posting - Is your message grammatically correct? Is the spelling correct? Have you completed your thoughts? Can portions of your message be interpreted differently due to lack of clarity? Does your message add to the discussion or are you simply repeating something that has already been said? You only have one opportunity to present your message before it is seen by the world. Be sure to give the right impression.

Do not criticize or complain without offering an alternative - It is much too easy to criticize or complain than to provide a more considered option. Yet it is quite common for online posters to make a complex topic appear much simpler by ignoring facts that may be inconvenient for them. In this way, the Internet has become the chosen venue for those opposed to virtually anything. Anonymity, false claims and repeat postings by individuals, or one individual pretending to be many, seek to misrepresent a reality that some prefer to ignore. Requiring individuals to follow some basic rules in order to have their opinion heard is not an unreasonable stipulation to facilitate discussion.


Demanding the same discipline for online postings as required for publication in traditional media would be an admirable goal. At the very least, these standards would lead to a more supportive environment where thought leaders are more likely to participate and, possibly, thrive. The net effect would be to present the franchisee community as a more professional, knowledgeable and authoritative group.



Conclusion

Franchisees, like most small business owners, are an independent lot. Many have succeeded where larger corporations have failed. They do so by understanding their own businesses to the minutest detail, by doing much on their own, making most decisions independently and having confidence in their own abilities.
Admirable as these traits are, however, there are limits to one's knowledge and capabilities. There is an old adage - a person who represents himself has a fool for a client. This was meant to describe someone choosing not to employ separate legal counsel at a criminal trial. Perhaps the same can be said about someone who thinks they can successfully oppose a large corporation without a comparable organization. Many in franchising have tried. Few have succeeded.

Unfortunately, the Internet has become a tool for the handyman lacking proper expertise. They have all this information available to them yet lack the ability to distinguish among good and bad information, and have even less ability to effectively use this information. It wasn't always this way and there is no need for the current situation to continue.

Franchisees need to acknowledge their individual limitations, recognize and support the development of institutions that compensate for these limitations, and allow these institutions to represent them in their dealings with franchisors.


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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

Monday, May 2, 2011

How the Franchise Industry misused the Internet - Part 4 of 5

This is the fourth of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.
 
Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

 
At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at www.FranchiseFactsUSA.com.

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The Internet has had a significant impact on the Franchise Industry as a whole. There are many ways in which the Internet has facilitated communications within the industry, increased sales, improved customer service and even resulted in new products/services. Nevertheless, this industry has had to adapt as it has lost many of its institutions while those that remain are less effective. This has negatively affected both franchisor and franchisee in ways that are not often considered.

 
Individual franchisees have become more empowered. They have greater access to more information, vendors and services. Many no longer rely on their associations (institutions) for direction, services or support. There is, however, a negative aspect to these changes that is not often considered. While not entirely comprehensive, here are some of the ways in which the Franchise Industry has been negatively impacted by the growth of the Internet.

 
  • Franchisees are now better able to obtain information on their own through the Internet but are often incapable of distinguishing good information from bad. In the past, this was a role served by Franchisee Associations. Today, franchisees lack access to those better able to critically review and comment on a wide array of topics from proposed changes in a Franchise Agreement to new legal documents they may be required to sign, new product or service offerings that are mandated by a franchisor or a new pricing structure. More often than not, I think that the main source of comment on these types of issues now comes from the franchisor. Franchisees lack the expertise to critically evaluate the impact of proposed changes that may have been drafted by attorneys or business professionals. They also lack their own research in support or opposition to changes that are being considered. Finally, franchisees lack the financial resources to obtain representation or guidance from professionals better versed in these matters. The lack of an effective Franchisee Association results in a reduced ability to make positive recommendations to a franchisor, and to oppose changes or an approach that may not be in the best interest of franchisees.

  • Franchisees are most often small business owners who lack the skills, time and desire to analyze the impact of macro events on their local business operation. Their focus tends to be on the day to day issues surrounding the survival of their business and overall profitability. Franchisees often make a determination that supporting a Franchisee Association is of no benefit to them because there appears to be no short term return on their investment. The problem with this approach occurs in the future when franchisees find their livelihood is threatened. Perhaps the franchisee has signed an amendment to their Franchise Agreement that they did not fully understand and which may have relinquished control over pricing or product offerings. The amendment may involve higher payments to the franchisor for infrastructure (such as a new store signage, a menu board or technology support) or services newly deemed necessary by the franchisor. By the time franchisees fully understand the implications of what they have signed, the damage is done. The time to enact change is prior to signing such an agreement. At these times it is essential that the infrastructure of a Franchisee Association exist and be fully operational in order to combat these threats at the time that they are presented.

  • Ongoing research is often deemed an unnecessary expenditure. I would argue that the lack of ongoing research is exactly the reason why franchisees often complain about their franchisor. While there is often anecdotal evidence within a large franchise, solid information on any one area of the business (or of the franchise network) is often lacking. While a franchisor may undertake their own research regarding initiatives that are of interest to them, franchisees lack the information to support their own interests. Franchisees often have little knowledge of thoughts and opinions of other franchisees, their financial situation or other information that may be needed to support any particular business perspective. Yet that is exactly what is needed when confronted with an urgent business threat or opportunity. Lacking this information, franchisees have no alternative but to rely on research that may have been provided by their franchisor, and any interpretation of this information that may have been provided. There are times when this information may be incomplete or designed to improve corporate revenues at the expense of franchisees. While some argue that it is the franchisor's role to look out for their franchisees, the reality is that a franchisor has to strike a balance between the needs of multiple interest groups. Without a Franchisee Association taking on this research role, essential decision making resources are unavailable to the franchisee community when they are needed.

 
Both franchisee and franchisor suffer from the changes identified here. As the weaker party in the business relationship, franchisees must work together to if they desire to have an impact on the decisions made by their franchisor. And without a Franchisee Association to represent them, franchisees are normally unable to present a united front to combat business threats or to exploit business opportunities. The loss of a single voice and combined resources of an organized group, once provided through the Franchisee Association, also makes it more difficult for a franchisor to engage in dialog with franchisees. Decisions must still be made but with less effective input from franchisees. As a result, more of these decisions are likely to benefit the franchisor simply because franchisees do not see the value of supporting their own institutions.

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About the Author

 
Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

 

 

 

 

Monday, April 25, 2011

How the Franchise Industry misused the Internet - Part 3 of 5

This is the third of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.


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To best understand how the Internet has impacted on the institutions within the Franchise Industry, one must first understand the scope of this industry and the role of its institutions.

The Franchise Industry is a $624B industry. It is larger than the entire durable goods industry which includes automobiles, computers, trucks and airplanes. It creates nearly 10 million jobs and generates approximately $229 B in payroll. Overall, it accounts for an estimated 7.4% of all private sector jobs. (Source: Economic Impact of Franchised Businesses, A Study for the International Franchise Association Educational Foundation; PriceWaterhouseCoopers, 2004)

The Franchise Industry is comprised of two distinct groups, franchisees and franchisors. Franchisees own local businesses and generate revenues by selling products/services to the ultimate consumer. Franchisors provide support services to franchisees in return for various payments. Each of these groups have different goals. Franchisees desire to maximize their profits by limiting their payments to their franchisor while receiving as many support services as possible. For the Franchisor, the goal is the exact opposite. Franchisors desire to maximize their revenues from franchisees while spending as little as possible on the services they provide. This is a symbiotic relationship where both parties are dependent on the other for survival yet compete to maximize their benefit in this relationship.

When an individual franchisee needs to communicate with their franchisor, for good or bad, they can be at a disadvantage when dealing with a large organization. It is for this reason that the Franchisee Association exists. Franchisee Associations provide many services to franchisees including educational programs, informational newsletters, facilitating communications with franchisors, developing or supporting business development initiatives, educating franchisees and conducting proprietary research.

While all these services are important to ongoing franchise relations, it is research that is least understood and (arguably) of most importance. There are times when franchisor and franchisee look at opportunities or challenges from a different perspective. Perhaps franchisees feel that a particular product is priced too low or that advertising is ineffective. Alternatively, franchisees may feel that vendor product or pricing is too high. In order to justify a change these types of changes, solid documentation is often necessary. It is this ongoing research that provides franchisee groups with the supporting evidence and/or documentation to support this franchisee perspective, or to quantify the negative impact of what may currently be a bad business policy. The need for this documentation is particularly important when the franchisor perspective is in conflict with the franchisee perspective.

Out of necessity, Franchisee Associations have morphed into two types. In the absence of Franchisee Associations paid for and supported by the franchisee community, franchisors have created similar organizations and provided them with funding. Where both forms of association exist, those supported through funding by the franchisor tend to dominate because they have the ear of the franchisor and also the financial resources to undertake initiatives. Unfortunately, these franchisor supported groups can be in conflict with franchisee interests. Their dependence on the franchisor for funding and support services limits their ability to fully represent the franchisees. To cite just one example, there is no reason for a franchisor to support and fund research by a Franchisee Association when the research results could conflict with their own corporate agenda.

The term Independent Franchisee Association refers to the franchisee association that is fully funded by franchisees with a sole purpose of representing franchisee views in all dealings with their franchisor. Because of its independence from the franchisor, this group tends to be better able to represent the franchisee perspective and support their interests.

Franchisee Associations also exist at more global level. These groups can provide a single voice for the numerous franchise specific associations when it comes to broader issues. These associations may serve as a lobby group to the government, for example, or to undertake research of or on behalf of the entire franchise industry. These associations may represent franchisors or franchisees.
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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet - Part 2 of 5

This is the second of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.
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For over a century we have relied on print media to provide us with in depth and unbiased information about our society. The Internet is viewed as an improvement on our ability to communicate with each other and to access information.

Media has now moved to the online world. Magazines and newspapers have lost their traditional customer base - both advertisers and those who purchase the product. Media is challenged by convincing consumers to purchase their product(s) when they also distribute the same information for free on the Internet. And in today's society, people are too busy to read in depth articles on a particular subject. Most individuals prefer to listen to brief sound bytes or read short articles that summarize the information for us. In this environment, the market for print media is declining at a rapid pace.

The consequences of this are significant. We continue to lose the gatekeepers who were most capable of providing relevant information to us. The print media that remains today is much smaller and less capable of providing the quality information of the past. What remains is shorter in length, less effectively researched and more dependent on biased sources of information that is easily reproduced. Former reporters of the news were the first to migrate to the online world in order to replace the incomes they lost as their jobs disappeared. Through this transition, it was hoped that the tradition of effective and relevant print media would migrate to the Internet. It has not worked out this way. Most former print media writers found that they could no longer earn a living in a world where few would pay enough for their expertise. Yet this was only the beginning of the decline in media.

The online world quickly became overpopulated with individuals reporting or redistributing information. Individuals began to build their own personal online presence for many reasons - far too many to describe here. They often did so because there was no longer a significant cost to online communications. Simply start a inexpensive web site, blog or just reply to existing articles. Most felt they could earn a living by selling advertising yet very few have proven capable of doing so. There are now far too many information sites seeking advertising dollars in a world where few are willing to pay for content.

There is now an unrealistic consumer expectation that information should be available at no cost to the reader. I would argue that the fault for this lies entirely with the newspaper industry. They made a decision to put their content online for free despite the high cost of gathering this content. This has destroyed the perceived value of their product and had many unintended repercussions. Reporting news is costly. Without revenues to cover these costs, many jobs have been lost. Publications became smaller and less frequent. Many have disappeared. The information we now see in these publications is usually less effectively researched and dependent on less credible but easily available sources of information. The ripple effect of these events, however, is what this paper is attempting to address. Many necessary institutions that also depended on placing a value on information (and intellectual expertise) have been negatively affected by these events.

In place of these failing institutions we now have too many news websites, online newsletters, web sites and blogs. The belief that everyone could sustain their new businesses with advertising revenue was and remains impractical. To feed this growing expanse of sites that provide free distribution of information, we have seen an increase in communications directed to these sites - press releases, company announcements, government initiatives and privately contracted (or internally generated) surveys to support specific products/views. And the reporters of this information no longer have the desire or ability to focus on unbiased and relevant information while ignoring biased sources of information. In short, we have sacrificed quality of information for an increasing quantity of irrelevant or unreliable information. It is now up to the reader to decide what information is relevant and accurate, while also identifying what information may be false, incorrect, misrepresented or simply fabricated. And it is increasingly evident to me that most individuals are not up to this task.

None of these drawbacks to Internet communications are recent. As early as 1998, an article in a Chinese publication used the term "Internet junk" to describe "use of the Internet to disseminate ... product catalogues and advertisements." This article talks about the spread of a massive amount of "junk" at extremely low cost. This was combined with a "lack of regulations and standards ..... to produce any type of information - real and fake information, correct and wrong information, good and bad information - thus creating a flood of information online. The result is to make it easier to mislead people .... while increasing the difficulty and cost of searching and using valuable information, thus wasting considerable Internet resources and time." (Source: The Negative Impact of the Internet and Its Solutions by Ru Guangrong, The Chinese Defense Science and Technology Information Monthly, Issue 121, 1998)

Further adding to the destruction of informed reporting of information is a more recent phenomenon of allowing readers to comment on a particular article or posting. It is ironic that individuals who could not be bothered to write a letter on a topic think nothing of drafting a poorly thought out, nasty or otherwise inappropriate e-mail to anyone of their choosing. Unlike Letters to the Editor which are selected for publication based on content and awareness of the author, these online comments are often not controlled in any way. Posters can and often do hide their identity and choose not to disclose their reason(s) for posting. This anonymity and lack of disclosure often results in a less than professional discussion of the topic. Individuals who can contribute useful information on a subject are often less likely to participate in a public discussion that very often degenerates into a mean spirited distortion of the topic at hand.

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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet

This is the first of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.


Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion
At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.
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The Internet is now an accepted part of the way in which we all communicate. Low cost computers, cell phones and networks have allowed this technology to become ubiquitous. We access more information than ever before at lower (or no) cost. Industries and institutions have changed to embrace this technology. Yet our ability to manage and understand this information has not improved. In many ways, much of our society has lost the ability to critically evaluate information.
It has been nearly fifteen years since I wrote about technology. Back in the 1990s, I published approximately two dozen articles on how to best utilize technology for business and investing. My focus was on the use of the Internet and information technologies. I was also a public speaker on these same topics at technology conferences in Canada and the USA. Since 1998, I have been part of the franchise industry.
Today, I look back on how the Internet has developed over the past twenty years with disappointment. The Internet is, first and foremost, a mechanism for communication and the sharing of information. So how is it, in the Franchise Industry that I have been part of for more than a decade, that during this same time franchisees seem to have lost ground during a period when the ability to communicate among themselves has improved so dramatically? Why is it that franchisors are now perceived as being more ruthless in their dealings with franchisees than ever before? Is this perception correct? This paper documents the way in which I have come to understand what has happened these past twenty years. Through this process I have come to three conclusions.
A. Franchisors have not changed in the way they work with their franchisees. Franchisors have adapted, out of necessity, to changes that have been forced upon them by the franchisee community.
B. Internet technology was never envisioned as a way to destroy institutions that have existed for decades. Yet that is exactly what has and continues to occur in the Franchise Industry. This situation has come about by decisions made by a very significant proportion of individuals (franchisees) to no longer support their own institutions.

C. The necessary equilibrium in franchise relations has been disrupted. Franchisors no longer have the opportunity to work with franchisees speaking with a single voice. The organization tasked with this responsibility, when it exists, no longer has the financial resources and intellectual capital needed to fulfill this role.

This paper provides an overview of how the Internet has affected overall communications and flow/quality of information. It then addresses how these changes have become entrenched in the Franchise Industry. Finally, recommendations are provided for improving the current situation.

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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at www.FranchiseFactsUSA.com. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

Thursday, March 24, 2011

Critical Support Areas for New Franchisees (Embracing New Franchisees when Unhappy Franchisees Depart)

There is considerable documentation through this report that many franchise owners are unhappy with their current situation and are contemplating changes to their career.

While some of this dissatisfaction can be attributed to a poor business climate, this report documents many areas that are more controllable. For example, many franchisees report dissatisfaction with most aspects of their relationship with their franchisor. Satisfaction ratings rarely exceed 55% and many rating categories receive satisfaction ratings in the teens. The exceptions to this are new store and pre-opening support, both of which are of short duration and received some of the best satisfaction ratings. It appears that many franchisors may be more effective at providing this shorter duration support to newer franchisees than they are at providing ongoing support.

A majority of respondents feel that the services provided by their franchisor are poor, and that the franchisor does not understand what it takes to be successful at the franchisee level. While there may be a valid difference of opinion on what is needed to be successful within a franchise, franchisors should take note that many of these franchisees would not be prepared to provide a positive franchise referral to prospective franchisees. When it comes to business generation through marketing, advertising, the Internet and in store materials, most respondents also gave their franchisor low ratings.

The bottom line is that many current franchisees appear to be contemplating or actively preparing for a career change. Only 16% of respondents anticipate continuing to operate their franchised business five years from now. While some of these individuals may choose to remain in franchising, we anticipate that the franchise industry will need to embark on a major recruitment drive to attract new recruits to the industry.

Regardless of the reason, an infusion of new franchisees will be a necessity simply to maintain the current industry infrastructure and revenues. Anything less will result in a contraction for affected companies within the industry. To prevent such a contraction within a specific franchise, there needs to be a focus on services most important to attracting and supporting newer franchisees.

Support requirements for new franchisees can be quite different than what is required by their more seasoned counterparts. More specifically, newer franchisees tend to require more (initial) training as they learn their new business. New franchisees rely on franchise newsletters (and other communications) to learn about industry best practices. They are learning new, and often proprietary, computer software. And new franchisees are cost conscious after investing significant sums of money to open a new business.

The accompanying table highlights types of ongoing support (as opposed to the shorter duration new franchisee support) from our survey that we feel are most important to the new franchisee.


This table shows that just 55% of respondents report receiving access to training manuals or tutorials. This does not mean that 45% of respondents do not receive training. It does mean that training may be less formal, possibly limited to verbal instruction, and most likely lacking in resources for future reference.

We have found that franchisees are dissatisfied with some types of ongoing support that we feel are most important to the new franchisee. Only 12% of respondents report that their franchise newsletter is a useful informational resource while 53% strongly disagree with the same statement. Overall, 21% of respondents feel that they received any form of training that helped them to be successful. Technology services are considered adequate by 27% of respondents and vendor programs are considered useful by 18% of respondents.

Franchisee support can vary widely among franchisors as can the fees paid by franchisees for this support. Franchisees paying higher fees are more likely to expect a greater level of support. Those who pay lower fees are more likely entitled to and receive lower levels of support. Regardless, lower levels of satisfaction with the support that is being provided is an indicator that some change is warranted.

As franchisors determine their need to recruit new franchisees to replace those leaving their system, it is the above mentioned areas that we feel will need to be addressed to best support these new business owners.

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This article is a reprint from FranchiseFacts' Franchisee Satisfaction Survey Annual Report 2010 - Survey Results and Analysis. Perry Shoom is the founder of FranchiseFacts - a research firm that conducts private and public research for the Franchise Industry. The 2011 Franchisee Survey is in progress at http://www.franchisefactsusa.com/. If you are a franchise owner or store manager, please participate. FranchiseFacts does not disclose identifying information that may be provided by survey respondents. Your participation in a FranchiseFacts survey means that you can honestly and openly communicate your responses without disclosing your identity to third parties. FranchiseFacts is an Approved Survey Vendor for IAFD