Pulling franchisee data back: common practices and implementation.

Franchisees are an incredible source of information. Only recently, however, has it been cost effective for more than a handful of franchisors to tap this data and make use of it. There are three main reasons to collect franchisee data: to enable franchise systems to increase the franchisees' likelihood or level of accomplishment; to detect and prevent fraud; and to provide the company with strategic information to enhance achievement. There are others reasons, of course, but these three will be the focus of this article.

Which Data?

The first question when planning a Franchisee Information Collection system is, "What data should be accessed?" The data available are vast, but the collection process usually lies somewhere along a standard continuum.

Every franchise collects basic royalty information, but many are collecting additional data. Typically, most franchises are probably planning to expand their information collection in the next few years.

Before deciding to collect gigabits of data, the franchise system should determine what it wants to achieve with the information. How can retrieving more data work for the system and not just represent more work? Pulling detailed sales data (e.g. broken down by product or service) is a great way to study franchisees' growth; which stores are growing faster than the "normal" curve, which are stagnant and which products are the hot-sellers in that market.

If the system has corporate marketing expertise, it probably has the know-how to make use of order and customer demographics. Franchises that provide customer and ordering profiles based on real data give operators meaningful information to grow their business. Some franchises have gone so far as to take over the marketing program for their franchisees. This is usually accomplished through an outsourced marketing company and is a great way to create value at both the corporate and local level.

Beyond marketing and sales analysis, FIC systems can provide franchisee profit-and-loss data and monitor franchisee staff. While this seems Orwellian to many, there are benefits from this extra step. How much is it worth to know the sales and cost structure of other companies in your industry? One major franchise publishes the monthly profit and loss statement (in percent of sales) of every franchisee on their intranet, ranked in order of sales success. Owners are encouraged to compare themselves to others and develop the blueprints to improve. Corporate staff can identify struggling locations very quickly, which is critical if you are a fast growing franchise.

Employee tracking is commonly done in service franchises where payroll is facilitated by the franchisor. Employee tracking provides two major tools to the franchisee: productivity measurement and fraud detection. The benefits of productivity measurement, usually measured in sales-per-employee, are straightforward. Fraud detection usually relies on studying employee trends. The techniques will vary by industry, but one simple example is to measure the orders started but subsequently cancelled or voided. If this number varies dramatically by employee or for the same employee over time, it warrants further investigation.

At this point, franchisors may be thinking that they already provide franchisees with many of these tools discussed. As one franchise information technology director said, "We know what makes our stores successful. We know what they need to do. But no matter how simple the tools are, a large percentage of owners regularly fail to use them." Analyzing the data at corporate creates tools that are not dependent on the franchisee to execute.

Systems for Data Collection

There are numerous solutions for collecting the franchise data, each with its own advantages and disadvantages.

Data collection methods range from manual (faxing, mailing) to semi-automated (e-mailing data or having the franchisee enter it on the Web) to automated (polling programs and dedicated Web or PC applications). As the cost of FIC technology has fallen dramatically in the past few years, more franchises are transitioning to more sophisticated data collection methods.

The cost of retrieving the data is proportional to the burden of work placed on the franchisee. For this reason, manual FIC systems are typically limited to basic royalty data. Web-based systems that require the franchisee to manually enter data face this same limitation. These systems are easy to implement, and may have huge financial benefits (most notably less manual entry and faster royalty cycles), but do little for the quantity or quality of data collected.

Polling systems require more work than Web-entry systems, but allow for the background transfer of virtually any information. The limit of this approach is normally the consistency (and electronic availability) of the information. To be effective, all franchisees must use a common software platform. In these cases, most franchises choose to build the polling into the software platform.

More franchises are moving towards a technology architecture involving a central software solution where all data can be accessed by corporate. This can be achieved with either a centralized Web solution or a specialized PC solution. Web-based solutions have an inherent advantage that the data is centrally stored, so no polling is needed.

They are also typically cheaper to deploy, require less skill to operate, and are less dependent on the user's computer system. One challenge franchisors face is that the ongoing costs of operating Web-based systems seem high to end users who think of the Internet as a "free media." For this reason, many franchisors treat Web-based systems as a corporate expense.

Expenses for PC-based systems, by contrast, seem more tangible and are almost always paid for directly by franchisees. Because performance does not rely on (or fluctuate with) the speed of the Internet, PC systems normally provide faster response times and can use graphical interfaces to a level still not possible on the Web. When properly deployed, PC systems can synchronize data routinely with a master corporate database at almost any desired frequency without difficulty. One major franchise synchronizes every franchisee database every 15 minutes.

Closing Advice

A good FIC system can position the company to help franchisees succeed and gives franchisors the strategic tools they need. Regardless of the state of the current collection system, make sure that the franchise has the legal right to implement a complete FIC system when it is ready. This needs to be carefully spelled out in the UFOC. If it isn't there already, insert it immediately. If it is already there, check that it is up to date with concepts such as mandatory Internet connectivity. The sooner any program is implemented, the less traumatic it is. This is especially true for young franchises. New franchisees adopt almost any system provided without question or suspicion. Converting existing franchisees takes longer and expends a lot of political capital.

Regardless of the data and technology collected, the true value of any FIC system is how much information can be extracted from the data collected. How this information is used to help the franchisee and franchisor is the measure of success for any FIC system.

RELATED ARTICLE: Carrots or sticks?

Implementing or expanding Franchise Information Collection systems usually garners resistance and suspicion from franchisees. A culture of openness, information sharing and trust is the best way to overcome these concerns, but even the most altruistic organizations face resistance. This raises the inevitable question, "Which approach is better to engage franchisees, the carrot or the stick?" The answer to this question depends on the corporate culture, but both methods are probably required to achieve full compliance.

Effective sticks are always controversial at the franchisee level; effective carrots are always controversial at the franchisor level. Some frequently used carrots include information feedback, temporary royalty reduction, additional support and technology credits to name a few. Limiting information gained from FIC systems to those who participate is effective when the franchisees see value in what is given back. Temporary royalty reductions (e.g. one-quarter percent through a certain date) have real costs, but these costs are easily quantified and encourage stores to move quickly.

Most successful implementations achieve their goals not by carrots or sticks, but through a balance of carrots and sticks. To give franchisees the motivation to act, offer perks (the carrots) to franchisees that act now, but mandate that future change is inevitable (the stick).

M. Scott St. Cyr is the CEO of Cyrious Software, a software company specializing franchisee business solutions. He can be reached at 225-752-2867 or [e-mail].

Method            Advantages                  Challenges

Fax/Mail          Very easy to use.           Lots of work to collect.
                  Feels non-intrusive.        Lots of work to enter.
                                              Where to get information?

Emailed File      Very easy to use.           Lots of work to collect.
                                              Lots of work to enter.
                                              Where to get information?

Web Entry         Easy to administer.         Manual entry required.
                  Easy to use.                Limited data collection.
                                              Data v. Time to enter
                                                tradeoff

Polling Program   No daily franchisee         IT and local PC
                    involvement.                challenges.
                  No additional data          Where to get information?
                    entry.                    Some Internet dependence.
                                              May feel intrusive.

Specialized Web   All data centrally          Internet dependent.
Application         stored.                   Corporate IT burden.
                  System tailored to needs.   Who pays for service?
                  No additional data entry.   Software development and
                                                maintenance

Specialized PC    System tailored to needs.   Software development and
Application       No additional data entry.     maintenance.
                                              Some Internet dependence.