Fanchisors and Franchisees Must Learn to Deal with Change

by Ed Teixeira

All organizations need to make changes in order to maintain the vitality of the business. This is true of franchise companies. When significant changes are made, franchisors and franchisees must be equipped to deal with change.

It’s a given that franchise organizations will implement some change to the franchise program from time to time. The inevitability that businesses change is as sure as death and taxes. However, there are some changes that can create turmoil. Consider the recent litigation between both KFC and Burger King and their franchisees. Once a franchisor decides to make a significant change, it should be communicated to the franchisees before the change is implemented. The reasons for prior notice can include:

• Using the franchise advisory council as a sounding board
• Simply giving franchisees the courtesy of knowing about the change
• Providing the entire franchisee community an opportunity to respond
• Enlisting select franchisees to help mold the change in order to avoid a confrontation

Some changes are simply procedural in nature and can be implemented as per an existing policy. Typically, the process involves a written revision to the franchise operations manual followed by notice to the network.

Major changes that have a direct impact on franchisees demand special attention. In certain cases, the change may not be that significant, but rather the perception by franchisees is that the change is the beginning of "more to come."

Examples of Important Changes Include:

1. Changes to franchise agreements that significantly revamp terms, renewal terms, royalty fees and default conditions. These changes can cause particular concern among franchisees that will soon renew their agreements.
2. Changes in marketing or advertising programs which will represent a significant departure from the current program.
3. Organizational changes that involve franchisees and those individuals who provide system support for franchisees.
4. Changes in the direction of the business or company strategy that involve applying resources to a new venture or business

For its part, franchisees should be willing to accept certain changes as the need for the franchise organization to adapt and evolve may be a business necessity.

Some franchisees may establish various committees to interface with company personnel. One of the most effective committees that can be utilized is the advertising or marketing committee. Composed of franchisee representatives and key company personnel, this group can provide the franchisor ongoing feedback and information regarding marketing and advertising. In addition, an advertising or marketing committee allows for ongoing dialogue between the franchisor and representative franchisees. This "working group" can help to maintain positive franchise relations.

Some franchisors may create special committees or task forces to help deal with large scale change. The franchisor, however, must clearly state the purpose of the special committee. Some franchisors use committees to manage issues that result from newly implemented changes.

In order to maintain a positive franchise relationship during change the franchisor must do the following:

1. Evaluate and measure how the change will affect franchisees.
2. Gain feedback from the franchisee network regarding major changes. The feedback can come from franchisor field staff, or from the franchisees themselves.
3. Where the change is of significant impact to franchisees, consider a FAC or a special committee to help franchisees understand why the change is being made.
4. Demonstrate flexibility in introducing change. When feedback indicates a great deal of resistance to change, the franchisor should consider the situation, and avoid unnecessary confrontations.

Change is an important aspect of all relationships and especially in the world of franchising. It is important that the franchisor and franchisees conduct business within a climate of change that is positive that considers the needs and objectives of both parties.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com