Does the Internet Solve All of Your Franchisees' Problems?

Ways to effectively use the Internet
for franchisee operations

By Bruce Franson and Don DeSmith

In January 2000, America Online had just acquired Time Warner for $182 billion dollars in stock and debt, becoming AOL Time Warner Inc. Ford CEO Jac Nasser was proclaiming that the Internet “will transform how we think, design, manufacture and sell future products and, above all, how we and our dealers connect and relate with our customers.” Brick and mortar companies were scrambling to fend off what seemed to be a wholesale change in the landscape of business. It seemed as if the Internet revolution was inescapable.

Brick and mortar companies are back in vogue

We might smile at what now seems to be an almost comical fervor at that time. Jac Nasser is no longer CEO of Ford, though his predictions are slowly coming true. Time Warner has changed its name back and is now worth $76 billion dollars. Brick and mortar companies are back in vogue. Instead of revolution, there has been an evolution.

Few business owners would say that the Internet is irrelevant. Franchisors use the Internet extensively for lead generation, brand recognition and operations. Franchisees use the Internet for customer service, communication with satellite offices and support of franchise operations. Some franchise concepts are completely Internet-based. While there are many aspects of the Internet worth discussing, the focus here will be on the effective use of the Internet for franchisee operations.

Can’t we just run everything on the Internet?

Most franchisees need some sort of computer system to handle business operations. If franchisees sell a product or service to a customer, they need to track the order, accept payment, schedule service and follow up on customer service issues. By the 1980s, most used a point-of-sale system or a PC to handle customer transactions. With computers came the need for training, backups, maintenance and all the joys of owning a computer that had a mind of its own.

During the 1990s, email and the Internet became accessible to most everyone. By 2000, high-speed “always-on” Internet connections were increasingly available at a reasonable cost. Companies with many stores saw the potential for huge cost savings by centralizing all their computer operations rather than having multiple computers and a server in each store. Various IFA (International Franchise Association)-member companies that provide IT resources and others pioneered using the Internet to run substantial parts of a company’s operations. Some franchisors experimented with centralized operations, having no server in the store or office.

In early 2001, Servant Systems did some consulting work for Domino’s Pizza as they began a project to replace the computer systems in their stores. The possibility of using one or two data centers to run the order entry operation for all their stores, using the Internet as a backbone for the system was explored. There were many cost savings possible from such an approach (no server at the store, simple Web browser-based terminals, and centralized operations). However, looming over such a decision was the fearsome thought of 4,500 pizza stores being taken down at the same time by an Internet worm or other catastrophic failure. The cost of making the network reliable enough to support multiple failures far outweighed the benefits of centralized order taking and labor cost savings. Internet availability helps Domino’s smooth out their operations, but using the Internet in the wrong way would have been a recipe for disaster.

Customers’ rising expectations

Use of the Internet for customer communication (ordering, service, information) is a huge benefit. Very few franchise concepts have no need of the Internet as a means of increasing communication and contact with the customer in a way that the customer finds convenient. As a customer, it is a bit shocking when a company has no website or online inquiry capability (almost as shocking as going to a retail store and finding they only take cash). In some cases, the Internet hasn’t solved problems; it has created customer-service problems. For example, some service firms are nervous about allowing a customer to cancel an appointment online. They would rather make the customer call to cancel.

What are typical Internet-based solutions?

Franchisee operations typically are broken down into front-office and back-office operations. Front-office or front-of-store operations handle the customer, schedule service, sell and deliver the product. Back-office operations handle payroll, accounting, inventory and so on. Multi-unit franchisees often consolidate their back-office functions to increase efficiency and take advantage of particular expertise. Franchisor operations typically support and interact with franchisees via an intranet (a secure Internet site internal to the company) to allow for convenient franchisor/franchisee and franchisee-to-franchisee communications, royalty payments and electronic ordering of advertising materials, logoed items and products.

In the early days of the Internet, forward-looking franchisors and vendors first tackled the franchisee support and back office functions. These functions are usually less time sensitive and lend themselves best to a centralized solution. Several IFA-member companies and other firms handle some or all of these functions.

Some early adopters also tried Internet-based front-of-store applications with varying degrees of success. Successful implementations were mindful of key factors which are discussed in the next section.

Is my concept a good fit for Internet-based software solution?

When looking at a computer system to handle front-of-store franchisee operations, a few key questions can help you understand where you fit in the spectrum of those applications most to least amenable to an Internet-based solution:

• How much do I need a computer to handle my daily operations?

If a computer is critical to operations (high cost of down time during peak business hours), franchises generally are better off with a local computer system.

• How intensive is computer usage?

The more intensive the computer use - including significant data entry or graphics, or a need for instantaneous response – the harder and more expensive it will be to meet those needs with an Internet-based solution. Internet-based solutions are improving every year, but still cannot provide the same quality of user experience that a local computer system can.

• Where is my customer?

If the customer is right there in the store, franchise operators would want a local computer system. If the customer calls on the phone or comes through the website, lean more toward an Internet-based solution.

• How much communication is there between stores/franchisee units?

If each franchise unit is quite independent, lean toward a local computer system. If there is a high degree of integration between different units, an Internet-based solution becomes more attractive.

• How tightly tied are back-office and front-of-store functions?

If back-office functions are tightly tied to front-of-store functions (e.g., complex billing, consolidated billing between stores), it is difficult to separate back-office application from front-of-store application. If back-office functions simply deal with sales totals, payroll and occasional ledger functions, an Internet-based solution can easily handle back-office needs.

Recommendations

A few final recommendations for using the Internet to franchisees’ benefit:

• Talk with others

The IFA community is an excellent place to network and learn from the experiences of others.

• Get experience first

Start with a non-business-critical application. There may be some problems with a business-critical application, but resist temptation to do an all or nothing change. Start small and work from there.

• See if existing software can be Web-enabled

Consider adding Web features using Web services technology to enable the front-of-store application to send key performance indicators, orders, and other information via the Internet to the franchisee headquarters or the franchisor.

• Make sure franchises work with software vendors who understand franchising

Many software packages and solutions are incapable of addressing the fact that a franchisee is a separate (often multi-unit) business from the franchisor.

Bruce Franson is the chief technology officer and Don DeSmith is the president of Servant Systems, Inc. DeSmith is a member of the International Franchise Association’s Information Technology Committee. They can be reached at 734-475-1619 or bfranson@servantsystems.com and ddesmith@servantsystems.com.

Reprinted with permission of the International Franchise Association’s Franchising World Magazine. To view the International Franchise Association website, go to http://www.franchise.org/