Innovation and Franchising: Pros and Cons of Introducing Change to a Franchise System

A restaurant franchise introduces a new menu item, a senior care franchise develops a new program to serve the needs of their clients, a junk removal franchise creates an intranet network so that franchisees can communicate with one another. These changes sound like they’re all for the better—but are they?

It’s often stated that the most successful franchises are those that run based on well-tested and established systems. So exactly what kind of role does innovation play when it comes to franchising? Is there room for change and, if so, to what extent is change a good thing?

We posed the question to Jeff Elgin, CEO of FranChoice Inc., a network of franchise referral consultants; Tim Howes, principal of Spyglass Strategies, a franchise consultancy practice; and Christian Faulconer, CEO of Franchise Foundry, a franchise development firm, and came away with one resounding opinion: innovation is good, but when it comes to franchising, there are a few caveats.

Innovation in franchising: pros and cons

Innovation needs to be done correctly; otherwise, it can be costly. “In a franchise system, it is important to analyze the costs and benefits of implementing a change,” says Faulconer. “I've seen franchises make systemwide changes to save small amounts of money. Had they considered all of the costs associated with the change, they would have left things as they were.”

Nor should change be made solely for the sake of change. “Everyone wants to be more innovative, but innovation for innovation’s sake is a slippery slope,” says Howes. “If innovation is ‘the introduction of something new,’ then just because something is new doesn't make it great.”

Innovation can take on different shapes and forms, so don’t overlook subtle, yet effective, innovation. “Every business needs to be innovative, but that doesn't mean that you can't build a franchise around something that’s common,” says Faulconer. “Five Guys Burger and Fries is a franchise concept built around burgers, and you could argue that burgers aren't innovative. But Five Guys helped to create a better burger trend, and that was innovative. There is nothing wrong with doing something that has been done before as long as you innovate to make what you are doing better, faster, or cheaper.”

More articles from AllBusiness.com:

• Lessons Learned From Franchising a Business
• Can Franchising and Innovation Go Hand in Hand?
• These 7 Habits Will Help You Inject Innovation Into Every Part of Your Business
• The Power of Franchising
• Five Reasons Why Franchises Fail

How to introduce new innovations to a franchise system

So how can innovation and change best be introduced into a franchise system? Three words: testing, testing, testing. As commonsense as it may seem, testing is one factor that’s often overlooked. Says Elgin, “There are lots of examples of companies that impose changes on an entire system without much or any testing and without being able to show the franchisees actual data on how the additional investment to enact the change will benefit them.”

So for potential investors who are looking for a franchise that works hard to keep the company’s brand fresh and new, remember that it’s not just a question of how innovative a franchise system is, but how thorough the franchisor is in testing out and implementing the proposed change and at what cost to the franchisees. Does the franchise have enough company-owned locations that they can test out any changes without affecting franchisees, or do they need franchisee participation? “Franchisees don't always make the best guinea pigs,” says Howes. “They have to be open to change before you can inflict change on them.”

And don’t get caught up in the excitement around innovation. Dig deeper to discern the reality from the hype. “The challenge is that every company claims to be innovative,” says Elgin. “It’s like claiming to be ‘green—even if it’s nonsense, most companies claim to be innovative or green because it is what they think prospective franchisees want to hear. You need to ask for specific examples so you can determine the degree of actual innovation within any system.”

When is innovation a good thing?

How can you tell if change is a good thing for a franchise? According to Howes, innovation must do one or more of the following:

1. Create positive ROI that compensates for the risks involved with the innovation.

2. Create an additional discernible difference versus the competition.

3. Improve the customer experience.

4. Make operations more efficient.

RELATED: Important Factors to Consider Before Franchising Your Business

About the Author:

Sara Wilson is a freelance writer who specializes in issues related to small businesses. Contact her at wilson.sara@gmail.com.