Disruptive Technologies: Multi-unit zees are key to optimization

As a research company, we have the benefit of having lots of confidential information shared with us. Over time, it allows us to see less obvious trends that develop slowly, often barely perceptible to most, but that have important implications during times when dramatic changes confront franchising. With the impact that artificial intelligence (AI) tools will have, we are facing a dramatic change today. Two of the greatest concerns are the speed with which it is coming and the likely missteps it might cause.

AI is getting the most buzz of any technology ever, and we’ve had a lot of them. The consulting firm McKinsey estimates that more than half of worker hours worldwide are spent on tasks that can be automated. Of particular note to those of us who manage the execution of the franchise business model, McKinsey notes that about 75% of the potential value from generative AI will affect customer operations, marketing and sales, software engineering, and research and development. All of these functions are central to how we manage the franchise business model. Further, technology historically has solved efficiency issues that affected workers with less skill and experience. Generative AI is aimed directly at knowledge workers.

What’s on managers’ minds?

What does this have to do with our research observations? Earlier this year, we were asked by a Fortune 50 company to survey franchisor management teams. Our client wanted to understand what most concerned them. Here’s what we learned.

Ahead of the “risk of prolonged high inflation and economic downturn”(56%), they selected the rise of disruptive technology as their most concerning trend (58%). Within their disruptive technology responses were three frequent mentions: developing advanced analytics (62%), enhancing cybersecurity (48%), and automating work (45%). Two of these three were aimed directly at AI.

Multi-units and AI

Why is that significant to multi-unit operators? It’s easy to see what is happening on the surface of the water, in this case the growth of multi-unit (MU) operators over time. Understanding what is happening below the surface requires a better understanding of trends. I turn to the evolution of MUs and their importance as we confront AI.

MUs weren’t universally desirable decades ago largely because of the concern that they would be too hard to manage as they got bigger. That gave way for most franchisors as they saw the value of MUs in their systems. Their voices carried a lot of weight with other franchisees, and they became more appealing to most franchisors.

Over time, MUs expanded into multiple brands, which presented the next evolutionary adjustment for franchisors. Initially, this expansion also was viewed skeptically, whether for competitive or simply selfish reasons. Many franchisors tried to discourage this trend in various ways with their own franchisees, but soon found franchisees of other systems attractive because of their experience at executing franchise businesses. So multi-unit and multi-brand franchising continued to grow. MUs gradually gained more negotiating leverage with brands, including experimentation with new products and processes.

Franchisors increasingly turned to MUs to improve their systems. What started as a take-it-or-leave-it relationship has evolved into a relationship where MU understanding of what works and doesn’t work is integral to how many systems adapt and expand. That brings me to another lesson from the Fortune 50 survey: MUs are key decision-makers for brand-wide technology strategies. Here are the details.

Conclusion

AI is coming quickly, and that means risks such as privacy concerns, algorithmic bias, bad data, and simply wrong decisions. Having knowledgeable, experienced business people on the front line will increase the likelihood that missteps will be few and benefits many. 

Darrell Johnson is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703-740-4700 or djohnson@frandata.com.