Time For Benchmarking: All That's Needed Is The Will

I am convinced that someday the franchising community will finally get around to unleashing its biggest competitive strength: unit predictability. If a franchisee had the benefit of knowing how every other franchise unit performed over time, could look at what worked and what didn't, and could build their business with that knowledge, the efforts of franchisors would become much more effective. Think how much more powerful this approach would be than being "advised" by training and field support staff rather than shown the results of best practices.

Franchising is uniquely structured to utilize benchmarking capabilities--first, because of the consistency in how the model is applied, and second, because of the size of the unit universe (in excess of 450,000 business format units). Some brands would argue that's what their training and field support programs do now. However, I believe there's a distinction between telling someone how to do something and showing actual cause and effect. Training and field support are a form of consulting: do it this way and you'll have a good outcome. Yet business decisions that must be made in real time with constant change are easier to make when the decision-maker is being given real-time quantitative and qualitative information.

I think we are beginning to see a gradual conversion from advising franchisees to providing them with information that enables them to understand how to make better decisions. The technology has been there for years. What is lacking is the cultural adjustment that encourages it. There are examples of its power, but they have yet to take hold in a substantial way. This surprises me, since the economic argument is powerful. I've worked with a benchmarking company involved with businesses associated with the cooperative business model. It has generated millions of dollars of revenue enhancements and expense savings in disparate industries. And they have forecasting models that guide business decisions.

Some franchising systems have made good progress with unit benchmarking. In the franchise community--where openness to change is there, where sharing ideas is a hallmark, and where success becomes readily apparent to others fairly quickly--I would have thought the benchmarking leaders would gain a lot of attention. So far it hasn't happened, so I've looked at industries where it is integrated into the business fabric.

I've observed with fascination how one part of the franchising community--the hotel industry--has built a participatory benchmarking program that has powerful economic benefits to hotel operators. They have created the capacity to understand pricing and demand changes in real time. This doesn't make being a hotel franchisee easy, but it certainly makes it easier.

The IFA understands the power of benchmarking information in the franchise business model and is trying to gain traction with franchisors to help them run their businesses. That continues to be a challenge. FRANdata has tried several times to design benchmarking programs and will continue to do so because the economic benefits of doing so are so compelling. Yet all these efforts have not produced significant results.

Getting started

That brings me to multi-unit operators. As a stand-alone business group, you have a powerful opportunity to step outside the regulatory and cultural practices of the brands you're associated with and consider new ways to share information. The upcoming Multi-Unit Franchising Conference is a big contributor to information sharing. The question I pose is this: Are multi-unit operators ready to take information sharing to a level that the hotel industry, and some using the cooperative business model, have been benefiting from for years?

There seem to be three main barriers to overcome. The first is cultural--sharing confidential information. Franchisees have long applied a line between information that is required to be shared with the franchisor under the franchise agreement and all other information. Somehow the hotel industry franchisees got over that so it can be done. If multi-unit operators form their own benchmarking program, franchisors wouldn't even be involved.

The second barrier is price in relation to value. Regardless of what a benchmarking program costs, it's hard to show definitively that the value is there until the benchmarking is being used. That means there's an element of faith, regardless of how well expectations can be articulated.

Finally, there's perhaps the biggest impediment--the painful gathering of necessary data and information by the operators. I have yet to have anyone tell me they look forward to starting the actual work of a benchmarking program. Mostly it's perception, but there is some reality to it as well. The perception is that each operator will have to change how they collect data, just to accommodate a benchmarking program. That isn't always the case. I've worked with firms that make translating your data into a common chart of accounts their problem and don't force you to change your behavior. Yet the reality is that there is work involved to get the benefits of a good program.

I do think there is a consistent and gradually increasing drumbeat for benchmarking. Perhaps multi-unit operators can take that on. I strongly suggest having those conversations at the upcoming Multi-Unit Franchising Conference. I'd appreciate your thoughts. See you there.

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.