BLS Institute of ManagementFeb 6, 2010

What is Franchising?

NIIT Confidential – Perspective Plan 2011-13 2

“A franchise operation is a contractual relationship between

the franchisor and franchisee in which the franchisor offers or

is obliged to maintain a continuing interest in the business of

the franchisee in such areas as know-how and training;

wherein the franchisee operates under a common trade

name, format and/or procedure owned or controlled by the

franchisor, and in which the franchisee has or will make a

substantial capital investment in his business from his own

resources.”

- Definition by International Franchise Association

Why Franchise?

• Legal and commercial arrangement

concerning the successful business of a

franchisor

• Use of franchisor’s trade name, format,

system and/or procedure under license

• Means to raise capital and expand

quickly

• Assistance to franchisee

– Marketing, management, advertising,

store design, standards specifications

• Payment by franchisee by way of

royalty, licensee fee or other means

3

4 4

Fundamentals

Why Franchising?

– Model for Multiplication, Synergising

– Profitability – For both

Key attributes of a Franchisee

– Is an entrepreneur / Owns the Business

– Invests money, time & emotions into managing

operations

– Return on investment a key driver

– Trust

5 5

Why buy a Franchise ?

• Group Advertising power

• Owning your business & making day to day decisions

guided by franchisor’s experience

• Benefit of identification of trademarks, proprietary

information, patents & designs

• Systematic training from experts

• Lower risk of failure and/or loss of investments

• Being a part of uniform operations throughout the

country

• Assistance in financial & accounting matters from the

franchisor, as well as ongoing support

• Enhancement of management abilities

6 6

Types of franchise

1. Product distribution franchise

2. Business format franchise

3. Management franchise

7

Types of franchise: Product distribution franchise

• A product distribution franchise model is very much like a supplier-

dealer relationship.

• Typically, the franchisee merely sells the franchisor’s products.

However, this type of franchise will also include some form of

integration of the business activities.

• Some Examples:

8

Produces the syrup

concentrate

Sells the syrup

concentrate

FRANCHISEEProduces the final drink

Retail Stores

Restaurants & F&B

Outlets

Vending Machine

Operators

Types of franchise: Product distribution franchise

Types of franchise: Business Format franchise

• In a business format franchise, the integration of the business is

more complete.

• The franchisee not only distributes the franchisor’s products and

services under the franchisor’s trade mark, but also implements the

franchisor’s format and procedure of conducting the business.

9

Types of franchise: Business Format franchise

NIIT Confidential – Perspective Plan 2011-13 10

Outlet in AustraliaOutlet in France

Outlet in India

Types of franchise: Management Franchise

• A form of service agreement.

• The franchisee provides the management expertise,

format and/or procedure for conducting the business.

11

12 12

Key dimensions

Financial

Marketing

License Agreements

Territory Management

Systems & Communications

Engagement

Conflict Resolution

Principles of Continuity

13 13

Financial

Financial Model: Win-Win

– And not that of squeezing the franchisee profits

– Risk vs. reward balance

Cost of Franchise:

– Uniform and consistent across franchisees

– Initial fee

– Royalty fee / Management fee

– Capital required

Marketing

Branding– Centralised, Local Marketing

– Standard designs / messages

Understanding Customer needs & environmental trends – Technology

– Customer needs, requirements

– Customer profile

– Competition (familiar, unfamiliar)

– Feedback from Franchisees

– Inputs from independent sources

14 14

15 15

Marketing

Advertising and Branding

Trademark Usage

Product / Price:

– Being competitive

– Meeting customer needs

– Introduction of new products and phasing out of

existing products

16 16

Systems & Communications

MIS: Franchisee & franchisor

Systems & Processes: For managing the franchise outlet

Support

Physical Monitoring

Communications– Communicate actively

– Document communications, meetings, decisions

17

License Agreements

• Contains details of the relationship like:

– IPRs

– Fee to be paid: Initial and ongoing

– Duration of the Agreement

– What Franchisor is expected to do

– What Franchisee is expected to do

– What none is expected to do

– What is that we exist for

– What are the conditions under which we

would not continue with this relationship

Standardise Agreements

18 18

Territory Management

Territory/Area of operation

Carve territories with a long term

perspective

Do not create competition for

existing franchisees

19 19

Engagement

Training of Franchisee & their

Employees

Ongoing support

Franchisee Meets

Recognition & Awards for

Franchisees & their Employees

Do not treat Franchisee & their

Employees as subordinates:

– Strong tendency among front end

executives of the franchisor to do so.

20 20

Conflict Resolution

Three levels of conflicts:– Operational – Resolve at field level

– Policy matters – Resolve at corporate level

– Major disputes – Address at appropriate level

Transactional conflicts are likely to arise.– Resolve them proactively

– Don’t let them come in the way of long term relationship

Remedy non-conformances speedily– Corrective actions matching with the degree of

non-compliance.

Avoid Litigation & Arbitrations

21 21

Principles of Continuity:

1. Win-Win relationship

2. Business sense to each other

3. Alignment of Values &

Business Ethics

NIIT's ten commandments of partnership

22

Rationale

Customer success

Shared vision of future

Rules of engagement

Win-win or no deal

Nurture openness, trust and mutual respect

Co-invest, co-promote, co-benefit

Entrepreneurial and people development

Outcomes

Partner Success comes first

Continual growth is imperative

Building a future

Reinvent, rejuvenate, reinvigorate

And keep falling in love again and again…..

Customer Delight Council: Objective & Focus Areas

Objective:

To create sustainable competitiveness by pooling in the rich experience of seasoned NIIT-ians

• Customer Delight

• Market Addressal

• Pain reduction

24 24

Think Tank

of Senior

franchisees

25 25

Involvement in Strategic Issues

26 26

Be in each other’s shoes

27 27

Nurture openness, mutual trust & respect

28

Franchising is all about

Leadership in the Century of the mind

29