Embracing new ideas

The history of Formula 1 has some lessons for franchisors on managing innovation, suggests Simon Lord.

The 1970s were a fertile time in Formula 1 motor racing. Designers were desperate to find the next big thing that would give them an advantage over their competitors. They moved the radiators from the front of the car to the sides (and even to either side of the nose), experimented with four wheels at the front and two at the back (and vice versa), turned gearboxes sideways, added turbochargers, tried gas turbines, and found ways of sucking cars to the ground via scoops, skirts and even vacuum fans. No-one knew what was coming next and whether it would work.

Of course, it couldn’t last. By the end of the decade, the cars were becoming too fast for the circuits, costs had escalated and science was taking over from inspiration. The authorities tightened up the regulations and genuine innovation became harder to achieve.

Today, money is poured into minor aerodynamic tweaks because that’s about all that’s allowed and, in some ways, Formula 1 cars are less advanced than road-going ones. The excitement of seeing talented designers trying new ideas has gone, the races and cars have become dull, and fans are switching off in droves.

What has all this got to do with franchising? Well, it’s about the management of innovation.

In a New Zealand franchise of, say, 75 outlets, you have 75 individual business owners who are living, breathing, and working in and on their businesses every day. As a result, they are likely to get bright ideas or get bored, and look for better, quicker or cheaper ways of doing things. Sometimes, those ideas – like the six-wheeled Tyrrell of 1974 – will be winners. It was, after all, McDonald’s franchisees who came up with the Big Mac and the Filet-O-Fish.

On the other hand, many will be disasters which distract franchisees and damage the brand through non-conformity. Lack of consistency in a franchise will undermine the value of the brand and customers will start to go elsewhere; yet lack of innovation will result in exactly the same thing – as it has in Formula 1.

The challenge for franchisors is to have in place a process for managing innovation. While franchisors are responsible for assessing opportunities and threats in their industry and anticipating trends, franchisees are in the front line of changes in customer taste and behaviour. Neither party can succeed without input and feedback from the other. This means that franchises will only succeed if they have in place an accepted structure for submitting, testing and measuring new ideas, and for implementing the good ones system-wide. That way, the business can change continuously without endangering the standards and values of the brand.

Franchises therefore need effective channels of communication at several different levels.

The first is leadership – franchisees need to know they can trust the franchisor to be a strong, positive leader who has their best interests at heart and is committed to preserving the integrity of the brand and their investment in it. That doesn’t mean they won’t get things wrong sometimes, but if franchisees have faith that their leaders will admit when something doesn’t work and move to put things right, they will be understanding.

The second is feedback. There have to be both formal and informal channels that allow for franchisees both to propose innovations and respond to innovations from elsewhere. Formal channels might include surveys, field visits, and a Franchise Advisory Council (FAC) which can discuss issues and ideas with the franchisor at a senior level and consider implications in a constructive environment.

An FAC composed of experienced and creative franchisees can act as a conduit for operator concerns and help explain the reason for change to their peers. Less formal channels such as a closed social media group and regional get-togethers can inform and inspire debate.

The third is measurement. Technology means that it is increasingly easy to see whether a new product is selling, whether it is cannibalising sales of other products, and what the effect is on overall margins. The same applies to new ways of doing things, new pieces of equipment or new marketing campaigns. Accurate data will not only define the success, or otherwise, of any innovation, but also provide a compelling case for adoption or rejection on a system-side basis – regardless of whose idea it was.

The important thing is that there needs to be recognition that ‘we’re all in this together.’

Unlike Formula 1 teams, who all compete with each other, franchisors and franchisees need to share information, ideas and results to help each other succeed. That way, everybody wins.

If franchises are to grow, innovation mustn’t be stifled or regulated out of existence ­– it just needs to be openly tested, measured and communicated for the good of all.

Simon Lord is publisher of Franchise New Zealand media. Visit www.franchise.co.nz