1. Introduction

   Franchising can be described as a pooling of resources and capabilities.
   The franchisor contributes the initial capital investment, know-how and
   experience.      The franchisee contributes the supplementary capital
   investment, the motivated effort and operating experience in a variety of
   markets.   Franchising is therefore a comprehensive business relationship
   with considerable interdependence between the franchisor and franchisee
   over a period of time. In fact franchising as an organizational form is a
   type of strategic alliance between the franchisor and franchisee.

   The reference to “alliance” suggests a relationship that reflects on the
   intention of both parties to co-operate with a view to mutual benefit. It is
   this mutual benefit that is referred to as the win/win situation in
   franchising as a business concept. More specifically and irrespective of the
   industry or the products or services sold, the win/win arrangement in
   franchising refers to the role of the franchisor and the franchisee in co-
   operating with and supporting one another in achieving individual and
   systems goals.

   Maintaining clarity over the roles of the franchisor and franchisee in the
   “strategic alliance” is therefore very important.      The distinct areas of
   responsibility of each of the parties to ensure a win/win relationship for the
   business concept, are:

2. The Franchisor’s Role

2.1.1 Provide clear, positive leadership

      Franchisees expect good leadership. In franchising good leadership has
      the following components:

       Vision and Goals

          To share the vision for the franchise network which includes long-
          term and short-term goals (product development, marketing issues

       Competence

          Ensuring there is a competent senior management team in place that
          can handle strategic and operational demands of the business.

       Integrity

          To be honest and trustworthy in dealings and delivering on promises.

       Consistency

          Being fair and consistent with decisions.          Inconsistency and
          favouritism do not go down well.       The franchisor must also be
          prepared to take a stand on important issues.

       Enthusiasm

          Franchisees expect their franchisor to be enthusiastic and positive in
          dealings with them.     The franchisor must be able to motivate.
          Negative and lethargic behaviour is bad for the spirit within the

2.1.2 Help franchisees achieve their financial and personal goals

      The franchisor must ensure that the franchise system, marketing
      programmes and field support add value to the franchisees business.
      Also to help franchisees profitability through supplier negotiations and
      system delivery iniatives.

      Franchisees also like to contribute their ideas and to feel part of the
      franchise system. They want to generate a feeling of involvement and

2.1.3 Protecting the strategic position of the brand

      This is the franchisor’s most important responsibility.    The franchisor
      must therefore clearly define what the brand stands for. It must also
      know who the target market is and then ensure that he keeps abreast of
      the changing market trends and that the positioning and promotion of
      the brand is in a way that fits the expectations and needs of the target
      market. The franchise brand needs constant monitoring and care.

3. The Franchisee’s Role

   The franchisee also has three distinct areas of responsibility, namely:

3.1.1 Running a profitable business

      The franchisee is responsible for maximizing the local business
      opportunities in their area, controlling their expenses and managing
      their business effectively.     The franchisor cannot do this for the

3.1.2 Growing a base of happy customers

      The franchisor does not have direct contact with the customers in the
      franchisee’s marketing area. As a result the franchisor has very limited
      power to impact on a customer’s buying power or to impact on a
      customer’s buying or service experience.           It is the franchisees
      responsibility to deliver the type of customer service that will keep
      customers happy and satisfied so that they not only return but
      recommend the business to others.          In other words, they have the
      responsibility of contributing to the growth of the franchise system.

3.1.3 Supporting the franchisor’s brand values

      The brand value of a franchise system is what the customer thinks and
      feels about the franchise when they see the brand.          A franchisor’s
      marketing will usually be based on a promise to the customer which may
      for instance relate to quality, service etc.     If a franchisee does not
      deliver on this promise they will be undermining the brand and the rest
      of the franchise network.

4. The various stages in the relationship

   Greg Nathan an Australian corporate psychologist, who himself was both a
   franchisor and franchisee, developed what is known around the world as
   “The Franchise E-Factor”. He described the “Franchise E-Factor” as the
   natural maturing of the relationship a franchisee has with his franchisor as
   the franchisee gains greater competence and confidence in running the
   franchise.   Greg Nathan identified three phrases and six stages in the

          Source: Greg Nathan: Profitable Partnerships

The three underlying phases of the franchisee/franchisor relationship as
identified by the E-Factor are:

  Dependence:               In the beginning of the relationship the
                             franchisee is dependent on the franchisor
                             for guidance and support.           During this
                             period the relationship is usually good.

  Independence:             The franchisee gains in experience and the
                             desire for independence then begins to
                             assert itself. This is usually the stage when
                             things   start    going    wrong     with    the
                             relationship. Royalty payments become an
                             issue,   franchisor       support    is     being
                             questioned etc.

  Interdependence:          During this phase the relationship reaches

                             maturity. This is the relationship that both
                             the franchisor and franchisee must strife
                             for. This is not always the case.

Note that the level of satisfaction is at it’s lowest when the desire for
independence is at its highest.

The six stages in the relationship according to Greg Nathan are:

    Glee Stage:             The franchisee is nervous and is likely to
                             feel vulnerable about the new business
                             venture. But there is also excitement and
                             optimism about the future success of the

    Note:                   This period usually lasts for 3 to 12 months
                             and covers the lead up period to finalizing
                             the arrangement to acquire a franchise.

    FEE Stage:              The franchisee starts to become sensitive
                             and concerned about the value of the fees
                             being paid to the franchisor. They will also
                             start questioning the value of the services
                             they are receiving.

                             The franchisee becomes more commercially
                             astute and they start thinking how the fees
                             they pay the franchisor can best benefit
                             their business.   They also become more
                             skeptical towards the importance of the

   Note:         Franchisees frequently come into contact
                  with     friends,        relatives,    and   business
                  associates etc. who will each have their
                  own perspective on franchising. There can
                  be different motives for their comments
                  ranging from jealousy (negative) to well
                  meaning (positive). These comments may
                  have an influence can the change of
                  attitude by the franchisee.

   ME Stage:     The franchisee concludes that their success
                  is due mainly to the own effort and plays
                  down the contribution of the franchisor.
                  They become self centered and proud of
                  themselves. If they are struggling they play
                  down their own deficiencies (?).

   Note:         As a franchisee’s competence in running
                  their business increases they will move into
                  this stage.        This is when the drive for
                  independence starts to assert itself.               If
                  things go well, they take the credit. If not
                  they blame the franchisor.

   FREE Stage:   This     stage      is     characterized     by    the
                  franchisees need to demonstrate his or her
                  competence and assert their independence,
                  thus     testing         the    franchise    systems
                  boundaries.              The   franchisee    becomes
                  cynical and begins to question the motives
                  of     the   franchisor        and    challenges   the

                 reasons behind new innovations or changes
                 in strategy.
   Note:        This stage is characterized by a need to
                 break      free   of     the        restrictions     and
                 limitations of the franchise system.

   SEE Stage:   Conflict    in    a    relationship       cannot      be
                 ignored. Through frank and open discussion
                 the     franchisee     and      franchisor         better
                 understand and respect each other’s point
                 of view.       Both parties show a renewed
                 willingness to work together.

   Note:        It is usually at this stage that litigation
                 becomes a major consideration. Mediation
                 or arbitration may also be used to resolve
                 issues if discussions don’t succeed.

   We Stage:    The franchisee recognizes that success and
                 satisfaction come more easily from working
                 with rather than against their franchisor.
                 Ideas and opinions will be openly shared in
                 a spirit of mutual trust and co-operation.

   Note:        There is a natural progression from the SEE
                 to    WE    stage.       It    is    a   move       from
                 independent to interdependent.


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