Franchise networks invest in advisory councils as a formal mechanism for franchisor-franchisee dialogue.

The imperative for an advisory mechanism increases as the franchise network grows in diversity and scale. High-performing advisory councils come about from design decisions and an authentic design process.

Franchises are a proven model for business growth

Franchises have been a long-standing component of Australia’s business ecosystem. Since the fast-food era of the early 1970s, franchise models have been the preferred rapid business growth strategy. Australians have benefitted tangibly from the products and services that franchises have made widely available.

Franchise systems continue to grow across Australia’s economy. Franchisee units grew 8.2% between 2012 and 2014, fuelled by non-traditional sectors such as aged care and retirement, leisure and fitness, mobile business and finance. There are now 1,180 franchise systems with $172billion in annual revenue operating in Australia.

The benefits of franchise models come with significant franchisor-franchisee risks. Franchises are expanding into new sectors, franchisee units are growing and the economy is increasingly complex, competitive and dynamic. This raises the importance of the ‘commercial marriage’ between franchisor and franchisees and makes it more difficult to sustain. We have seen well-publicised issues with franchises like Angus and Robertson discontinuing, Pie Face experiencing store closures and voluntary administration, and more recently the collapse of Eagle Boys Pizza. An estimated 1,200 franchisees enter into substantial disputes with franchisors each year.

An advisory council powers franchise network success

Advisory councils are formal boards established by franchisors with membership that includes a combination of select franchisee representatives and employees from the franchisor. Their purpose is to provide a formal mechanism for franchisor-franchisee dialogue.

Advisory councils can drive performance in franchise networks. The benefits to franchise networks include the ability to:

• Sustain relationships – the advisory council is a structured communication forum between franchisor and franchisees which can moderate the entities’ partnership.
• Enable innovation – the advisory council empowers franchisees to raise issues, concerns and ideas for consideration and resolution, supporting a more adaptable and dynamic network.
• Improve performance – the council share and embed best practice across the network. It can also serve as a forum and for franchisees at various stages of the franchise lifecycle to obtain support and advice.
• Drive engagement – the advisory council can strengthen the franchisee’s voice, driving franchisee engagement with the franchise model.

Four factors underpin high-performing advisory councils

The design of an advisory council needs to suit the context, franchisee profile and industry, and meet franchisee expectations. There is no one size fits all design. However, Nous’ experience indicates that there are four factors which underpin high performing franchise advisory councils in Australia.

1. Established with a clear and constructive role and purpose that adjusts and fits with the position of the franchise during its lifecycle
2. Supported by representatives with the capability and capacity to be constructive (the skills required of representatives will change over the franchise’s lifecycle)
3. Accepted as being useful by franchisees and the franchise network (irrespective of whether the advisory council is more concerned with the franchise organisation or individual franchisees)
4. Separated from the franchisor’s management structure so as to sit alongside other consultation mechanisms (such as franchisee meetings and workshops to address topical operational issues and additional communication channels between franchisor and franchisee).

A franchise advisory council that falls short on any one of these factors has scope for re-design.

Five spectrums to assist in advisory council design

Five spectrums illustrate the design decisions that should be made to effectively design or redesign a franchise advisory council. The spectrums span the advisory council’s role, focus, powers, structure and engagement and are outlined below.

The re-design process should consider whether all five spectrums are of equal importance to the franchise network. This will depend on the franchise’s business model, industry, scale and profile, as well as franchisee’s needs and expectations. While other spectrums can be identified, Nous finds these five spectrums are most important to the advisory council’s performance and the value it generates to the franchisor and franchise network.

Inclusive, independent engagement is important to advisory council design

The process underpinning an advisory council’s design is as important as the design decisions articulated above. An advisory council’s design must have the franchise network’s support. This support, in turn, generates ‘license’ to represent franchisees’ interests. An inclusive and thoughtful stakeholder engagement process is essential to achieve this outcome.

Nous finds three principles best guide a successful engagement process to redesign an advisory council. These are:

• Authenticity – co-formulate success criteria with stakeholders. Seek and clarify stakeholder expectations for the advisory council’s design.
• Transparency – ensure the design process and design decisions are open and communicated in a timely manner.
• Two-way – empower stakeholder input throughout the process, from issue identification to solution prototyping. Ask the right questions to gain useful information and ideas.

Significant benefits to a franchise network flow from a purposeful advisory council design process. Tools and applications such as online surveys, an online engagement platform and qualitative data analysis software can ensure cost-effective engagement. A governance structure to oversee the review can sustain the legitimacy and fit-for-purpose nature of the review.

An independent reviewer may be considered to facilitate the process. This is most beneficial where there is discontent among franchisees or questions about the independence of the advisory council.

There are significant benefits to a franchisor from a best fit advisory council design. However, the process to get there is of critical importance and an independent reviewer can be a worthwhile investment. Nous has experience in reviewing and designing advisory councils to strengthen franchise models.

Get in touch to discuss further.