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20 Franchise L.J. 1 (2000-2001)

handle is hein.journals/fchlj20 and id is 1 raw text is: LAoNCHISE ,k LAW JOURNAL AMERICAN BAR ASSOCIATION QUARTERLY JOURNAL OF THE FORUM ON FRANCHISING VOLUME 20, NUMBER I - SUMMER 2000 Organization Design for Successful Franchising ANDREW C. SELDEN The Franchisor's Challenge Franchise business relationships depend on reconciling two oppos- ing needs: the flexibility to evolve with changing market conditions, technology, and customer tastes; and the stability of relationships and expectations to support sub- stantial investment over time. His- torically, this has been accom- plished largely through power franchising, often heavily one- Andrew C. Selden sided contracts that lock the fran- chisee into an unknown future determined by the unilateral decisions of franchisor management. Lawyers dreamed up that structure, but it doesn't work in real life. A rapidly growing and nearly unanimous body of academic and empir- ical research demonstrates that the power franchising approach to organizational design for franchise-based busi- nesses is counterproductive and virtually guarantees poor results, if not outright failure of the entire franchise organiza- tion. Few franchisors (or their lawyers) would design a fran- chise program with the system's ultimate demise in mind, yet many become locked into a suicidal program design doomed by their failure to consider how outcomes are shaped by business structure and process. This article surveys academic research and proposes a more congruent organizational design paradigm that increases the likelihood for business success within a fran- chise system. Andrew C. Selden is a shareholder of Briggs and Morgan, P.A., in Minneapolis. He was chair of the ABA Forum on Franchising (1985- 89); Governing Committee member (1983-89); and editor, Franchise Law Journal (1984). He was the Reporter of the Uniform Franchise and Business Opportunities Act promulgated by the National Confer- ence of Commissioners on Uniform State Laws, and is a member and former chair (1983-87) of the Industry Advisory Committee to the Franchise Regulation Committee of the North American Securities Administrators Association. Innovation and change are not merely desirable but absolutely necessary for the continued success of any busi- ness organization. Norman Augustine, then-CEO of Lockheed Martin Corp., put it this way: .... there are only two kinds of companies-those that are changing and those that are going out of business.' Augustine's observation certainly rings true for franchise-based business organizations. Thirty-five years ago, vacuum tube manufacturers had full order books and sat- isfied customers.2 In 1979, the second largest hamburger restaurant franchisor in the world was Burger Chef. Both the vacuum tube industry and Burger Chef have essentially van- (continued on page 24) ,alal b'lk

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