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

handle is hein.journals/fchlj20 and id is 1 raw text is: LAoNCHISE





Organization Design for Successful Franchising

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)

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