Driving Better Results

by Eric Stites

What is a high performance franchise? How do you measure performance? What do today’s top franchise companies share in common? What can franchisors do to build and sustain a high performance franchise system?

These are the critical questions behind Franchise Business Review’s three years of research of over 300 leading franchise brands. For us, driving better results is much more than a tagline. It’s about helping the very best franchise companies – and their franchisees – achieve greater success.

Defining a high performance franchise system

To begin, Franchise Business Review needed to establish a definition for a high performance franchise. What are the most important elements that contribute to high performance in any franchise system? And once defined, how would performance be measured? What would be considered high performance?

Certainly, financial performance – both at the corporate level and the individual unit level – were important considerations. After all, at the end of the day, most people are in business to make money. That said, Franchise Business Review believes that financial performance is an end result of any high performance franchise system, but not a primary indicator of a high performance franchise itself.

Franchise system growth was another important consideration. Any successful, high performance franchise system would need to have a history of strong unit growth – right? Could a franchise be considered a high performance system without strong unit growth? Franchise Business Review determined that growth in and of itself was a lagging indicator and not a leading indicator of a high performance franchise system. In fact, you could have a high performance franchise system in the absence of unit growth and therefore, it could not be used as an indicator of performance.

Then there was the issue of size. Was a large, national franchise brand more likely to achieve high performance relative to smaller regional players? At what point is a franchise system considered proven and successful? 50 units? 100 units? 1,000 units?
It was clear from initial research that while many of the largest franchise systems dominate the industry headlines, there was also wide-spread dysfunction. That’s not to say that all large franchise systems are dysfunctional – some are truly high performance organizations – but again, similar to unit growth, size alone could not be used as an indicator of high performance.

In the end, Franchise Business Review focused on the three basic elements that make up every franchise: the system itself, the franchisor and the franchisees. For a franchise to be considered high performance, all three of these elements needed to be functioning at a high level, out performing other competitors within a specific market segment or industry for a prolonged period of time. The challenge now was to figure out an accurate way to measure and predict franchise performance.

Measuring Franchise Performance

It was clear that the more alignment there was between a system, the franchisor leadership team, and the franchisee partners, the more likely the franchise was to achieve high performance. But what metric or combination of metrics could be used to measure the alignment and performance of these primary elements?

Franchise Business Review determined that franchisee satisfaction – measuring the actual beliefs and experiences of the franchisees – was the perfect single metric to measure all these elements and truly capture an accurate picture of performance. Not only could franchisee satisfaction be used to measure performance today, it was also a strong indicator for predicting future performance. After more than two years of in-depth research, surveying and interviewing thousands of franchisees, Franchise Business Review published the first Franchisee Satisfaction Index (FSI) in May of 2007. This index is now updated regularly and has become the standard benchmark of franchisee satisfaction and performance across the industry.

FSI measures the most critical areas of a franchise: training & support, marketing, the system, franchisor / franchisee relations, financial opportunity, and general overall satisfaction among franchisees. FSI is a proprietary, weighted average on a 100 point scale. Simply put, it measures the favorability rating of active franchisees. An overall FSI of 66% represents a positive two-thirds favorability rating among franchisees.

The Link between Satisfaction and Performance

After months of analyzing franchisee satisfaction, the link between satisfaction and franchisor performance was undeniably clear. In fact, Franchise Business Review determined that the companies with the highest levels of franchisee satisfaction were growing at a rate 400% greater than their competitors. Additionally, those companies with low franchisee satisfaction had an increasing performance gap compared to the group as a whole.

The million dollar question was whether high satisfaction lead to high growth, or whether high growth itself was the cause for high franchisee satisfaction? To determine this, Franchise Business Review looked at the fifty of the fastest growing franchises from our database. As a group, their overall franchisee satisfaction fell below the industry mean, illustrating that while high franchisee satisfaction drove high growth, high growth did not necessarily drive high satisfaction – in fact, high growth companies were more likely to have low satisfaction among their franchisees.
 

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