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FRANCHISING’S FUTURE IN THE CLOUDS

by Giles Brown & Daniel Munns ,
last updated 20/06/2011

Giles Brown & Daniel Munns outline changes in technology that offer new efficiencies, new opportunities and new threats for franchisees and franchisors

A new breed of technology promises to let franchisors and franchisees access services and applications that were previously too complex or too costly. So-called ‘cloud’ technology enables on-demand access to a shared pool of computing resources which are managed by an external provider and accessed over an internet connection, just like a website. 

Think of the possibilities if the software applications you use no longer had to be installed on your computer but were available over the web instead. For a start, because the applications (and your data) are stored off-site, there is no risk of losing them if your computer crashes or if your equipment is stolen. Everyone throughout the franchise would have access to the same version of the same software, making training people, sharing information and introducing upgrades easier. The result can speed up a business’s responsiveness while reducing its investment in fixed IT infrastructure and ongoing maintenance costs. It can also make the management of a business both mobile and secure – an advantage not to be overlooked in the aftermath of the Christchurch earthquakes.

Cloud computing is no longer a thing of the future. It’s here now and, with the Government promising most businesses access to ultra-fast broadband by 2015, this is likely to lead to a proliferation of new applications and services that run over the internet. Companies that don’t make the most of them will be left behind. 

The Benefits Of Cloud Computing

There are a number of benefits to the cloud computing model, many of them particularly suited to the multi-unit franchise model.

Lower start-up costs. Being able to add franchises to an existing back-end suite of applications without needing lots of additional infrastructure can save money. Many cloud computing applications require a lower specification of hardware than if the applications are implemented locally by franchisees. Users typically need only an internet-connected PC or laptop that can run a web browser, not a powerful device that has to run complex software.

Lower overheads. With cloud computing, you pay only for what you use. Owners dealing with multiple franchisees can also consolidate their resources, because all franchises can share the same infrastructure and systems, hosted in a centralised data centre.

Faster start-up. With the systems already running, adding new franchisees is easy: the set-up team can simply plug the new business into the network and start working. This removes the need for complex provisioning and technical support on a local basis. Every franchisee won’t need their own computer technician with their own ideas of how set-up should happen, and there is no need to try to integrate different systems.

Greater coverage. Using the internet as your network means franchisees can now establish and access the systems virtually anywhere, allowing them to expand easily to any location. Aside from simplifying infrastructure requirements, this can dramatically increase your reach. And having access to your systems from any location or device means less downtime and higher productivity.

Better security. With a cloud solution, you let an expert look after storing your data. Is that a security risk? In theory it could be, although you have to ask: how secure is your data now? Most cloud providers invest significantly in the security of their data centres – significantly more than the typical franchisor can invest – and they will have superior back-up systems, too. Additionally, as all your data is located in one location, you can manage it more easily.

Better support. By having integrated systems with common standards, it is easier for the franchise support team to measure, analyse and help franchisees to improve their performance.

What About The Downsides?

Of course, there are other factors and risks organisations need to think about. At one level, adopting a cloud-based solution is effectively outsourcing your IT applications and infrastructure to another organisation – which is charged with looking after your data. This comes with risks: you need to be sure the data is secure and that the supplier has robust procedures to look after your data. This requires due diligence on your part.

You also need to be comfortable with the fact that these applications may be accessed over the internet, and someone else could potentially access your data. For this reason, strict security procedures must be set and adhered to. Franchisees, for example, would probably be granted access only to their own information and to information shared by the franchisor.

If the internet connection from any particular location goes down, that outlet may not be able to operate – or at least, to run computer applications. This would be akin to having a power outage, but would not affect other locations on the system.

The ability to access data via the internet from anywhere is a much-vaunted advantage of cloud computing, but users do need to be aware that they should only do so when they have secure internet access via an encrypted network. Some public services – for example, those at airports, may not be secure. This is therefore an aspect that all users have to be trained in, particularly when using financial software (see below).

Lastly, you need to ensure you both own and have long-term access to all information. Should your service provider go out of business, what happens to your data? Can you export your data so you can use it elsewhere?

What Will It Cost?

Two of the obvious financial benefits of cloud computing are that many applications and services allow you to pay on a monthly basis, making them an operational – rather than a capital – expense. This reduces set-up costs for new franchisees.

Most applications charge per user, per month: for example, a single user of Microsoft Exchange Online, which is an email and messaging service, pays $8.62 per user per month as a cloud application. In the case of Microsoft, if you purchase a whole suite of applications including Exchange Online and other applications for instant messaging, audio/video calling and online meetings including PC-audio, video and web conferencing, you can pay $17.24 per user, per month. Google’s pricing is comparable, although the available applications are different, and many services offer volume discounts, resulting in additional savings.

If a franchise has its own custom-developed applications, those too can be hosted in the cloud. To set up a ‘private cloud’ that’s only available for your organisation, you will need to work with a hosting provider to determine options. Costs can vary according to such things as levels of availability, whether you need disaster recovery and overall performance. Basic options can usually be achieved quite reasonably, for less than four figures per month. If you are providing an application or service to your entire franchise – or multiple franchisors – this cost could be spread across multiple organisations.

The Cloud In Action

Communications are the lifeblood of franchising, not least because good communications between franchisee and franchisor (and between franchisees) help everyone to stay on course and feel part of the wider team. Accordingly, franchisors should always be looking for ways to communicate better, more efficiently or more cheaply, and encourage that sense of belonging.

Most organisations use email the same way: to send and receive messages. The email system is effectively a commodity communications utility, so it’s an obvious choice for a cloud application: it’s easy to make the business case for having someone else look after this solution.  Services such as Microsoft Exchange Online and Google Apps are examples of online email solutions that are readily available, secure and cheap.

Telephone systems, too, are changing thanks to the cloud, with services such as Skype, Microsoft Lync Online and Google Talk providing realistic and cost-effective alternatives. Philip Horrocks of the Provender franchise, which operates both in New Zealand and Australia, is a big fan of Skype. ‘We’ve been using it for four years and all the franchise team have it on their laptops,’ he says. ‘You can make calls, transfer photographs, images and files instantly, have conference calls and so on. We encourage our franchisees to use it to talk to us and each other, and of course it’s especially good for calling overseas. I pay eight euros a month and can call anywhere in the world, landline or mobile, for that with no extra cost.

‘It does take a little getting used to but my laptop has a built-in microphone and I also have a bluetooth headset so I don’t need to be in front of the laptop all the time. Not everyone takes to it – some people are more technophobic than others – but the benefits are considerable.’

One of the first application categories to transition to the cloud was customer relationship management (CRM) software. CRM applications allow you to track and manage information about your customers, allowing you to better market and sell to them through greater understanding of their needs and preferences. The cloud has not only made good CRM systems more affordable; it has also allowed for the greater standardisation of customer databases, making targetted marketing more efficient, more effective and more practical. Microsoft Dynamics CRM Online, Zoho and Salesforce.com are cloud-based services that provide a full set of CRM capabilities through a web browser for a reasonable monthly fee.

Centrally-held customer databases do, of course, raise the question of who owns the customers and the goodwill in a franchised business, and this is an issue that needs to be carefully managed prior to introduction if it is not already set out within the franchise agreement.

Better Information, Better Management

Xero is one of several cloud-based accounting systems that have gained growing acceptance among franchises because of the ability it offers business owners and their accountants to access the books from anywhere, at any time. For example, a Subway franchisee in Hamilton is often on the road, but can access his accounts any time he needs them, even from overseas (given a secure network, of course). Xero is linked to his bank account and automatically codes each transaction, which is a major time saving, and the system is flexible enough to meet Subway’s reporting requirements.

Philip Morrison, a specialist franchise accountant, is a fan of such systems, saying that some quite large franchise names now recommend Xero or other systems to their franchisees to enable standardisation and encourage best practice throughout their systems. ‘I do a lot of work with benchmarking and cloud-based systems can really help with that, but it takes time and a lot of willpower to get a single standard adopted across an existing system. Some franchisees are resistant, not just because of the hassle involved in changing systems but also because they don’t like the idea of the franchisor having access to their accounts. It has to be managed carefully but it can be done with different levels of access available via password protection. Realistically, a franchisor is only going to want to look at the details if he’s concerned there may be a problem, although some franchises do now run Xero to work out what royalty payments are due.’

‘From a purely business point of view, it’s a no-brainer. It helps franchisees and their accountants get accurate and up-to-date information on their performance, helps franchisors see danger signs and intervene earlier, and better information can help the relationship with the bank, too,’ Philip says.

As a result it’s increasingly attractive for franchisors to offer franchisees a centralised, cloud-based accounting service that provides a standardised template for all franchisees. This might even be backed up by a professional advice package, either run centrally (one of the advantages of cloud-based accounting systems is that franchisees and their advisors can look at the same screen at the same time) or provided by a national chain.

There are innovations occurring across the IT spectrum. New Zealand-developed VendHQ  is one such solution, enabling a point-of-sale system to be set up quickly and accessed through a simple web browser. When it is used with a tablet device, such as the Apple iPad, customer orders can be processed from the shop floor, speeding up processing and increasing customer satisfaction.

It’s possible to try most of these systems before you buy – typically for 30 days – so it’s worthwhile investing some time into trialling some and understanding how they could add value. It’s also important to note that cloud-based solutions are not an “all or nothing” proposition. You can run selected applications in the cloud while continuing to operate other, perhaps core, applications the same way you do so now.

Mobile Offers New Threats, New Opportunities

The increased availability of smartphones with built in Global Positioning Systems (GPS) has opened up new ways of accessing and consuming information. Accessing cloud data, these services represent both a threat and an opportunity to many franchises as they have the potential to transform how consumers make purchasing decisions.

For example, Foursquare is a location-based social media and advertising platform that has recently achieved six million registered users. Users ‘check in’ automatically via their phones when they visit any of its large database of locations, including shops and restaurants. The more technology-aware retailers, such as the Burger Fuel franchise, use this to promote special offers. If you’re a Foursquare user in an area where there’s a Burger Fuel, when you check into the service you may be presented with a special offer to entice you to eat there. With the burgeoning number of smartphones available, and an increasing number of services – including Gowalla and Facebook Places, the opportunities to compete beyond the traditional retail and advertising boundaries will grow.

Another smartphone development is applications which allow users to scan in product barcodes. They can then compare prices not just from local stores but from overseas. This could force price wars, which are a real threat to many businesses. If not properly managed, in some areas, franchisees could end up competing with each other as well as competing against traditional rivals. The result is that while franchises are well-placed to embrace the technology and establish themselves as leaders, they also need to evolve their policies to accommodate mobile consumers and work through these situations to mutual advantage.

As cloud computing generates new applications and tools, there are myriad opportunities for franchisors to reduce cost, find new efficiencies and expand customer reach. These opportunities also present questions, issues, threats and opportunities. The upshot is simple: every franchisor needs to look at how these technologies can affect their operation and act on them – before their competitors do. 

Quicktips

What questions should you ask to see if one or more cloud computing applications would benefit your franchise?

  • What information do franchises need to access anytime, anywhere?
  • What information could be better and/or more securely managed centrally?
  • What is it costing franchisees to update and maintain separate IT functions and software at different locations around the country?
  • What efficiencies could be gained in terms of franchise support by having integrated applications?
  • Which parts of the business are best suited to cloud computing and would provide a good ROI?
  • Can we customise the cloud-based application to meet our business’ exact needs?
  • Would cloud computing be more or less reliable and secure than running our own software in-house?

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