Paper to be presented at theEMNet-Conference on

"Economics and Management of Franchising Networks"

Vienna, Austria, June 26 – 28, 2003

MANAGERIAL CHALLENGES FOR MANAGING FRANCHISES – A PHILOSOPHICAL DEBATE

Kobus Lazenby

Department of Business Management

University of the Free State

Nelson Mandela Avenue

Bloemfontein

South Africa

Tel: 27 51 401 2977

Fax: 27 51 448 3066

E-mail:

Abstract

As a result of the ever-changing environment and the demands of organisations’ customers, it is important to recognise the importance of change. In this paper the management of change will not be discussed, but rather the managerial challenges facing Franchises in the pursuing of value-adding to customers. The goal of this paper is thus to debate philosophically the challenges facing franchise owners or managers in managing their businesses. These challenges are actually not new concepts, but they are important issues. It is the sincere concern of the author that failure to meet these challenges will ultimately results in inevitable failure for organisations. This recognition requires from managers to be engaged in normative self-management, ethical behaviour, learning organisational behaviour and a need for the business in terms of identity awareness. All these aspects actually reflect on the importance of intellectual capital as the competitive weapons for organisations in the future.

Keywords

Management, Normative Self-management, Ethical behaviour, Learning Organisational Behaviour, Identity Awareness

MANAGERIAL CHALLENGES FOR MANAGING FRANCHISES – A PHILOSOPHICAL DEBATE

Kobus Lazenby, University of the Free State, South Africa

I.BACKGROUND

It is a well-known fact to every manager and employee that the world is experiencing profound changes. The rate of change in the business’ external environment is actually exponential and these changes obviously place tremendous pressure on managers and businesses to cope with and to maintain a competitive position, because conditions for perfect competition are actually experienced. When looking at global political, economic and social events, and the restructuring of business structures in South Africa, it is clear that stability is a scarce “article” and it promises to become more so in the future. Past competitive advantage aspects like branding (differentiation), focussing and pricing (low-cost) actually become inefficient. Businesses can thus no longer afford to seek comfort and sanctuary in what they know or in what has gone before.

It is however also true that businesses are often guilty of being reluctant to change. They also do not recognise the immense opportunities that lie in change. The more structured any organisation, the more rigid it remains entrenched in established practices. In most organisations change is primarily reactionary because it was forced on organisations by external pressures. The only solution is thus to emphasise the efficiency of change.

It is important to understand that organisations in the future will not only be larger, but also more complex than before. The demands for future organisations will be that they have to serve global markets, their employees profile will look differently and employees’ knowledge and skills will directly relate to organisations’ major sources of competitive advantage (Schmidt, 1999 : 40).

Within this extended environment of fierce competition and changing markets, three important characteristics emerge for organisations in general in South Africa (Pellisier, 2001) to meet the expectations and the needs of customers. These challenges are also applicable on franchises in particular:

It must be rapidly adaptable and extremely flexible.

It must have knowledgeable workers.

Franchisees and franchisers must have shared principles and trust.

The strategic goal therefore for franchise organisations must not be to speculate on what might happen, but to imagine what they actually can make happen. Perhaps the best way to put it is to say that one cannot manage change, “one can only be ahead of it” (Drucker, 1999 : 73). To make something to happen means that creative and innovative strategic thinking must be applied. It also means that employees in franchise organisations must be involved to ensure their buy-in into the strategic intent of the franchise. Hamel (2000) suggests that employees with innovative behaviour and who make non-linear changes in organisations contribute to the economic rewards for the organisation. It is thus paramount to accept that new management principles can no longer been avoided. It assists the managers with the coping of the continuous changes affecting organisations. Walters (2002 : 1) says in this regard: “Enough with the waiting for someone else to make a move or hoping that the tide will change on its own. Now is the time for courageous leadership and conscious action.”

The goal of this paper is therefore to debate theoretically and especially in a philosophical way which challenges face managers and the owners of franchises in the ever-changing environment of South Africa. No empirical research has been done. It is merely a practical and perhaps philosophical arguing about some important aspects. It is thus not the purpose of this paper to bombard the reader with a lot of theoretical concepts.

II. CHALLENGES FOR SA FRANCHISES

The world of business and its managerial leader is an ever-changing dynamic world. As being said, managerial leaders and organisations are often guilty of being reluctant to accept the challenges of change. The problem with the future of organisations is however that it is unknown and that it will always be different. If the managerial leaders of organisation are unable to think differently, the future will always arrive as a surprise (Hamel, 2000 : 137). This also is true for franchise managers.

Regardless the potential advantages and disadvantages of change, the overall message is clear – the environment in which franchises operate will continue to change and managers or owners have to find ways of ensuring that their businesses and its environment will be kept aligned. It is therefore the sincere opinion that the challenges facing franchise managers/owners in these changing circumstances are amongst others the basic aspects that are presented in Fig. 1. These challenges actually make an appeal on the organisational culture in franchises, because the culture of an organisation is a system of norms, policies, practices, incentives and expectations within which each individual and thus also the collective competencies may flourish. The mindset for those responsible for these conditions is of vital importance if organisational excellence is to be achieved. It is of paramount importance then to set one’s mindset on the challenges portrayed in Fig. 1.

Fig. 1: Challenges for South African franchises

These four aspects can actually also be seen as specific competencies and perhaps also as a set of values or beliefs that should be developed and internalised by everyone in franchises in order to comply with the ever-increasing managerial demands and future challenges. The focus of these elements is primarily on a management and organisational paradigm with respect to an ability to satisfy the needs and expectations of customers. As Herbst (1998 : 32) stated: “There will be a total focus on the customer, practically to the exclusion of all else.”

A.Normative self-management

The emphasis under this topic is on self-management and it is not about self-managed teams or self-directed teams. The issue in this paper is however to emphasise the importance of self-management as one of the challenges of South African franchises in order to embrace change. It is in this regard important to emphasise that if managers want the commitment of their employees to change, they must first be prepared to challenge their own assumptions, attitudes and mindsets about change so that they develop an understanding of the emotional and intellectual processes involved (Buchanan and Boddy 1992).

One of the metaskills that is necessary for leaders / managers to manage in this changing environment, is what April et al (2000 : 3) called awareness of self and others. The awareness of self actually implies self-management and it is important not only for a manager, but also for each and every employee to know how he or she will adapt to different situations and thus managing themselves accordingly. What is self-management? According to Robbins (1998 : 78) self management means to allow individuals “… to manage there own behaviour and in so doing, reduce the need for managerial control.” Drucker (1999 : 163) identifies self-management as that individuals “… will have to place themselves where they can make the greatest contribution; they will have to develop themselves.”

Self-management implies some learning techniques that will allow individuals to manage their own behaviour in such a way that less external management control is necessary. It is actually a philosophy of working and a technique of work that ensures that one’s energy, skills and commitment are focussed on achieving high quality top priority work. It is not only appropriate for managers to learn self-management, but actually all employees in a franchise business will have to learn how to manage themselves. This actually will enhance the process of empowerment. This implies that they should ask the following questions to themselves in order to know themselves better and to manage themselves (Drucker, 1999 : 164):

  • Who am I, what are my strengths?
  • Where do I really belong?
  • The most important question perhaps - what is my contribution to the business?

It is not only competitive and environmental pressures that can leave the unprepared organisation (in terms of managing change) weakened, but also too much control at the expense of flexibility. Hurst (1995) showed that control becomes increasingly necessary as organisations grow and become more complex. If a franchise network grows and becomes more complex, it is necessary to exert more managerial control, but it is this tendency of too much management control that contains the seeds for potential failure as a result of missed opportunities. If flexibility is lost, some of the momentum for innovation and creativity in franchise networks will also be lost. Flexibility and adaptability are two important characteristics for franchise networks in an ever-changing environment.

How can this so-called flexibility be retained and fostered in a franchise network? Apart from other things, one way is to enhance self-management. As already said, self-management by definition is the management of one’s own behaviour in such a way that external control is lessened, because one understands his ore her own important contribution to the business. It also means that the employee will focus his or her attention and energy on being creative in order to provide top quality work. Thompson (2001 : 368) says that organisations need this fresh input of creative ideas.

If it is understood that self-management will enhance creativity and innovation and thus fostering flexibility, it is essential that this self-management have to be normative in character. Normative self-management means that an employee must apply specific guidelines in his or her work situation for reaching the ideal outcome for the organisation. It implies that businesses can no longer accept self-management without a normative approach. Intuition and personal preferences alone cannot be allowed for making decisions. It is important that the flexibility and adaptability requirement and this normative approach must not be seen as in conflict, but rather as supporting elements to foster creativity and innovation on a responsible way of doing business.

It is clear from Fig. 2 that the intervening variable between the normative way of doing business and self-management can be seen as the application of ethical behaviour in the organisation. To be ethical in the organisation is no barrier whatsoever for the flexibility that may be the result of self-management.

NormativeSelf-management

Fig. 2: Ethical behaviour as intervening variable

Normative self-management implies the taking of charge of one’s way of thinking and work according to what one thinks his or her possibilities are, but under the guidance of specific norms – and the challenge in South Africa is that ethical norms should be applied. The managerial challenge is thus to implement normative self-management principles that are acceptable, or rather easy (in terms of clarity) to apply, for all levels of employees in a franchise.

B.Ethical behaviour

The definition of ethical behaviour is supposed to be familiar to everybody in the business world and it is thus not the intention to explain it in this section. It is however important to stress that it is about principles of conduct that distinguish between wrong and right behaviour and thus guiding organisational behaviour. It is however important to support the rising tide of consciousness about the importance of business ethics and the importance thereof as a managerial challenge in order to satisfy not only customers’ needs, but also the needs and expectations of all stakeholders. Despite the acknowledgement of all organisations that ethical behaviour is important, unethical behaviour is still flourishing. Newspapers and business magazines daily report on legal and moral breaches of ethical conduct by both private and public organisations.

After the democratic elections in 1994, much was coming its way to South Africa, both good and bad. On the economic front South Africa experienced the arrival of free markets, the relaxing of trade barriers, a renewed wake of the entrepreneurial spirit and in general a more open economy has developed. All these changes were welcomed with open arms. It is however a pity that with all these things also come corruption, dishonesty and unethical behaviour, to name just a few. The Daily News (13/1/97 : 8) reported: “Even worse is the reducing level of ethics, which is being witnessed by members.”

It seems that economic crime is flourishing in the business world in South Africa. More and more South African businesses are breaking the laws. This ranged from tax to labour legislation. In a fraud survey done by KPMG (1999) it was found that 76% of the respondents find that fraud is a major problem in their businesses. This has increased from 62% in 1996. The assumption can be made that this figure is even worse today in the wake of the increase in crime in South Africa. The most cited reason for this expected increase in fraud is economic pressure. It also appears that the future outlook for business appears bleak, because 86% of the respondents believed that fraud would increase. If one thinks that a vast majority of economic crime is not reported, then it makes the staggering values attached to reported crime even more alarming.

Even before 1994, King (1993) pointed out the increase in the number of reported cases of corruption and commercial crimes in South Africa. He also pointed out that thousands of new cases per annum are being investigated and that the Office for Serious Economic Offences is examining numerous cases that involve tens of billions of rand.

Statistics showed that employees commit the largest number of fraud, but management commits the frauds and corruption with the largest amounts of money involved (King, 1993 : 2). This is however a world wide pattern, because a study done, revealed that “… young managers received explicit instructions from middle manager bosses or felt strong organisational pressure to do things that they believed were sleazy, unethical or sometimes illegal” (Badaracco and Webb, 1995 : 8). When it comes to management, the largest number of frauds concern their expense accounts, conflicts of interest, kickbacks, false financial statements, bid rigging, substitute purchasing, the diversion of sales and phantom vendors (Von Lieres and Wilkau, 1993 : 11). It is obvious that this cannot be any longer tolerated.

Business as one of the most powerful social institutions in existence today, has together with this power, the responsibility for ethical behaviour. It is however a pity that it was also found in a study that although cheating was observed, there was a reluctance to report it (Burton and Near, 1995). This leads to comprehensive organisational control systems to ensure that employees’ behaviour is in accordance to the organisation’s needs and expectations. Obviously this has again a reflection on self-management and the urge for flexibility in organisations. The response of organisations that they do have a code of ethics is not enough. As David (2001 : 20) put it: “Merely having a code of ethics, however is not sufficient to ensure ethical business behaviour. A code of ethics can be viewed as a public relations gimmick, a set of platitude, or window dressing.”

Another alarming tendency in businesses is that in the absence of ethical behaviour requirements, managerial opportunism allows managers to take actions and make decisions that are in their best interests and not in the organisation’s best interests (Hitt, et al,
2001 : 508).

The way sanctioned (ideally by all stakeholders) objectives are achieved falls within the scope of ethics. The real problem of ethics is concerned with the behaviour of individuals, and that is why Sisk (1997) said that concepts like “business ethics”, “corporate ethics” and “corporate morality” become vague and meaningless. In the organisation ethical behaviour is concerned with the rightness and wrongs of the actions and practices of employees. This is what should be addressed.

The abovementioned studies and arguments suggest that something must be done. There is not only a need, but it is also a challenge to employ a new strategic ethical culture in organisations. There is a need for ethical strategic leaders – leaders who are willing and capable of including ethical practices as part of their long-term vision for the organisation. These strategic leaders should have the desire to do the right thing and they must cherish honesty, trust and integrity (Milton-Smith, 1995). It is thus essential that an “ethics culture” must permeate organisations to meet the demanding challenges of the business environment. This makes an appeal on the ethical values of employees that must become an integral element in corporate strategy. The intention of employees and managers must change from “I am here to get” to “I am here to give”. This requires management to lead by ethnical example. In a practical and philosophical way it means that the manager must be a “… leader who genuinely strives to make his people big, to transform them into giants. In other words, he is not there to get anything from them, but to give them something” (Schuitema,
1994 : 103).