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Chapter 5. Selecting and Monitoring Fran... > Selection and Monitoring: Franchisin...

Selection and Monitoring: Franchising’s Dual Challenge

An employee or partner could misrepresent his or her true abilities or simply be misunderstood by the employer. Also, you cannot know for certain if an employee, agent, or partner is working effectively and productively or is shirking. The same dynamic can be at work when the potential franchisee is investigating the purchase and operation of a franchise. The pervasive but unsophisticated view of franchising is that the franchisor alone bears the risk of choosing the wrong franchisee and monitoring a franchisee to prevent shirking. There is also substantial risk of the franchisor misrepresenting itself or being less than responsible. Selection and monitoring of your partner are particularly important problems in franchising because system growth almost certainly forces roles to evolve. If you are the right franchisee to own and operate one store, it doesn’t mean you are the right person for two or three stores. Furthermore, even the finest franchisee operator is imperfect and can benefit from the kinds of monitoring systems that go beyond policing and that share information. Again, the same is true for a franchisor. A franchise system of 100 stores is much more personal and much less complex than a system with 1,000 stores. Therefore, selection and monitoring challenges are conjoined in franchising.[1]

[1] Special thanks to Alexis Parent for her assistance in articulating this point.

Designing a system of internal controls to promote desired behavior, establishing a means of monitoring behavior, and creating both formal and informal feedback loops between the entrepreneur and agents are key elements in minimizing the impact of imperfect choices of partners and shirking operators. The reality is that there are no perfect partners and therefore no perfect franchisors or franchisees. Most franchisors put monitoring systems in place to make sure the franchisees perform according to the business format and then pay the correct amount of royalties. The larger and possibly more important question is, Can the system of monitoring provide a positive benefit to a franchise system? By the same token, if a well-designed monitoring system detects underperformance, can it also identify superior performance?


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