410 ENTREPRENEURSHIP
The Franchising Alerternative
Another way for a corporation to venture, expand its boundaries and the reach of its activities is
through franchising. Franchising is a marketing system by which the owner of a service, trade-
marked product, or business format grants exclusive rights to an individual for local distribution
and/or sale of the service or product. In turn, the owner receives payment of a franchise fee, roy-
alties, and the promise of conformance to quality standards.^1 The franchisor is the seller of the
franchise, and the franchisee is the buyer. To what extent is the franchisee an entrepreneur? Any
distinction between franchisor and franchisee must focus on the concept of innovation. The fran-
chisee creates an economic organization, perhaps a network of organizations. Gain and growth
are clearly goals, and risk and uncertainty are ever-present. However, because the franchisee is
contractually obligated to operate the business in a prescribed manner, he or she has little appar-
ent room for innovation. Also, the franchisee does not usually have total control of the disposal
of the business: Franchisors usually reserve the right to choose or approve the next franchisee.
However, franchisees frequently do make innovations that are either tolerated by the franchisor
or adopted and incorporated into the system. For example, some of McDonald’s best new prod-
uct ideas originated with franchisees eager to improve their sales.
Franchising is one of the fastest-growing forms of business and now represents a major share
of all fast-food restaurants, auto parts dealers, and quick-print copy shops. Another group of
franchise opportunities are automobile dealerships, major league sports teams, national and
international real estate brokers, child-care centers, and accounting and tax services. A recent
study by the International Franchise Association (IFA) indicates that franchising is booming.^2
Some highlights of the report are:
1999, he sold Au Bon Pan to outside
investors because, ironically, he believed that
chain’s urban locations would limit future
growth.
SOURCE: Adapted from Michael Arndt, “Giving Fast Food
a Run For Its Money,” Business Week Online, April 17,- Retrieved from the Web May 15, 2007,
http://www.businessweek.com/print/premium/con-
tent/06_16/b3980084.htm?chan=gl; adapted from Neil A.
Martin, “Running Low on Yeast?” Barron’s Online, July 17, - Retrieved from the Web September 4, 2006,
http://online.barrons.com/public/article/SB1 1529247138260
7621-
CPfutFBbLVua_rW8k7jZsD1Lga8_20060817.html?mod=9
_0002_b_free_features, and http://www.panera.com.
Case Questions
- Are Panera’s new initiatives innovations, or are they simply line or brand extensions?
Explain. - Are Panera’s new strategies likely to find Blue Ocean or Red Ocean? Explain your
choice. - If current customers are not a source of innovation, where should Panera look?
- Do you think intrapreneurship can spur Panera’s continued growth? Why or why not?
What role do you think the franchisees can play?
APPENDIX