The biggest current strategic challenge facing many Australian franchise networks is how to be involved in, or address the competitive issues posed by, the on-line channel to market. Many businesses seem to have moved away from their normal strategic planning methodology to a more ad hoc and reactionary approach, often with disastrous results. The text book strategic planning process commences with facts and evidence, which is used to gain proper insight into the challenges and the opportunity. Strategy is formed, tactics developed to implement the strategy, and action taken, with the outcomes carefully monitored and reviewed.
In my observation many businesses are making decisions in the e-commerce world in a very different way. Anecdote and myth, and a fear of missing out, prompts action before any meaningful collation of facts and evidence. No clear strategy is developed, with the tactics being simply to take some action, any action, and see what happens. Action is followed by review, and all too often remedial action needs to be taken or unnecessary conflict or disputation occurs. Instead of [Ready] > [Aim] > [Fire] it is [Fire] > [Keep Firing Until You Hit Something].
So the first challenge for franchise systems is simply to adopt the proper decision making processes. There is a lot of hype about the internet and technology, so you need to separate the anecdote and myth from the facts, evidence and insight. There are experts that can be accessed, there is objective evidence and market research can be conducted even if the conclusions may be less certain than normal. Franchisees and customers will have valuable insights that should be tapped.
There is however another fundamental problem for some retail systems. In pure economic theory the most efficient means of distributing goods and services will win. The e-commerce challenge is not just about a new competitor, it is about a better means of distribution. This may not be a strategic challenge, it may be a game changing development like that faced by Encyclopaedia Brittanica from the CD Rom.
Evans and Wurstler, in a book called Blown to Bits – How the new economics of information transforms strategy, postulated that information accounts for the preponderance of competitive advantage, and therefore profitability. They consider that it is information - particularly who has access to certain information - that is the glue that keeps supplier relationships, pricing points, distribution arrangements and customer behaviour in their current form. That glue is melting due to the explosion of connectivity that is enabling the open and almost cost free exchange of a widening universe of information.
Bricks and mortar networks have historically been the most effective means of distribution – they have facilitated “richness and reach”. According to economic theory most businesses had to choose between communicating “richly” to a small group of people – person to person, detailed information, advice as well as product - or communicating more simple messages to “reach” a broad group. Advertisements, catalogues, newspaper advertisements and other promotional activities typically carry a fairly simple message, and are part of the “reach” aspect. Companies set up retail outlets across the country to help them communicate more richly to a broader group of people. Franchising not only helped facilitate this expansion, but motivated owner operators provide better customer service and richness of communications than a network of employees in corporate networks.
One of the current challenges is that some e-commerce arrangements can be more efficient and offer a superior customer experience when compared to bricks and mortar. For example Amazon.com can deliver products to your door in less than 48 hours, and at a price cheaper than you can get them via retail stores. Logistics, warehousing and delivery is subsidised by global postal arrangements, and only intermediaries that add value are used.
At a strategic level; businesses need to consider:
- What precisely do consumers want, not just in terms of products but product information, product training, product features, accessories and add-ons and customer experience at retail and ongoing?
- What is the most efficient supply chain to get the product to the consumer?
- Which businesses add value to the supply chain, and what remuneration should they receive for their contribution?
- What are the obstacles to achieving the optimal supply chain?
- Who will be affected by any changes, and to what extent?
- What strategies are needed to communicate change and secure engagement by all necessary stakeholders?
We see many Australian businesses making fundamental errors in all areas. The things we see can be summarised as:
- Companies moving too quickly, and without fundamental strategies in place
- Uncompetitive e-commerce “solutions” from a customer’s perspective due to:
- Failure to see and understand what competitors are really doing in terms of retail and ongoing customer experience and supply chain efficiencies
- Too many compromises to existing stakeholders
- Insufficient capital and resources being allocated to develop the solution
- Not enough imagination being applied to develop the solution.
Arrangements that are insufficiently flexible to deal with subsequent e-commerce waves, technological advances and customer requirements.
e-commerce is the biggest strategic challenge facing many Australian franchise and retail networks. As always, the key to finding the right solution is to ask the right questions of the right people as early as possible, and to adopt proper decision making processes to form strategy and guide actions. Then even if you don’t like the answers you won’t have created more problems by acting too hastily.
This article is an edited version of a paper presented by Stephen Giles to a recent CEO Forum hosted by Norton Rose. For more information contact Stephen Giles.