Business process management (BPM)

Business process management (BPM) is a discipline in operations management that uses

various methods to discover, model, analyze, measure, improve, optimize, and automate business
processes.BPM focuses on improving corporate performance by managing business processes.
Any combination of methods used to manage a company's business processes is BPM. Processes
can be structured and repeatable or unstructured and variable. Though not required, enabling
technologies are often used with BPM.

As an approach, BPM sees processes as important assets of an organization that must be

understood, managed, and developed to announce and deliver value-added products and services
to clients or customers. This approach closely resembles other total quality
management or continual improvement process methodologies and BPM proponents also claim
that this approach can be supported, or enabled, through technology. As such, many BPM
articles and scholars frequently discuss BPM from one of two viewpoints: people and/or
technology.

PM Institute defined Business process management as:

The definition, improvement and management of a firm's end-to-end enterprise business

processes in order to achieve three outcomes crucial to a performance-based, customer-driven
firm: 1) clarity on strategic direction, 2) alignment of the firm's resources, and 3) increased
discipline in daily operations.

The Workflow Management Coalition, BPM and several other sources use the following
definition:

Business process management (BPM) is a discipline involving any combination of modeling,

automation, execution, control, measurement and optimization of business activity flows, in
support of enterprise goals, spanning systems, employees, customers and partners within and
beyond the enterprise boundaries.

Gartner defines business process management as:: "The discipline of managing processes (rather
than tasks) as the means for improving business performance outcomes and operational agility.
Processes span organizational boundaries, linking together people, information flows, systems
and other assets to create and deliver value to customers and constituents."
 Successfully employing BPM usually involves the following:

 Organizing around outcomes not tasks to ensure the proper focus is maintained
 Correcting and improving processes before (potentially) automating them; otherwise all you’ve
done is make the mess run faster
 Establishing processes and assigning ownership lest the work and improvements simply drift
away – and they will, as human nature takes over and the momentum peters out
 Standardizing processes across the enterprise so they can be more readily understood and
managed, errors reduced, and risks mitigated
 Enabling continuous change so the improvements can be extended and propagated over time
 Improving existing processes, rather than building radically new or “perfect” ones, because that
can take so long as to erode or negate any gains achieved

BPM should not be a one-time exercise. It should involve a continuous evaluation of the
processes and include taking actions to improve the total flow of processes. This all leads to a
continuous cycle of evaluating and improving the organization.

The steps that can be recognized in BPM are:

 Analyze
 Re-design and model

 Implement
 Monitor
 Manage
Life-cycle
Business process management activities can be arbitrarily grouped into categories such as
design, modeling, execution, monitoring, and optimization.
Design

Process design encompasses both the identification of existing processes and the design of "to-
be" processes. Areas of focus include representation of the process flow, the factors within it,
alerts and notifications, escalations, standard operating procedures, service level agreements, and
task hand-over mechanisms.
Whether or not existing processes are considered, the aim of this step is to ensure that a correct
and efficient theoretical design is prepared.
The proposed improvement could be in human-to-human, human-to-system or system-to-system
workflows, and might target regulatory, market, or competitive challenges faced by the
businesses.
The existing process and the design of new process for various applications will have to
synchronies and not cause major outage or process interruption.
Modeling

Modeling takes the theoretical design and introduces combinations of variables (e.g., changes in
rent or materials costs, which determine how the process might operate under different
circumstances).
It may also involve running "what-if analysis"(Conditions-when, if, else) on the
processes: "What if I have 75% of resources to do the same task?" "What if I want to do the same
job for 80% of the current cost?".
Execution

One of the ways to automate processes is to develop or purchase an application that executes the
required steps of the process; however, in practice, these applications rarely execute all the steps
of the process accurately or completely. Another approach is to use a combination of software
and human intervention; however this approach is more complex, making the documentation
process difficult.
As a response to these problems, software has been developed that enables the full business
process (as developed in the process design activity) to be defined in a computer language which
can be directly executed by the computer. The process models can be run through execution
engines that automate the processes directly from the model (e.g. calculating a repayment plan
for a loan) or, when a step is too complex to automate, Business Process Modeling
Notation (BPMN) provides front-end capability for human input.Compared to either of the
previous approaches, directly executing a process definition can be more straightforward and
therefore easier to improve. However, automating a process definition requires flexible and
comprehensive infrastructure, which typically rules out implementing these systems in a legacy
IT environment.
Business rules have been used by systems to provide definitions for governing behavior, and a
business rule engine can be used to drive process execution and resolution.
Monitoring

Monitoring encompasses the tracking of individual processes, so that information on their state
can be easily seen, and statistics on the performance of one or more processes can be provided.
An example of this tracking is being able to determine the state of a customer order (e.g. order
arrived, awaiting delivery, invoice paid) so that problems in its operation can be identified and
corrected.
In addition, this information can be used to work with customers and suppliers to improve their
connected processes. Examples are the generation of measures on how quickly a customer order
is processed or how many orders were processed in the last month. These measures tend to fit
into three categories: cycle time, defect rate and productivity.
The degree of monitoring depends on what information the business wants to evaluate and
analyze and how business wants it to be monitored, in real-time, near real-time or ad hoc.
Here, business activity monitoring (BAM) extends and expands the monitoring tools generally
provided by BPMS.
Process mining is a collection of methods and tools related to process monitoring. The aim of
process mining is to analyze event logs extracted through process monitoring and to compare
them with an a priori process model. Process mining allows process analysts to detect
discrepancies between the actual process execution and the a priori model as well as to analyze
bottlenecks.
Optimization

Process optimization includes retrieving process performance information from modeling or

monitoring phase; identifying the potential or actual bottlenecks and the potential opportunities
for cost savings or other improvements; and then, applying those enhancements in the design of
the process. Process mining tools are able to discover critical activities and bottlenecks, creating
greater business value.
Re-engineering

When the process becomes too complex or inefficient, and optimization is not fetching the
desired output, it is usually recommended by a company steering committee chaired by the
president / CEO to re-engineer the entire process cycle. Business process reengineering (BPR)
has been used by organizations to attempt to achieve efficiency and productivity at work.

Changes
The concept of business process may be as traditional as concepts
of tasks, department, production, and outputs, arising from job shop scheduling problems in the
early 20th Century. The management and improvement approach as of 2010, with formal
definitions and technical modeling, has been around since the early 1990s (see business process
modeling). Note that the term "business process" is sometimes used by IT practitioners as
synonymous with the management of middleware processes or with integrating application
software tasks
Although BPM initially focused on the automation of business processes with the use of
information technology, it has since been extended to integrate human-driven processes in which
human interaction takes place in series or parallel with the use of technology. For
example, workflow management systems can assign individual steps requiring deploying human
intuition or judgment to relevant humans and other tasks in a workflow to a relevant automated
system.
More recent variations such as "human interaction management” are concerned with the
interaction between human workers performing a task
As of 2010 technology has allowed the coupling of BPM with other methodologies, such as Six
Sigma Some BPM tools such as SIPOCs, process flows, RACIs, CTQs and histograms allow
users to:

 visualize – functions and processes

 measure – determine the appropriate measure to determine success
 analyze – compare the various simulations to determine an optimal improvement
 improve – select and implement the improvement
 control – deploy this implementation and by use of user-defined dashboards monitor the
improvement in real time and feed the performance information back into the simulation
model in preparation for the next improvement iteration
 re-engineer – revamp the processes from scratch for better results
This brings with it the benefit of being able to simulate changes to business processes based on
real-world data (not just on assumed knowledge). Also, the coupling of BPM to industry
methodologies allows users to continually streamline and optimize the process to ensure that it is
tuned to its market need.
As of 2012 research on BPM has paid increasing attention to the compliance of business
processes. Although a key aspect of business processes is flexibility, as business processes
continuously need to adapt to changes in the environment, compliance with business strategy,
policies and government regulations should also be ensured.[16] The compliance aspect in BPM is
highly important for governmental organizations. As of 2010 BPM approaches in a
governmental context largely focus on operational processes and knowledge
representation.[17] Although there have been many technical studies on operational business
processes in both the public and private sectors, researchers have rarely taken legal compliance
activities into account, for instance the legal implementation processes in public-administration
bodies

Knowledge Process Management

A winning knowledge management program increases staff productivity, product and service
quality, and deliverable consistency by capitalizing on intellectual and knowledge-based assets.

Many organizations leap into a knowledge management solution (e.g. document management,
data mining, blogging, and community forums) without first considering the purpose or
objectives they wish to fulfill or how the organization will adopt and follow best practices for
managing its knowledge assets long term.

A successful knowledge management program will consider more than just technology. An
organization should also consider:

 People. They represent how you increase the ability of individuals within the
organization to influence others with their knowledge.
 Processes. They involve how you establish best practices and governance for the
efficient and accurate identification, management, and dissemination of knowledge.

 Technology. It addresses how you choose, configure, and utilize tools and automation to
enable knowledge management.

 Structure. It directs how you transform organizational structures to facilitate and

encourage cross-discipline awareness and expertise.

 Culture. It embodies how you establish and cultivate a knowledge-sharing, knowledge-

driven culture.

8 Steps to Implementation
Implementing a knowledge management program is no easy feat. You will encounter many
challenges along the way including many of the following:

 Inability to recognize or articulate knowledge; turning tacit knowledge into explicit

knowledge.

 Geographical distance and/or language barriers in an international company.

 Limitations of information and communication technologies.

 Loosely defined areas of expertise.

 Internal conflicts (e.g. professional territoriality).

 Lack of incentives or performance management goals.

 Poor training or mentoring programs.

 Cultural barriers (e.g. “this is how we've always done it” mentality).

The following eight-step approach will enable you to identify these challenges so you can plan
for them, thus minimizing the risks and maximizing the rewards. This approach was developed
based on logical, tried-and-true activities for implementing any new organizational program. The
early steps involve strategy, planning, and requirements gathering while the later steps focus on
execution and continual improvement.

Step 1: Establish Knowledge Management Program Objectives

Before selecting a tool, defining a process, and developing workflows, you should envision and
articulate the end state. In order to establish the appropriate program objectives, identify and
document the business problems that need resolution and the business drivers that will provide
momentum and justification for the endeavor.

Provide both short-term and long-term objectives that address the business problems and support
the business drivers. Short-term objectives should seek to provide validation that the program is
on the right path while long-term objectives will help to create and communicate the big picture.

Step 2: Prepare for Change

Knowledge management is more than just an application of technology. It involves cultural

changes in the way employees perceive and share knowledge they develop or possess. One
common cultural hurdle to increasing the sharing of knowledge is that companies primarily
reward individual performance. This practice promotes a "knowledge is power" behavior that
contradicts the desired knowledge-sharing, knowledge-driven culture end state you are after.

Successfully implementing a new knowledge management program may require changes within
the organization's norms and shared values; changes that some people might resist or even
attempt to quash. To minimize the negative impact of such changes, it's wise to follow an
established approach for managing cultural change.

Step 3: Define High-Level Process

To facilitate the effective management of your organization's knowledge assets, you should
begin by laying out a high-level knowledge management process. The process can be
progressively developed with detailed procedures and work instructions throughout steps four,
five, and six. However, it should be finalized and approved prior to step seven (implementation).

Organizations that overlook or loosely define the knowledge management process will not
realize the full potential of their knowledge management objectives. How knowledge is
identified, captured, categorized, and disseminated will be ad hoc at best. There are a number of
knowledge management best practices, all of which comprise similar activities. In general, these
activities include knowledge strategy, creation, identification, classification, capture, validation,
transfer, maintenance, archival, measurement, and reporting.

Step 4: Determine and Prioritize Technology Needs

Depending on the program objectives established in step one and the process controls and criteria
defined in step three, you can begin to determine and prioritize your knowledge management
technology needs. With such a variety of knowledge management solutions, it is imperative to
understand the cost and benefit of each type of technology and the primary technology providers
in the marketplace. Don't be too quick to purchase a new technology without first determining if
your existing technologies can meet your needs. You can also wait to make costly technology
decisions after the knowledge management program is well underway if there is broad support
and a need for enhanced computing and automation.

Step 5: Assess Current State

Now that you've established your program objectives to solve your business problem, prepared
for change to address cultural issues, defined a high-level process to enable the effective
management of your knowledge assets, and determined and prioritized your technology needs
that will enhance and automate knowledge management related activities, you are in a position to
assess the current state of knowledge management within your organization.

The knowledge management assessment should cover all five core knowledge management
components: people, processes, technology, structure, and culture. A typical assessment should
provide an overview of the assessment, the gaps between current and desired states, and the
recommendations for attenuating identified gaps. The recommendations will become the
foundation for the roadmap in step six.

Step 6: Build a Knowledge Management Implementation Roadmap

With the current-state assessment in hand, it is time to build the implementation roadmap for
your knowledge management program. But before going too far, you should re-confirm senior
leadership's support and commitment, as well as the funding to implement and maintain the
knowledge management program. Without these prerequisites, your efforts will be futile. Having
solid evidence of your organization’s shortcomings, via the assessment, should drive the urgency
rate up.

Having a strategy on how to overcome the shortcomings will be critical in gaining leadership's
support and getting the funding you will need. This strategy can be presented as a roadmap of
related projects, each addressing specific gaps identified by the assessment. The roadmap can
span months and years and illustrate key milestones and dependencies. A good roadmap will
yield some short-term wins in the first step of projects, which will bolster support for subsequent
steps.

As time progresses, continue to review and evolve the roadmap based upon the changing
economic conditions and business drivers. You will undoubtedly gain additional insight through
the lessons learned from earlier projects that can be applied to future projects as well.

Step 7: Implementation

Implementing a knowledge management program and maturing the overall effectiveness of your
organization will require significant personnel resources and funding. Be prepared for the long
haul, but at the same time, ensure that incremental advances are made and publicized. As long as
there are recognized value and benefits, especially in light of ongoing successes, there should be
little resistance to continued knowledge management investments.

With that said, it's time for the rubber to meet the road. You know what the objectives are. You
have properly mitigated all cultural issues. You’ve got the processes and technologies that will
enable and launch your knowledge management program. You know what the gaps are and have
a roadmap to tell you how to address them.

As you advance through each step of the roadmap, make sure you are realizing your short-term
wins. Without them, your program may lose momentum and the support of key stakeholders.

Step 8: Measure and Improve the Knowledge Management Program

How will you know your knowledge management investments are working? You will need a
way of measuring your actual effectiveness and comparing that to anticipated results. If possible,
establish some baseline measurements in order to capture the before shot of the organization’s
performance prior to implementing the knowledge management program. Then, after
implementation, trend and compare the new results to the old results to see how performance has
improved.
Don’t be disillusioned if the delta is not as large as you would have anticipated. It will take time
for the organization to become proficient with the new processes and improvements. Over time,
the results should follow suit.

When deciding upon the appropriate metrics to measure your organization’s progress, establish a
balanced scorecard that provides metrics in the areas of performance, quality, compliance, and
value. The key point behind establishing a knowledge management balanced scorecard is that it
provides valuable insight into what's working and what's not. You can then take the necessary
actions to mitigate compliance, performance, quality, and value gaps, thus improving overall
efficacy of the knowledge management program.

The Power of Knowledge Management

Implementing a complete knowledge management takes time and money, however, the results
can be impressive and risks can be minimized by taking a phased approach that gives beneficial
returns at each step. Organizations that have made this kind of investment in knowledge
management realize tangible results quickly. They add to their top and bottom lines through
faster cycle times, enhanced efficiency, better decision making and greater use of tested solutions
across the enterprise.
M-Commerce

M- Commerce can be defined as any elect iconic commerce activity conducted over a wireless
network through mobile devices. It includes activities such as buying and selling of goods and
services and information, online transaction Etc.

Wireless network like GSM,CDMA,TDMA,GPRS, & UMTS enables a user of a mobile device
to access a variety of information stored on database of connectivity providers, information
providers, service providers and web servers.

1. Cellular pones & smart phone

2. Pager devices
3. Handheld computers, palmtops, tablet
4. Laptop
5. Personal digital Assistants

 M Banking - account management, account alerts, check account deposit, transfer

funds, customer service via text etc.
 M Payments - Most of the major brands are building mobile-specific apps to serve their
clients for example Companies like Firethorn, Sybase 365, Monitise, Digby, Kony Solutions,
Pay Pal, Vaultus, VivoTech, PayPal and WorkLight etc, purchase goods and services, pay a bill
using a phone, ticketing.
 M Vouchers - coupons and gift cards, mobile vouchers.
MRemittance - Mobile commerce also allows airtime on phone, money transfer between people and
organizations. Airtime transfer becomes a token for money transfer. For eg Companies like Sybase 365,
P2P Cash, Obopay, Bling Natio

The advantages of m-commerce are :

1. Providing wider reach as most people use cell phones.
2. Reducing transaction cost & order processing cost
3. Streamline all business processes.
4. It encourages competitive pricing.
5. Reducing time to order.
6. Purely personal
7. Secure
8. Location and time independent
9. it enables a business to target customers effectively e.g: on the basis of location, service
provider, devices etc
10. It provides a convenient, secure & easy to use communication & distribution network

The disadvantages of m-commerce are :

1. Technology constraints of mobile devices (memory, Processing power, display capabilities,
input methods)
2. User interface is often difficult to learn how to use.
3. Use of graphics limited
4. WAP and SMS limited to small number of characters and Text.
5. Limited bandwidth
6. Small screens of most devices still limit types of file and data transfer.
7. WAP and SMS limited to small number of characters and text.
8. Cost of establishing mobile and wireless broadband Infrastructure.

How M-Commerce works?

The transaction starts from the lady, whose on the phone making transactions through phone,
then the transaction takes place from merchant , then to merchant bank , then to processing bank
through internet payment is being processed from consumer bank.

M-Commerce *Next Generation E-Commerce*

M-Commerce is also said as next generation E-Commerce.
It is firing up its importance especially in the field of Retail Industry. This is becoming a new
and the latest way of connecting with customers.

This is evidenced by the fact that mobile devices account for more than a quarter of online
shopping and mostly on festive seasons like Christmas or New Year. Through M-Commerce you
can easily select various categories and sub-categories.There is also an option of searching for
the latest offers at restaurants, spas, and other entertainment places which are nearby or far.
M-Commerce takes place through various mobile devices, mobile phones, Personal Digital
Assistance (PDA), a Smartphone, or any upcoming mobile equipment like Dastop Mobile
Devices.

Various Services provided by M-Commerce are:-

1) Financial Services like mobile banking or brokerage service.
2)Retail Service
3)Informative Service
4)Location Based Services like local discount , offers etc
5)Mobile Marketing and Advertising
6)Auction

FRANCHISING
Franchising arises when a franchisor grants a license (franchise) to another business
(franchisee) to allow it trade using the brand / business format.

The franchisor is the business whose sells the right to another business to operate a franchise –
they may run a number of their own businesses, but also may want to let others run the business
in other parts of the country.

A franchise is bought by the franchisee. Once they have purchased the franchise they have to
pay a proportion of their profits to the franchiser on a regular basis. Depending on the business
involved, the franchiser may provide training, management expertise and national marketing
campaigns. They may also supply the raw materials and equipment.
Buying a franchise a good way of an individual setting up a business because:

 They do not have to establish themselves in the same as a sole trader might have to.
 They will have the support of a tried and tested business model, often with a national
marketing campaign behind them.

Benefits to the Franchisor

The main advantages to the franchisor of growing a business using franchising include:

 A classic growth strategy for a proven business format

 Enables much quicker geographical growth for a relatively low investment
 Still have the option to open locations that are operated by the Franchisor
 Capital investment by franchisees is an important source of growth finance

Benefits to the Franchisee

The main advantages of setting up as a franchisee include:

 The franchisee is given support by the franchisor. This includes marketing and staff
training. So starting a business in this way requires less expertise and is less lonely!
 The franchisee may benefit from national advertising and being part of a well-known
organisation with an established name, format and product
 Less investment is required at the start-up stage since the franchise business idea has
already been developed
 A franchise allows people to start and run their own business with less risk. The chance
of failure among new franchises is lower as their product is a proven success and has a
secure place in the market

Drawbacks to the Franchisee

The potential disadvantages of setting up as a franchisee are:

 Cost to buy franchise – can be very expensive (hundreds of thousands of pounds).

 Have to pay a percentage of your revenue to the business you have bought the franchiser
from.
  Have to follow the franchise model, so less flexible. You would probably be told what
prices to set, what advertising to use and what type of staff to employ.

Steps to buying a franchise

Franchising is a very complex area, but if you do your research properly and find the right franchise for you, it
can be very rewarding. However, before you start looking at franchise opportunities and the process of buying
one, you need to initially understand what franchising is and if it is the right route into business for you.

By following the franchise guidelines outlined in this section, you can start to answer important questions such
as "Why buy a franchise?", "Where do I start?", "What do you need to buy a franchise?", "What's the best
franchise for me" and "How much is it to buy a franchise?"

We will take you through each stage of the franchise decision making process, providing you with free and
impartial guidance and clarification where possible. As well as providing you with a comprehensive franchise
guide, whichfranchise and other bfa affiliated franchise experts, are also on hand to answer any questions you
may have in our 'Ask the Experts' section.

WHAT IS FRANCHISING?
In our first step we look at what a franchise is and the two methods of franchising, as well
as examing the advantanges and disadvantages of franchising.
What is a franchise?
In simple terms, a “franchise” is an agreement between two parties which allows one party i.e.
the franchisee, to market product or services using the trademark and operating methods of the
other party i.e. the franchisor.
There are two types of franchise methods - 'Business Format Franchising' and 'Product and Trade
Name Franchising'.

o Business Format Franchising

The most common method in the UK is Business Format Franchising. By using this method
the franchisor grants the franchisee the rights to use their logos and trademarks, as well as
a turn-key system for doing business.
A franchisee often received help from the franchisor in regards to site selection, store layout and
design, recruiting and training staff, marketing the business, preferred supplies contacts and
more.
The franchisee in return has to pay an upfront franchise fee as well as ongoing royalties to the
franchisor. The franchisor uses this money to help further develop the system through marketing,
product and market research, and ongoing support.
There are many examples of business format franchising opportunities, including –
food franchises, automotive franchises, estate agency franchises, retail
 franchises, recruitment franchises, children's franchises, coffee franchises, pet
franchises, fitness franchises to name a few.
Many of these are ideal franchises for women, home-based franchises, part-time
franchises andmobile franchises, and not all required a high level of investment, some are
considered low-cost franchises.

o Product and Trade Name Franchising

The other franchise method is Product and Trade Name Franchising. This type of
franchising does not involve royalty fees.
The most important thing that the franchisor provides is the product; the franchisee is required to
purchase the product or range of products exclusively from the franchisor. The franchisor also
provides national marketing and advertising campaigns, logos and trademarks.
This type of franchising is mainly associated with industries such as petroleum, soft drink
distribution and automotive.
Product and Trade Name Franchising has three distinctive characteristics:

o The franchisee sells goods which are supplied by the franchisor or a person affiliated with the
franchisor
o The franchisor helps the franchisee to secure accounts or, depending on the type of business,
locations or sites for rack displays or vending machines
o Within 6 months of opening the business, the franchisee must pay the franchisor or a person
affiliated with the franchisor

Advantages of franchising
In this article, franchising expert, Manzoor Ishani, Sherrards Solicitors, discusses the
advantages of franchising and the top 7 reasons reasons you should consider buying one.
1. Less risk
In a nutshell, the greatest advantage of a franchise system is that it reduces risk of business
failure.
This is due to the fact that an ethical franchisor will have a tried, tested and proven business
concept in the market place. Therefore, most of the wrinkles will have been ironed out and the
risks to the franchisee minimised.
It is a well known fact that less than 7% of franchise owners fail within the first 3 years, as
compared to over 90% of new business start ups.
2. Competitive edge
Franchising enables a small businessman to compete with big businesses and a franchisee
can take advantage of the economies of scale.
All franchisees acting together can buy more cheaply and on better terms than an individual
small business.
Add to this the franchisor’s reputation in the industry, the franchisee can trade under a
recognised brand and should have a distinct advantage over any independent small business
competitor.
In theory at least, the products, equipment and system will have been previously market tested
and therefore they come to the franchisee with a certain degree of 'ready acceptance' by the
consumer.
3. Training and Support
Through training imparted by the franchisor, the franchisee climbs a very steep learning
curve in a shorted period of time, thereby increasing their chances of succeeding
considerably.
For example, someone who wishes to set up a dress hire business would find it very difficult to
get the stock mix right at the outset. A franchisee, however, should have the benefit of his/her
franchisor’s experience and should receive advice on the range and mix of the stock to carry etc.
The franchisee has the benefit of the management and administrative experience of the
franchisor in addition to which most franchisors provide back up and support including trouble
shooting services to assist franchisees in their daily endeavours.
This support includes managerial and administrative services, product information and marketing
support
4. No previous experience needed
No previous experience in a particular business is necessary for a franchisee to operate it.
All deficiencies of know-how are made good, again, by training imparted by the franchisor.
Indeed, one of the proudest boasts of franchisors is that they have the ability to turn a butcher,
baker or candlestick maker into a fryer of chicken, dry cleaner or quick print shop operator.
Any lack of knowledge on how to run a business is not a problem as a franchisor will provide the
necessary training to the franchisee.
5. Hit the ground running
Franchisees “hit the ground running” when they open a franchised outlet as they enter the market
with a recognised brand name, proven business system and products and or services which have
been market tested.
6. Pooled resources
A franchisee has the ostensible backing of a large organisation and this is achieved by the
pooling of resources, particularly in the field of advertising, marketing and promotions
where each franchisee, by contributing a little, can have the benefit of a large fund for this
purpose.
Franchisees are therefore able to have their goods and services promoted through media which
would otherwise be closed to them.
In a well-run and structured franchise business, the franchisee is left to concentrate on selling the
goods or services while at the same time receiving the benefit of continuous market research and
development to improve the business and the franchised system.
7. Exclusive territory
In many cases franchisees are given exclusive territorial rights and this, in effect, gives them a
monopoly over the area allocated to them, certainly in terms of doing business under the
franchisor’s trade name.

Disadvantages of franchising
Understanding the disadvantages to franchising could help identify any issues which may
not be obvious to someone new to franchising.
The drawbacks fall into three categories:

o Lack of independence
o Inflexibility
o Risk associated with the franchisors performance

1. Lack of independence
An important feature of franchising is that every aspect of the business format is defined and
each outlet is operated strictly in agreement with this format. Not everyone would be happy to
operate a business under such constraints and you must consider how well you can accept this
aspect of the franchising system when looking for a franchise to buy.
Discipline: Buying (licensing) a franchise means working within a system in which there
is little freedom or scope to be creative. Almost every aspect of operating the business is
laid down in the manuals.
Franchisor Monitoring: Regular field staff monitoring visits are welcome initially, but as
time passes you will feel able to do your own trouble-shooting and you may come to
regard the franchisors interest as an intrusion - it is after all your business.
Service Charges: At first these services are necessary and franchisees do not mind paying
for them. However as time goes on, if less use is made of the franchisors services then
franchisees can resent making the continuing payments.
Reputation: Each franchisee affects the reputation of the whole system depending on their
performance and ability. In many franchises there is a wide gulf in the quality of product
or service between the best and the worst franchisees. Thus any franchisee can harm the
reputation of all outlets in the chain, even internationally.
2. Inflexibility
 Responding to the market: Franchising tends to be an inflexible method of doing
business as each franchisee is bound by the franchise contract to operate the business
format in a certain way. This can make it difficult for a franchisor to introduce changes to
the business format, refit outlets, or introduce new types of equipment. In some franchises
it can be difficult for a franchisee to respond to new competition or to a change in the local
market.
The job itself: What may seem an attractive challenge now could become boring after a
few years so it is important that you choose a franchise to buy in which you will enjoy the
work, or which has potential for growth.
3. Risk associated with franchisor performance
It is important to recognise that not all franchise businesses are soundly based or well run. In
signing the franchise agreement you are formally binding yourself to a particular franchisor and
it is, therefore, vital to select one which is competent and ethical.
There are 4 different categories of franchisor:
a. The Established Franchisor
b. The New Franchisor
c. The Unethical Franchisor
d. The Incompetent Franchisor
Some should be avoided at all costs, while others will vary in attractiveness according to the
level of risk you are prepared to take.
a. The Established franchisor:
This represents the least risky type of franchise opportunity. The business format will have been
fully tested in a number of locations, most likely abroad too, and although the initial cost of
opening such a franchise may be relatively high, a franchise with this type of company will be
highly attractive to anyone for whom security is important.
b. The New Franchisor:
There is nothing intrinsically wrong with a new franchise but great care must be taken in
deciding to invest in any particular franchise. As franchisors incur high initial costs, they need a
minimum number of franchises to break even. When a franchisor has fewer than the break-even
number of franchises it is likely that

o More effort will go into selling franchises than into providing support services.
o There will be some deficiencies in services in order to keep costs down.
o Financial resources will be strained.

In this start-up phase the franchisor is vulnerable to financial problems if franchises cannot be
sold quickly enough. Franchises in this take-off phase are potentially those, which will earn the
highest returns, for example if the product or service is outstanding in some way a large territory
can be covered. With a franchisor you are in a position near that of an independent business -
greater return. Depending on the risks you are prepared to take, this type of franchise may be
attractive, or one to be avoided.
c. The Unethical Franchisor:
Unfortunately some franchisors have no intention of entering a long-term support relationship
with the franchisee, instead they have heard that franchising is a way to make money quickly out
of gullible franchisees. This is done by setting up a shell franchise - lots on offer but nothing to
back it up, then selling such franchises to those who are so keen to become a franchisee that they
fail to make a thorough appraisal of the business on offer. Make sure that you spot this type of
franchise, take time to investigate different opportunities.
You cannot afford to learn from your mistakes.
d. The Incompetent Franchisor:
These are franchisors who are not offering franchises to perpetrate fraud but who are
incompetent in one or more of the following ways

o The basic business is unsound

o The franchisor is under-resourced and may not be able to fund the initial running of the business
o The franchisor has not run a pilot test so cannot confirm that the business is actually franchiseable
o They have not used experience or accredited franchise consultants or lawyers
o Their manuals and start-up assistance and support if of poor quality