“I understand that your cousin Gino might be one of the best technology service providers in central New Jersey, but I’m just not sure if we can use him as part of this program.” One of the classic battles between franchisees and their chain’s CIO is the use of local support resources. When it comes to technology providers, most franchisees “have a guy that can do this better, faster, cheaper” than anything that is designed at a national level.
It’s a compelling argument. There is a lot to be said for smaller companies that are hungry and constantly go the extra mile. They will show up at a moment's notice, any time of the day. I have worked with a POS company that was absolutely top-notch. The 300 franchise locations that they supported absolutely loved working with them and were extremely loyal. To say that the company was small is an understatement. It consisted of two brothers who were rumored to live with their mother.
When it comes to support options, the CIO is charged with finding and sourcing vendors that provide the highest level of service at the lowest possible costs. Vendor evaluations typically include things like company financials, service-level agreements and national coverage maps. Purchasing services similar to the levels provided by local companies from the chain’s national providers is often cost-prohibitive for franchisees. In other words, it's expensive for the big guys to reproduce what the small guys give away from free because they are hungry.
After all, it’s easy for Gino to keep his costs low when his only real overhead is the payments on the van. While national providers talk about service-level agreements with off-hour support options, a call to Gino at 11 o’clock at night means he’ll be there in 20 minutes because he lives right down the street.
But the flip-side of this coin is almost as important to consider, and it’s importance is often overlooked by franchisees. What happens when Gino is sick or has car troubles? What happens when he is forced to go out of business or is sold to a larger company? Probably the biggest problem for the CIO that is not considered by the franchisees: What happens when we have to upgrade the entire chain by a certain deadline and Gino doesn’t have the resources to get it done in time (for example: PCI compliance)?
By choosing a national provider over a collection of local support companies, the CIO is getting more consistent services throughout the chain, a larger labor pool and easier vendor management (“a single throat to choke”) with dashboards and reporting. Typically, these contracts allow for price reductions through volume commitment and have client/program management teams dedicated to overseeing the relationship between the provider and the chain. It’s pretty obvious why most CIOs would like this option.
But beware; one of the biggest hidden arguments that franchise CIOs face is a blended rate contract. Vendors often pitch these options because they are of great value to corporate-owned chains. Let’s say a CIO negotiates a nationwide blended rate contract that lowers the average costs of a support package by 20 percent. Most CIOs would see this as a significant win. However, although half of the franchisees will be ecstatic about the cost savings, the other half will be furious because they are now overpaying for services they could have purchased on their own. I bet you’ll never guess which ones tend to call and E-mail with their opinion of the new program?
So what is the right answer? There are pros and cons to each option and, in the end, I think that it is really a decision about which type of problems you wants to manage.In some cases, the decision can be made at the time the technology is chosen. Some technology vendors only use national programs, and others only use local support programs. In other cases, support may have been bundled into the technology purchase as a way of reducing the overall cost of ownership. In these instances the decision has been made for you. As a result, this is an important consideration when evaluating technology solutions to meet business needs.
In situations where the technology is complex and requires a high level of consistency or security, a national provider is typically the best option. If the decision is made to go with a national provider, I would suggest negotiating at the lowest possible level of service, with options to upgrade service to higher levels. Vendors may entice you with options to “add this additional service and save on the whole package,” but I think that is a mistake.
No matter how good of a deal you can get, franchisees will resent being forced to purchase more than they need much more than they will be happy about a few dollars saved. Make sure that upgraded service offerings are easy to understand and easy to purchase. Examples of upgraded services may include on-site support, after-hours support or expedited service. If you do a good job communicating these parameters upfront, there will be less “I thought that was included in what I bought” later on.
Note, the other consideration of choosing a national provider can be found in an earlier column.
In situations where the technology is a commodity, requires high-touch from the vendor or cost is the only factor (sacrificing functionality or service levels), then a local service option typically will be optimal. If local support companies are chosen, I strongly recommend adding one or two national providers to the mix as well--effectively using both options. In a competitive situation between a local company and a national provider, the local company will typically win because of the lower costs and higher levels of service (or least more attention). However, in situations where there are no local options, where a local company has gone out of business or when larger projects need to be facilitated, a national provider can be a good backstop.
What do you think? Love it or hate it, I’d love to gain some additional perspectives. Leave a comment, or E-mail me [email protected].