You're Telling Me How To Spend My Money?

Franchisee Columnist Todd Michaud has spent the last 16 years trying to fight IT issues, with the last six years focused on franchisee IT issues. He is currently responsible for IT at Focus Brands (Cinnabon, Carvel, Schlotzsky’s and Moe’s Southwestern Grill).

"Vendors need to compete every day to win our business. If they fail to provide competitive prices or superior service, I want to have the ability to choose someone else."

I can’t tell you how many times I have heard some version of this over the years. On the surface, this seems like a pretty straightforward argument . But with most things in life, it’s not quite that simple. I also have franchisees who pepper me with questions like: “Why is the system so expensive? Why can’t I have a single phone number to call for all of my problems? Why are these upgrades so expensive and why on earth do they take so long to complete? Why can’t I get access to better data faster? Who is holding this vendor accountable?” Not always, but sometimes, the answers to these questions are found by limiting the franchisees choices.

The total cost of ownership of a POS increases by 15 percent or more for every POS vendor in a chain. These costs come from reduced purchasing power with the vendors, increased support complexity and costs, and increased integration costs. Important costs that are often overlooked are related to adding new functionality in the future.

Regardless if it is for competitive reasons or to maintain compliance, upgrading diverse systems is expensive for everyone involved. Try switching a gift card provider to reduce costs and add features for a chain with 38 different electronic payment systems and you will understand why these often hidden costs are an important consideration.

Many franchisee managers are reading this and thinking: “Here we go with another IT person who is trying to make their life easier by spending my money. He just wants to go the easy route and manage just one vendor.”

That is not my point at all. Cost is only one component of several that is considered with each IT offering. Risk is obviously also important. Putting all of your eggs in one basket is also a risky move. If a single source vendor fails to deliver on any aspect of the relationship, then sales suffer and IT’s creditability is damaged. Franchise IT leaders take that risk extremely seriously.

The original quote I referenced is actually a lot more detailed. It really goes more like this: "A single-source IT vendor is a horrible idea! I want the IT vendors to have to sell to me versus me being forced to buy from them. Vendors need to compete every day to win our business. If they fail to provide competitive prices or superior service, I want to have the ability to choose someone else. My local vendor is extremely responsive to my needs. If we choose a single technology vendor for our chain, then you will take all of this away from me. Plus, if you choose a crappy vendor, it will be my problem, not yours."

There are times when a single-source vendor makes sense, times where multiple vendors make sense, and even times when a hybrid of the two is the best option. IT vendors in a Franchise environment usually operate under one of the following models:

  • The chain sets the requirements for the rollout and franchisees can chose any package that meets the requirements
  • The chain approves a series of vendors and the franchisees can choose any of the approved vendors
  • The chain approves a single manufacturer with several reseller/support options.
  • The chain requires a specific vendor(s) and the franchisees have no choice

    So which option is the right one? Let's take a look.It depends on the chain and the needs of the vendor. Some important considerations to decide which model is the right model for a new technology vendor/system:

  • Are the functionality requirements dramatically different between different operators in the system? The more diverse the need is, the more challenging a single-vendor approach will be. Some franchisees need just the basics, while others need all the bells and whistles.
  • How complex is the new system and what is the typical franchisee's capability to self-support? Systems with a lot of moving parts that cause a high-reliance on the vendor for support may be better managed with local, on-site resources. In other cases, an umbrella help-desk that manages the complete “technology stack” in the store might be a better option
  • How sensitive are the franchisees to pricing? I had to put something in here to make you laugh. We all know that franchisees are sensitive to pricing, but specifically how does their value equation (cost vs. functionality) relate to the new approach? Example: If they just want a cash register and you are pushing a fully functional POS, then the sensitivity is through the roof. In most cases, volume commitments through exclusivity and/or contract term can help reduce costs.
  • How many integration points are there with the new system? If the new system is integrated with several other systems (as in the POS example), then integration costs become a serious consideration with adding multiple vendors. If every POS release must be tested, certified and deployed with several integration vendors, then the brand should expect to expend significant capital and human resources on maintaining those integration points. If you have four different POS vendors that each release two major releases a year and the POS is integrated with five different IT systems (Inventory, Supply Chain, Labor Management, Payments and Loyalty), then the IT team will be certifying 20 different releases every year.
  • What is really required and what is optional? The more things there are on the required list, the more likely specific vendors will be named. Make sure that you are evaluating requirements with a fair eye. Understand that the level of risk that the chain is willing to take and the level of risk the franchisee is willing to take may be different. Try to find an approach that meets both the requirements and appetite of risk for both. Maybe a single manufacturer with different service providers is a good compromise for franchisees worried about competitive service after the sale.
  • What are the security/compliance requirements or importance of the technology to the brands? Technologies that involve sensitive data will most likely require very precise standards be met, which can often lead to a choice of a specific vendor. Are you selling printing services? If so, the printer that is used is probably very important to the brand and is therefore likely to have tighter controls on vendor selection.

    In most cases, a chain will need to use each of the vendor models in some fashion or another to be successful. Both the franchisees and the chain need to understand that decisions that are made around the structure of an IT vendor relationship can have a significant impact on the total costs of a technology approach and all of those costs must be carefully weighed early in the decisions process. It is important that these decisions are documented and communicated to all those involved so that expectations are properly set.

    What do you think? Love it or hate it, I’d love to gain some additional perspectives. Leave a comment, or E-mail me: Todd at [email protected].