Why
Franchising Is The Superior Format?
Whether schools are organized within a for-profit private
system, a non-profit private system, or a public system of
schools, it is important to centralize those educational
services that can benefit from economies of scale and at
the same time localize those services that are best
provided on small scales. Given that different schools may
have different local needs it is important to provide them
some flexibility while at the same time preserving uniform
system wide standards. Our analysis suggests that
franchising networks are an optimal arrangement that allows
a centralized service facility, run by the franchisor, to
do what it does best while reserving to the individual
schools, the locally owned franchisees, some discretion for
adapting to local needs.
In terms of the legal aspects of franchising networks, only
the franchisor is normally required to be a for-profit
entity. The franchisees are not restricted as to their
business format: they can be for-profit, non-profit, or
government organizations.
Common
Alternatives To Franchising
We
have mentioned some of the unique features of franchising
that make it a good fit with the needs of school systems.
Are there viable alternatives to franchising? What are
they? And why is franchising superior to the other
alternatives?
The most common alternative formats are a:
A.) Licensing network. The licensor
company owning the license allows other locally owned
schools (licensees) to work under its name if they meet
certain requirements, but the licensor generally does not
participate in the management of the local schools.
Licensing, we believe, gives the local owner and manager of
a school too much discretion in the school operations which
would, among other things, lead to a lack of uniformity
across the network of schools. This could have the effect
of degrading the "brand" of the licensor- bringing it down
to the level of the most lax performers within the network.
So, for example, in the licensing context, it might be
difficult to maintain uniform assessment standards across
the network.
B.) Wholly owned network. The
headquarters of the school company owns and directs the
activities of its local campuses. Public school systems,
parochial school systems, and other smaller networks of
private schools are examples.
While the licensing network gives too much latitude to its
member licensees, at the other extreme, the wholly owned
network is generally too prescriptive at the local level.
Moreover, from the owner's viewpoint, the capital
investment required to launch the wholly owned network is
many times higher than the other two alternatives.
So we have one format that's too lax and another that's too
strict. That leaves franchising, which perhaps like mama
bear's statement is "just right."
How
Franchising Meets Many Of The Educational
Needs
In
more detail, how does such a franchising network operate?
As applied to schools, the franchisor generally provides
and controls the services and products that require an
economy of scale or that benefit from technology. These
would include the content, the online instruction, the
assessment systems, the hardcopy & digital materials,
and the computer network required to provide them.
The franchisee would own and operate individual schools
using the services, products and policies of the
franchisor. Tutoring, classroom management, and a number of
other local student services would be conducted at this
franchisee level.
As almost everyone knows, there are a variety of franchised
types of businesses that are quite successful because the
franchisor is able to provide different kinds of incentives
(carrots and sticks) to keep its franchisee participants in
line with its operating formats. Dare we say, "MacDonald's"
or "Wendy's" or "Burger King?"
Thus we believe that networks of schools would be best
served if they participate in franchising networks as
opposed to the other formats.
Additionally, franchising enjoys legal advantages over the
other kinds of networks.
A key legal feature of franchising agreements is the
flexibility with respect to how the local schools are
owned. The franchisee owner can be a for-profit school
operator, or non-profit, or even government owned. This
means that existing networks and systems of schools could
participate simply by signing and following a franchise
agreement between it and the franchisor.
Yet another legal feature of franchising agreements
pertains to the way they are enforced. Franchisors
generally will not permit franchisees much flexibility if
they try to operate outside of the agreement. This reduces
the possibility of bureaucratic interference from the
officialdom controlling the local schools. Unless
franchisors are willing to dilute their brand's reputation,
they will be unwilling to bend their policies and
regulations under pressure from their franchisee operators.
Take, for example, a public school system that would
operate some of its schools under a franchising agreement.
If that government unit tried to interfere in the
franchisee school operations or tried to amend the
franchise agreement, it is likely that the franchisor would
sever its relationship and collect whatever penalties were
prescribed in the franchising agreement. Most franchisors
would rather protect their brand and reputation than yield
to government pressure.
Franchising Emerges As The Winner
We believe that
none of the other alternatives will do more for improving
K-12 education than franchising. How do we convince
doubters that it is the best vehicle for reforming our K-12
schools?
The answer lies in simple economics. We envisage numerous
franchisor organizations- each a for profit enterprise-
competing among themselves and with the alternative
providers. As in other industries, the for profit products
and services are nearly always superior to those provided
by non-profit and government organizations.
Schools, regardless of their ownership format, will likely
want to contract with the better network operators- the
franchisors. These are the ones providing the superior
instructional systems.
Not everyone will agree to the establishment and use of
franchising systems. For example, teachers' unions may
oppose such an arrangement. We envisage that they may for a
time succeed in blocking superior instructional systems. As
the franchising option catches on, the benefits will be
seen in student assessments. We doubt that such opponents
will be able to block franchised networks over the long
run.