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.