Business case scenario analysis
Abstract
The successful enterprise Three Guys Garage is facing challenges for expansion, succession planning, and the use of innovation in their services. Growing the brand can result to the loss of operational and service quality control while not doing so will limit TGG’s sustainability in the future. Growing the brand also provides enormous opportunities for their apparent successors to gain experience in running a large enterprise. Franchising the TGG brand provides at least three advantages in the expansion and planning fronts: easy access to better managerial talents; easy access to expansion capital; and significantly minimized risk exposure. However, the business model also gives up to an important extent control over managers, creation of a strong core business community achievable in company-owned outlets, and the ability to innovate its brands services. Overall, though, franchising provides the greatest advantages that company-owned expansion plan and joint venture partnership can effectively provide under current organizational limitations.
Introduction
Any successful enterprise is faced with the challenges of expanding its reach in a sustainable manner often through innovative strategies in order to serve the founders personal reasons for getting into the business in the first place. Moreover, the issue of succession threatens the long-term survival of the enterprise beyond the active careers of its founders, much like the case of the Three Guys Garage (TGG), which three friends pushed to success in only six years. In the following sections, the issues of business sustainability, succession planning, and innovation will be explored with the best business form it should take to realize their common an individual objectives. A review of three options pinpointed at franchising as the most promising model to do just that.
Jerry, Jose, and Manuel have started to think through the future of the Three Guys Garage (TGG). But the nature of the thinking focused on growing it in the future and the approach to take in doing, and the idea of succession planning entered their minds. Of course, Jerry’s son has a promising future to take over the leadership of TGG through is growing knowledge of the business has he progressed to a senior mechanic and his motivation to pursue a business degree to prepare. Manuel’s daughter also has worked wonders in marketing, while Jose’s wife, if she survives her husband, can continue to oversee the financial side of the business. However, despite these availability of talents for succession planning, the three founders had not even mentioned about it, nor planned about it.
Succession planning, to be successful, must be deliberate and systematic (Seniwoliba, 2015). It is about recruiting, developing, and retaining employees with a range of leadership competencies that can implement both current and future organizational and business objectives. Although Jerry’s son has the technical skills and later on the necessary knowledge to help him eventually manage the company, his leadership skills remained unnoticed and undeveloped. Thus, it remains uncertain that he will have the necessary leadership competence to take over the management of TGG when the three founders have to retire in the future.
In such a case, TGG needs to have a backup roster of talented staff with the necessary experience, business knowledge, and leadership skills to take over its management in case Jerry’s son will not be able to meet the leadership requirements. However, the three leaders must implement a deliberate and systematic program that will attract, extend, and keep their best staff at all levels so that talent at all levels will be available to take charge in manage these functional levels. They need to recognize that younger leaders have the natural tendency to change employers and career and several times so throughout their working life (Seniwoliba, 2015).
Taking the franchising model for expansion, TGG will naturally open challenges to their potential family successors to develop higher competencies to meet the higher supporting demands in the model that will prepare them for leadership later on. Since franchising provides an easy capital for expansion, TGG can expand fast with necessary large capital base while allowing Jerry’s son help support in the technical training of their franchisees and Manuel’s daughter also can do similarly in the marketing area. Meanwhile, Jose’s wife will have larger financial responsibilities falling under her area of expertise as the franchised chain grows in number. These increased exposures to challenges that will expand their talents and skills will inevitably prepare them to easily take over of the business when the founders retire even if no succession planning will ever get into the founders’ minds.
These opportunities will not be available in a joint venture, which can end up in functional competition from organizations with different and may even be contrasting organizational culture (Bagga, 2014). Joint ventures also may dilute management control of the new company while lack of clear communication objectives and communication of accountabilities can easily lead to relationship problems among the top management.
Although expansion by company-owned operating branches or subsidiaries offers the greatest operational control, the approach will limit the enterprise’s access to better talents, which Jerry’s son and Manuel’s daughter will benefit much to deal with in franchising (Shane, 2013).
Sustainability
The pursuit of long-term business sustainability plays the central focus in the minds of the three founders of TGG. Jerry and Jose want to reinvest its retained earnings into expansion, while Manuel wants some profit distribution to allow him to make some personal investments. Moreover, expansion has with it accompanying problems, which includes expensive investments in technology to support their services with new cars that had come out of warranty. There is also a valid issue with operational and quality control, which may be lost with the expansion. The issue on their business model’s adaptability for expansion has been settled already with the help of the business coach. It remains for them to decide in what form their expansion will take to grow their business to a national level.
Franchising evidently offers the most advantages in line with the founders’ goals.
First, franchising provides an unparalleled opportunity to gain access to great talents (Shane, 2013), which can ensure that operational and quality control of the franchise will stay intact. The founders can screen applicants for cultural fitness, leadership and managerial skills, and the most qualified and talented ones to receive the franchising contract for strategic locations that can maximize TGG’s expansion potentials.
This advantage is not readily available to partners in a joint venture because an established organization already has an existing organizational culture that is more likely than not will prove incompatible with the TGG culture (Bagga, 2014), making the business relationship untenable. With the cultural barrier in place, the area from which to choose the best partner for a joint venture will be strongly restricted. It is easier to transfer corporate culture into a franchisee than into a joint venture. Although the issue on culture and talent can be easily resolved by growing organically, the issue of high capital requirements for opening a branch will be an enormous and unnecessary barrier for expansion, which brings the matter to the second advantage of the franchising approach.
In fact, franchising provides an easy source of expansion capital because the franchisees pay for operating a TGG franchise or, in a matter of speaking, purchase outlets in the growing TGG chain (Shane, 2013). Through the franchising format, TGG can expand deep in any territory and wide in all states or provinces in the entire nation. Jerry’s vision can be easily within their grasp. There will be no necessity to spend company capital for the expansion nor seek financing from banks or investors. Unlike adding company-owned outlets, there will be only little administrative costs spent for expanding into a new location.
Moreover, the fast and wide growth potential in franchising is relatively of minimal risk while generating high financial returns from high royalties on sales in franchised outlets (Shane, 2013), which will meet the desire of Manuel for a distribution of retained earnings to support a personal investment capital. Jerry’s and Jose’s expansion objectives will also be easily reached again with minimal risk on their part. In effect, the return on capital investment will be enormously higher in franchising than in either join venture or company ownership.
However, franchising business is not without its special set of headaches.
First, there will be less managerial control over the franchisees, which is exactly the issue brought out by Jose: operational control. The quality control though has a different story, which is subject to brand management regulation. Nevertheless, because franchisors are independent business owners, they cannot be managed like employees. They too have their own business objectives, which may even conflict with the franchisor’s goals. And, although the franchisor has inherent and protected control over the use of the brand, the franchisees have general independence in achieving their objectives their own way.
In a manner of speaking, there is an inherent conflict of objectives between the franchisor and the franchisees over the computational basis of royalty, which is, by default, based on sales. This means that, while the franchisor’s financial interest is supported by an increase of sales, the cost of promoting this increase of sales can have a direct impact in the profitability of the franchised outlet. And, profitability is the primary concern of the franchisees. For instance, if TGG has the habit of providing its customers coupons for free or discounted services in every nth number of paid works in car servicing, those coupons can take a good chunk of profits from franchisees, which may logically remove the coupon program in their outlets, changing a traditional way of doing business and may disappoint customers who got used to this marketing scheme. Moreover, TGG cannot simply open a company-owned outlet within its franchisees’ exclusive zone and continue with the coupon program without causing conflict with them.
Second, franchising essentially creates a weaker core community of outlets (Shane, 2013). Unlike outlet managers in a company-owned TGG outlet, TGG franchisees in a certain geographical area rarely have the incentive to work together because it is rare that a franchise will profit more by working together with other-franchised outlets. In fact, they can easily look at each other as competitors over potential customers within that geographical area, especially their servicing pertains to cars that can easily go from one outlet to another within only a short difference of time. For instance, in a city with three franchisees operating, each outlet must compete with the others in order to gain a better share of the other two-thirds of the city’s market size. And no franchisor can prevent them from doing that.
Innovation
Innovation is another area of concern in relation to franchising TGG. Although franchising allows the founders to skip from investing on a new technology as a precondition for expansion, ensuring innovation to happen in franchised outlets is a continuing problem in this business model. While franchisees can adapt innovative ideas from the franchisor, they are not obliged to do so (Shane, 2013). Thus, if TGG wants to expand its services to recently off-warranty cars, which requires the purchase of a new technology to support these new services, a franchisee retained the right to adapt the innovation or not. Moreover, there is valid concerns with regards to innovation among franchisees. Heidenreich & Kraemer (2016) observed that innovations in products and services has high failure rates simple because consumers rejected them simply over their resistance on innovation. However, franchisees cannot legally stop TGG from opening a company-owned outlet providing only the services not offered among franchisees in the geographical area at its own risk.
Summary
The role of franchising in delivering expansion to TGG provides the greatest promise and advantage to the three founders in terms of better expansion conditions, better succession planning opportunities (even without them knowing it), and in facing the genuine problem in relation to innovation in its services. Despite the challenges, TGG is relatively better off with franchising than with company-owned expansion or join ventures.
References
Bagga, R. (2014, May 8). Joint venture strategies – A look at the benefits and risks. Syntegrity
Group. < http://jointventurestrategies.net/ >
Heidenreich, S. & Kraemer, T. (2016, May). Innovations – doomed to fail? Investigating
strategies to overcome passive innovation resistance. Journal of Product Management, 33(3): 277-297.
Seniwoliba, A.J. (2015, April). Succession planning: Preparing the next generation workforce for
the University for Development Studies. Research Journal of Educational Studies and
Review, 1(1): 1-10.
Shane, S. (2013, May 7). The pros and cons of franchising your business. Entrepreneur.com. <
https://www.entrepreneur.com/article/226489 >
