Flaming_Vortex_BDAL_ Econet_ MDP_240715
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1 An investigation into the effectiveness of the Econet Franchise model in the Harare area – to identify if there are any opportunities to improve efficiency and reduce costs. Team Name Student Number Telephone Msengezi. M. 19746423 0772222763 Biza. I. 19746474 0772222308 Manatsa. M. 19747179 0772222589 Myers. S. 19748914 0774222364 Matthews. T. 19746539 0774222371 PROGRAMME NAME: ECONET WIRELESS MDP 2015 MODULE: BUSINESS DRIVEN ACTION LEARNING (BDAL) FACILITATOR: LYNNE BEZUIDENHOUT DUE DATE: 24 JULY 2015 NUMBER OF PAGES: 110 CERTIFICATION We certify the content of the assignment to be my own and original work and that all sources have been accurately reported and acknowledged, and that
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Transcript of Flaming_Vortex_BDAL_ Econet_ MDP_240715
1
An investigation into the effectiveness of the Econet Franchise model in the Harare
area – to identify if there are any opportunities to improve efficiency and reduce
costs.
Team
Name Student Number Telephone
Msengezi. M. 19746423 0772222763
Biza. I. 19746474 0772222308
Manatsa. M. 19747179 0772222589
Myers. S. 19748914 0774222364
Matthews. T. 19746539 0774222371
PROGRAMME NAME: ECONET WIRELESS MDP 2015
MODULE: BUSINESS DRIVEN ACTION LEARNING (BDAL)
FACILITATOR: LYNNE BEZUIDENHOUT
DUE DATE: 24 JULY 2015
NUMBER OF PAGES: 110
CERTIFICATION
We certify the content of the assignment to be my own and original work and that all sources
have been accurately reported and acknowledged, and that this document has not previously
been submitted in its entirety or in part at any educational establishment.
2
FOR OFFICE USE
DATE RECEIVED:
Contents
Executive Summary.................................................................................................................5
1. Introduction...................................................................................................................................7
1.1 Introduction to the company: Econet Wireless Zimbabwe..........................................................7
1.2 Introduction to Commercial Division...........................................................................................8
1.3 Introduction to effectiveness of the Econet Franchise model...................................................10
1.4 Introduction to the Project........................................................................................................10
2. The identified business need.......................................................................................................11
3. Impact analysis............................................................................................................................13
3.1 Individual Impact.......................................................................................................................14
3.2 Team Impact..............................................................................................................................14
3.3 Business Impact.........................................................................................................................14
3.4 The external environmental Impact..........................................................................................14
4. Stakeholder Engagement and Management...............................................................................15
4.1 Introduction...............................................................................................................................15
4.2 Stakeholders Identified & Prioritised for the project.................................................................15
4.3 Stakeholder Engagement Strategy.............................................................................................17
5. The Desired State........................................................................................................................18
5.1 Literature Review.......................................................................................................................18
5.1.1 Introduction into Franchising..............................................................................................18
5.1.2 Benefits of Franchising........................................................................................................20
5.1.3 Disadvantages of Franchising..............................................................................................26
5.1.4 Franchise Benchmarking.....................................................................................................27
5.2 Franchise Benchmarking against Econet Franchise Shops.........................................................28
5.3 Franchising in African Telecommunications Companies............................................................33
5.4 McKinsey 7S Model and application to Franchising...................................................................35
6. The Current State........................................................................................................................38
6.1 Introduction.........................................................................................................................38
6.1.1 Research scope and methodology......................................................................................38
6.1.2 The target stakeholders......................................................................................................39
6.1.3 Questionnaires....................................................................................................................40
3
6.2 The Current Econet Franchise Model........................................................................................41
6.3 Financial Analysis of Econet and Franchise Shops- Desk research.............................................42
6.3.1 Cost to Econet for operating through franchise shops.......................................................44
6.4 Feedback from questionnaires..................................................................................................45
6.4.1 Internal management feedback on areas of Econet Support.............................................45
6.4.2 Franchise shops feedback on areas of Econet Support.......................................................48
6.4.3 Analysis of Key Pain Points for Franchises..........................................................................50
6.4.4 Customer Feedback............................................................................................................54
6.5 Gap Analysis...............................................................................................................................60
6.6 The Econet PESTEL.....................................................................................................................62
6.7 McKinsey 7S Model Misalignment.............................................................................................63
6.8 The SWOT Analysis- Econet Shops.............................................................................................65
6.9 The Econet SWOT Analysis Franchise shops..............................................................................66
7. Key Issues....................................................................................................................................68
7.1 Costs..........................................................................................................................................68
7.2 Efficiency....................................................................................................................................68
7.3 Quality of service.......................................................................................................................68
8. Possible Solutions........................................................................................................................69
9. Business Constraints....................................................................................................................69
9.1 Selection of Solutions - Decision Matrix....................................................................................70
10. Recommendations...................................................................................................................71
10.1 Franchise Strategy...................................................................................................................72
10.2 Review the franchise reward model........................................................................................74
10.2.1 Cost benefit analysis-Reward Model................................................................................75
10.3 Automated In-store customer care..........................................................................................76
10.3.1 Cost benefit analysis - Automated In-store customer care...............................................76
10.4 Optimize Shop Footprint..........................................................................................................78
10.4.1 Cost Benefit Analysis for territory mapping:.....................................................................78
10.4.2 Cost benefit analysis Econet Owning the Lease................................................................78
11. Change Management Process.................................................................................................80
12. Implementation Plan...............................................................................................................82
12.1 Implementation plan for the Quick Wins.................................................................................82
12.2 Implementation plan for the Reward Model revision..............................................................83
12.3 Implementation plan for the Automation and Standardisation of IT Systems.........................83
12.4 Implementation plan for the Optimisation of the Shop Footprint...........................................84
13. Conclusion...............................................................................................................................85
4
14. Personal Learnings...................................................................................................................87
i. Personal Learnings – Mellany Msengezi..................................................................................87
ii. Personal Learnings - Itayi Biza..................................................................................................88
iii. Personal Learnings - Sophia Myers..........................................................................................89
iv. Lessons from the Project – Martin Manatsa............................................................................91
v. Personal Learnings - Andrew Tigere Matthews.......................................................................92
15. References...............................................................................................................................94
16. Appendices..............................................................................................................................96
5
Executive Summary
This report offers an insight into the potential cost savings and business efficiency
improvements to the existing franchise model for Econet Wireless Zimbabwe (EWZ).
EWZ is Zimbabwe's largest provider of telecommunications services, with a
diversified portfolio of start-up business across multiple industry sectors.
Due to the deflationary economic conditions in Zimbabwe, and the current cost
structures within the organisation, there is significant pressure for prudent cost
management within Econet.
The report focuses on a holistic investigation of Econet’s franchise models. It begins
by investigating the optimal approach to franchising in the telecoms industry, as well
as benchmarking against other successful franchise models employed in the
Zimbabwean market to determine the ideal desired state. It then goes on to analyse
the detail of Econet’s franchise implementation, to determine the current state and
identify the existing gaps in said implementation.
From this detailed analysis it was clear that the cost of running an Econet franchise
shop, is much lower than that of an Econet owned shop. Additionally, the quality of
service experienced in Econet owned shops exceeds that found in an Econet
franchise shop. Furthermore, the rewards offered to franchises are not deemed to be
sufficient to tie them in to focusing strictly on Econet business, and this adversely
affects their quality of service.
Another issue discovered is related to the distribution of Econet shops. These are
not optimally situated, with high density areas not well catered for and other shops
being in close proximity to each other, increasing cannibalisation of sales. To
improve the profitability and sustainability of Econet shops, a territory model could be
implemented to address the shop distribution inefficiencies. Finally, there are
multiple opportunities for automation and optimisation in the systems used in both
franchises and Econet shops.
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In conclusion, the franchise model clearly has benefits and provides an opportunity
for maximising revenue and reducing costs, if implemented correctly. In addition, the
fragmented nature of the current franchise implementation reduces the benefits
Econet currently receives from this channel. The adoption of a unified Franchise
Strategy will help to galvanise and focus attention on the leveraging the substantial
potential benefits available to Econet.
7
1. Introduction
1.1 Introduction to the company: Econet Wireless Zimbabwe.
Econet Wireless Zimbabwe (EWZ), referred to as Econet hereafter, is a mobile
communication services company founded by Dr. Strive Masiyiwa in 1996.
Operations commenced on the 10th of July 1998 after a four year legal battle with the
Zimbabwe Government denying it an operating license. The company is listed on the
Zimbabwe Stock Exchange (ZSE) and has a market capitalization of $495 million-
the second highest to companies listed on the (ZSE). (Herald 2015). Despite market
share decline from 70% in 2011 to 58% in 2014, against Telecel 19% and Netone
24% (POTRAZ Q4 Report), Econet remains the market leader.
Econet Market and Value Share vs Competition.
58%19%
24%Market Share (Active 3 Subscribers)
Econet Telecel NetOne
67%
22%
11%Value Share (USD)
Econet Telecel NetOne
Econet Wireless still commands leadership in most other areas such as market
value, Products and Services bouquet, innovation and brand presence.
Econet’s vision is to provide telecommunication services to all people of Zimbabwe.
Below is the mission and values.
Mission:
To serve Zimbabwe by pioneering, developing and sustaining, reliable, efficient and high-
quality telecommunications of uncompromising world-class standards and ethics.
Values are:
Pioneering
Professionalism
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Personal
The above mission therefore drives and directs Econet to continue growing and
expanding so as to achieve its vision. The company is also socially responsible and
contributes more than 2% of its annual revenue to Higherlife Foundation which runs
four key Trusts, namely; Capernaum Trust (supporting orphans), Joshua Nkomo
Trust (supporting education of high performers), Christian Community Partnership
Trust (supporting ministers of the Gospel) and National Health Care Trust
(supporting health issues nationwide).
1.2 Introduction to Commercial Division
Franchising is part of commercials’ strategy to achieve market presence and ensure
product and service availability. The commercial division in Econet Wireless is
responsible for generating revenue through products and services offered. The
division manages and is responsible for new product development, sales,
distribution, marketing and all customer services functions. The commercial vision
that supports the business vision is, ‘To be a sales, service and marketing driven
business with the primary focus of end-to-end client service delivery. Business
action plans by “all” must support the goal of client centricity.’
Corporate Objectives supported by Commercial division
1) Maximise shareholder value.
2) Continuously increase efficiency of fixed assets utilization
3) Entrench & defend Econet brand leadership position in the market.
4) Focus on quality of service for the benefit of our customers
5) Reinforce Econet’s image as a committed corporate citizen of the country.
6) Maintain position as a preferred employer.
The commercial structure, refer to appendix 1, is headed by a Chief Commercial and
Customer Services Officer and has General Managers responsible for each
specialised function. In total, the division has 600 employees against a total of
Econet’s workforce of 1,200 employees. Whilst the division is responsible for
generating revenue, it is also mandated to do so in an effective and efficient manner
by managing all related cost of sales.
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Main Products and services offered are prepaid voice, broadband, Value Added
Services and devices. Refer to table below for description of each product.
Econet Products & Services
Service Description
Voice Services:
Prepaid brand - Buddie
Post-paid brand - Premium
A mobile voice calling service that is either prepaid or post-
paid.
Broadband/
Data Services
A mobile service that enables one to connect to the internet
wherever they are, anytime of the day and is pay as you go or
post-paid.
VAS (Value Added Services) Non-core services beyond standard SMS (Short Message
Service), IVR (Interactive Voice Response) and 3G (3rd
Generation) or Data. Can be entertainment services, Gaming,
etc.
Devices Mobile handsets, Laptops, Accessories, tablets
To ensure ubiquitous availability of all products and services, the Commercial
division has the widest retail chain presence in the market as shown below. This
supports its market share of 58% and assists in achieving business revenue targets.
Retail Distribution
Channel Type Econet Net One Telecel TelOne
Econet Own Shops (shop) 28 12 21 23
Mini Shops (containers) 42 - - -
Franchise (standard shops) 37 - 2 -
Franchised Mini Shops (containers) 20 - - -
Store In Store 60 1 - -
Retailers 4 4 4 -
Distributors 674 50 70 -
Green Kiosk 1,127 250 100 -
Econet owns 43% of standard shops to 57% franchised shops nationwide, which led
to the research into the effectiveness of the Franchise Model.
10
1.3 Introduction to effectiveness of the Econet Franchise model
The topic in study is ‘An investigation into the effectiveness of the Econet Franchise
model in the Harare area and identify if there are any opportunities to improve
efficiency and reduce costs. This study aims to contribute to Econet how best it can
gain efficiencies from its Franchise distribution strategy. It will review the various
economic, financial and non-financial and also benchmark advantages and
disadvantages of the current franchise model against its own shops and consider
what would be the most optimal option in the current environment.
Econet uses different models to distribute products to the market. These include
Econet`s own standard shops, mini shops, dealership and the franchise model.
There are different costs, benefits and returns associated with each distribution
model. However, the scope of this study will focus on the franchise shops in the
capital city, Harare, versus the standard own shops. This is due to time, financial and
human resources limitations involved if the study was to be nationwide. The
franchise model has been in use since 1998 and the franchises and own shops
practices do not differ markedly between cities or towns. We believe that the limited
study will therefore still prove relevant to the rest of the franchise shops countrywide.
1.4 Introduction to the Project
Franchising is a contractual relationship between a licensor (franchisor) and a
licensee (franchisee) that allows the business owner to use the licensor’s brand and
method of doing business to distribute products or services to consumers. While
every franchise is a license, not every license is a franchise under the law.
Franchising is simply a method for expanding a business and distributing goods and
services through a licensing relationship. Put another way, in a franchise a business
(the franchisor) licenses its trade name (the brand, such as Econet Shop and its
operating methods (its system of doing business) to a person or group operating
within a specific territory or location (the franchisee), which agrees to operate its
business according to the terms of a contract (the franchising agreement). The
franchisor (Econet Wireless) provides the franchisee with franchising leadership
and support, and exercises some controls to ensure the franchisee’s adherence to
brand guidelines.
11
The project examines the effectiveness of the Econet Franchise model in the Harare
area by reviewing various key performance areas using interviews. The hypothesis
will propose whether the franchise model favours business profitability or rather
increases the cost structure. The research shall take cognisance of the available
literature on the franchise model including proven business models and how the
business can benchmark for proper implementation of the franchise model. The
available literature shall be compared with primary research for a sound comparative
analysis to be made. The primary research shall be confined to the Econet Shops
and Franchises in Harare area so as to manage resources. Findings shall be
presented and analysed culminating into the recommendations for the business.
Data collection methods to be used include questionnaires administered to internal
and external stakeholders.
The rational of the project is that Econet is looking for serious cost management
methods to reduce costs and yet remain present in the market so as to achieve its
financial targets and remain customer centric.
2. The identified business need
Economic conditions in Zimbabwe are considerably constrained and with deflation at
-3%. This means there is very little cash circulating. Added to this, there is decline in
voice revenues facing telecommunications companies globally, Econet finds itself in
a similar position. Year on year, Econet voice revenues declined by $10m a month.
Econet must focus on reducing overheads, as well as finding ways to increase
revenue so as to improve the bottom line. However, it is necessary to understand
these business needs in the context of franchise shops versus Econet owned shops
to determine any opportunities to contribute towards achieving the desired
efficiencies.
There is a clear business need identified around cost of Econet’s footprint of
customer service and sales centres throughout the country drives up the costs of
sales. Franchising is critical to Econet`s business as a way of reaching out to its
customers base which is scattered throughout the country. This underpins Econet’s
strategic push to defend market leadership, as Econet currently has the largest
12
market share of product and service offerings for any Telecommunications company
in Zimbabwe.
The advantages of the Franchise model are clearly and well documented, and the
best example of these can be found in successful Franchise implementations, such
as those employed by McDonalds and Nando’s. The clear strength is in the regional
and national market penetration possible through franchising, and the contribution
this makes to the establishment of dominant market share. McDonalds has been
particularly successful on this front:
“There are now more than 30,000 McDonald’s restaurants in over 11 countries and
territories, serving nearly 50 million people each day. In 2006, McDonald’s global
sales were over $57 billion, making it by far the largest food service company in the
world. In 1955, Ray Kroc realised that the key to success was rapid expansion. The
best way to achieve this was through offering franchises. Today, over 70% of
McDonald’s restaurants are run on this basis.” (McDonalds Corporation, 2008).
Nando’s, is a more regional example of a successful company that has built its rapid
growth on franchising in a similar manner: “Nando’s African initiative began with an
outlet in Swaziland in 1991. Later, outlets were opened in Namibia, Zimbabwe,
Botswana and Mauritius. Further international expansion followed in response to
requests from new operators. By early 1997, 46 Nando’s operations had been
established in eight countries outside the South African monetary union, including
Australia, the United Kingdom, Canada, Israel and Portugal”.
A further advantage of this growth in reach is that it creates an increased barrier to
entry for competitors, and if done successfully, can be a significant source of
competitive advantage.
Another advantage that a franchise model provides to the franchisor, is that it
provides the potential for easier access to desirable locations and due to the
franchisee not sharing the same recognisable company name as the franchisor, they
are more likely to have access to more favourable lease terms.
This highlights a clear need to review on the existing set up of Econet owned shops
versus franchise shops to determine whether there are any opportunities to reduce
13
costs to Econet, while still maintaining or even increasing the reach and commitment
to service the customer base effectively.
Some key factors to consider in this regard are maintaining a standardised level of
services for customer, maintaining a consistent look and feel, and providing access
to the same sales lines in all stores. Furthermore, in order to streamline costs the
business is keen to understand what the impact of reducing the current commissions
offered to franchisees, and or reducing their margins.
Some of the key factors affecting sales revenues in stores that must be explored
further are the number of sales driven by Econet stores versus Franchise stores,
product support provided to customers on the full range of Econet product offerings,
reach in the market and access to customers Econet may not be able to cater for.
3. Impact analysis
Carrying out this project will have positive impact on various stakeholders, internally
and externally. It’s a project that will yield both short term and long term benefits for
the business as summarised in the table below and explained in paragraphs to
follow.
Impact Analysis
Individual Team Business Environment
Distribution
planning
simplified
Monitoring of
outlets more
closely.
Sales
support
given to
franchisees
and own
shops
Branding
costs
Relationship
building and
management
Finance
Warehousing
(Logistics)/
Procurement
IT/ IS
Risks
(Stock/systems
access)
Customer Services
Revenue
assurance
Warehousing and
logistics
Sales staff who
supervise
franchisees
Risk and
Improve cost of
sales
Gross Margin
Sales increase
EBIDTA
improvement
Increased
efficiency
Sales efficiency vs
service issues
questioned.
Headcount and
Staff costs.
Office rentals
Risk management
and insurance
costs
Customers
Industry – more
employment/less
Franchisees
operations and
processes
Competition
Pension contributions
Government taxes
14
with the
franchisee
compliance staff
IT support staff
Marketing
Business analysts
Service fees
3.1 Individual Impact
At individual level, this project is going to assist in franchise planning and increasing
performance. I will assist in identifying areas to monitor the franchise shops from an
operational point of view and inculcate a closer personal relationship.
3.2 Team Impact
By investing in this project, various internal divisions will also be impacted. Among
others are finance, procurement and logistics, customer services and marketing.
They may be need to review process from the various divisions who all feed into the
franchisees and this will produce long term benefits as process improvement will
likely result in efficiencies and cost savings
3.3 Business Impact
The business impact is one of the most important reasons the team is embarking on
this project. Its` well reviewed and most recommendations should lead to the
improvement of cost of sales and this will filter down to the bottom line. A successful
and efficient franchise model has proven processes and procedures that allows
achievement of the financial goals of the franchisor and franchisee.
3.4 The external environmental Impact
The greatest impact of this project in the external environment will be our customers.
Customers seek value for money, effective and efficient service. Improved
Franchising may cause competitors to feel threatened and may respond by trying to
copy the same model or finding other ways to reach the market better.
15
4. Stakeholder Engagement and Management
4.1 Introduction
Stakeholder engagement and management has been identified as a key way to get a
fuller understanding of the internal and external attitude to Econet’s franchise model.
A stakeholder can be defined as “any individual or group who has a vested interest
in the outcome of a body of work. Key Stakeholder is any stakeholder with significant
influence on or significantly impacted by the work and where these interests and
influence must be”. (Australian Government Department of Immigration and
Citizenship, 2008)
Stakeholder management involves the identification, prioritisation, engagement and
evaluation of stakeholders, as displayed in the below diagram.
4.2 Stakeholders Identified & Prioritised for the project
For this project, stakeholder management was identified as a method to determine
suitable stakeholders within and outside of the organisation to ensure we have a
richer understanding of the issues relating to the Econet Franchise model, its impact
on others, and to identify potential improvements. The purpose is to involve, as much
IdentifyIdentify stakeholder groupsList relevant group members
PrioritizeAnalyze level of Interest / Power over the businessEvaluate engagement priority based on assessed rank
EngageDetermine engagement strategy per stakeholderPlan and execute engagement interventions, frequencies and responsibilities
EvaluateMonitor / Inform reactions, responses or effects of interventionsPlan and execute mitigating interventions
16
as possible, those parties who will be affected by the decisions/solutions we
propose, and to also get buy in into the project
The tables below details our stakeholder analysis for both Internal Stakeholders and
External Stakeholders. In these we have ranked the stakeholders by their level of
influence and interest, on a scale of 1 to 5, with 1 being low and 5 being high.
Stakeholder Analysis-Internal
Internal Stakeholders 1 to 5 Scale 1 to 5 Scale Total
Influence Interest Score
Commercial Director 5 5 25
Sales and Distribution GM 4 5 20
HOD - Indirect Channels 5 5 25
HOD - Direct Channels 5 5 25
Marketing GM 4 4 16
Regional Sales Manager 3 5 15
Finance Director/CFO 5 5 25
Commercial Business Analyst 3 5 15
Chief Risk Officer 4 4 16
Chief Information Officer 4 4 16
Shop Branch Manager 3 5 15
Customer Services 3 5 15
IS Networking Manager 3 5 15
Warehouse 3 4 12
HR Talent 3 4 12
Supply Chain 3 3 9
Legal 4 3 12
17
Stakeholder Analysis-External
External stakeholders 1 to 5 Scale 1 to 5 Scale Total
Influence Interest Score
FRANCHISEE OWNER 4 5 20
FRANCISE MANAGER 2 5 10
Customers 4 3 12
Agents 2 4 8
Dealers 4 4 16
Suppliers 1 1 1
Street Vendors 3 4 12
Branch Manager/Supervisor 2 5 10
Customer Consultant 2 5 10
Landlords 4 3 12
Consumer Council of Zimbabwe 3 5 15
ZIMRA 4 5 20
POTRAZ 5 5 25
Government 5 4 20
4.3 Stakeholder Engagement Strategy
From the above analysis we have selected the highest scoring stakeholders and
defined the following engagement strategy for them:
Stakeholder
s
Why is it important to talk to
them
What do we
need to ask
them
How will we
get the info
Internal
Managers
They have key knowledge of
existing practices
Internal
management
questionnaire *
Interview
Shop
Supervisors
The have day to day
experience of shops
Econet shop
Questionnaire *
Interview
Franchise
owners
They understand the view from
outside Econet
Franchise shop Interview
18
Questionnaire *
Executive
Committee
Their buy-in and acceptance to
the project is critical for
success
Internal
management
questionnaire *
Inform
Store
workers
They understand what’s
happening on the ground, and
are instrumental in project
success
Econet shop
Questionnaire *
Interview
and inform
Customers They are the key end users,
Understanding their needs is
crucial to ensure any
implementation is successful
Customer
Questionnaire
Telephone
Interviews
* See Appendix 3 for sample questionnaires
5. The Desired State
The desired state that is proposed for the Econet franchise model has been built
upon the following:
Literature Review
Interviews conducted with the various stakeholders
The benchmarking process conducted by the team with other successful
franchises in the Zimbabwe market.
Use of the McKinsey‘s 7 S model. The questions that were used for each of
the states in the 7 S model are attached in the appendix.
5.1 Literature Review
5.1.1 Introduction into Franchising
Franchising is when the owner of a business (the franchisor) grants a licence to
another person or business (the franchisee) to use its business idea, often in a
specific geographical area (Seid and Thomas 2006). The franchisee sells the
franchisor's product or services, trades under the franchisor's trade mark or trade
name and benefits from the franchisor's help and support. In return, the franchisee
19
usually pays an initial fee to the franchisor and then a percentage royalty on sales,
although some franchising arrangements do not include a royalty payment. Libava
(2011) also defines franchising as a method for expanding a business and
distributing goods and services through a licensing relationship. The franchisee owns
the outlet it operates and the franchisor keeps control over how products are
marketed, sold and how their business idea is used. While these franchisees own
their establishments, terms of franchising agreements typically require them to share
operational responsibilities with the franchisor.
To date franchising has grown to be a global distribution strategy. According to
Kidwell et al (2007), research that has been conducted have focused on issues of
control and power particularly in international franchising companies. Franchising
has become a part of everyday life for most consumers the world over. Numerous
firms in a variety of industries have adopted franchising as a method of doing
business. As a result, consumers now often purchase meals and hotel services
along with car repairs, clothing, specialty foods, and many other types of goods and
services through franchised companies.
According to Montagu (2002) a combination of factors makes franchising desirable.
On the one hand, the increased reliance of consumers on brand names, due in part
to increased consumer mobility and greater time constraints, has played an
important role in the development of retail and other chains.
Blair and Lafontaine (2005) argues franchisers and franchisees have a joint goal of
overall business development, as each other’s development or deterioration affects
the other. They both require a working relationship which can be achieved through
frequent information and knowledge exchange on systems, procedures and
behaviours drawn from the franchisor corporate strategy.
Ball (2006) argues that the franchise business model is well suited to retailing and
service businesses as firms in these sectors need to establish a large number of
geographically dispersed outlets to reach customers. Both suppliers of franchises,
namely the firms who organize themselves as franchised chains, and the demanders
of franchises, that is those individuals eager to develop a small local business,
benefit from the interconnection that franchising affords them. Franchisors and their
20
franchisees thus cooperate with one another in a kind of partnership. In many
regards, the interests of the franchisor and its franchisees are mutually compatible.
Their cooperation increases value for both parties: both earn more profit than they
would absent this cooperation.
5.1.2 Benefits of Franchising
Bradach (1998) argues that franchising has proven to be one of the most important
methods of doing business in today’s world, especially for small and medium size
enterprises such as Agency “the right to sell a product” Distribution “ the right to
distribute a product” and Licensing” the right to use a brand.” The question of “why
franchising in particular” may rise but the answer may be summarised by highlighting
the various strategic, financial and operational benefits for the franchisor and
franchisee as below:
i. Cost-effective growth
Quinn (1999) identifies cost-effective growth as one of the benefits of franchising. To
the franchisor, franchising means the spreading of risks by multiplying the number of
locations through other people’s investment. That means faster network expansion
and a better opportunity to focus on changing market needs, which in its turn means
reduced effect from competitors. The risks associated with business expansion are
therefore reduced. The franchisor is able to exploit the market more effectively
through increase in customer touch points than otherwise could be the case. The
franchisee contributes the greater part of the initial capital in the form of start-up
costs, payment of the initial and ongoing franchise fees as well as working capital.
They also carry other expenses like staff salaries.
ii. Commitment of franchisee to operate the business
The franchisee is the owner and manager of the business which brings a personal
commitment and motivation to the job. As the owner of the business the franchisee is
eager to see the business succeed, thus ensures maximum customer retention and
maximise profits (Quinn 1999 and Hing 1995). The franchisee is usually self-
motivated since he has invested much time and money in the business, which
means working hard to bring in better organizational and monetary results. This also
reflects on more satisfied customers and improved sales effectiveness. Since there
21
is a direct relationship between the franchisor and the franchisee, the increase in
business to the franchisee also benefits the franchisor.
iii. Business efficiencies
Rahatullah and Raeside (2008) argue that while increasing profits is a key goal of
most businesses, it is achievable when the franchisor maintains costs to a minimum
while maximizing efficiency in all areas of the business. From the perspective of the
franchising is shared motivation for success of both franchisor and the franchisee.
Franchisees have invested in a business and therefore more likely maximise
revenues through (administrative) efficiency and protection of the franchise brand. At
the same time both parties are motivated to maximise operational costs (Dianne et al
2006). Both the franchisor and the franchisee strive for efficiency and profit. They
both gain from the reputation and strong brand name.
iv. Financial benefits
Franchisees make an initial payment in return for becoming a part of your business
and then they continue to pay the franchisor a percentage of their revenue,
throughout the duration of their franchise agreement (Hing 1995). Once the business
is up and running, it is the franchisee who will be paying the franchisor a monthly
income. The franchise system can provide a very cost-effective route for business
development and reduced operating costs which can then be spread for other
initiatives like research and development.
v. Distribution strategy
By using the franchisees' capital, the franchisor is able to establish a large number of
outlets in a short period of time. Rapid expansion can be achieved without incurring
the overheads and costs associated with opening company-owned outlets. (Libava
2011, Ball 2006 and Blair and Lafontaine 2005). This brings benefit to both the
franchisor and the franchise as it helps build consumer recognition quickly and
establish the franchisor.
Ducket (2008) indicates that franchising is a strategy for entering into international
markets. The success rate of franchised business in comparison to standalone
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business is often mentioned when praising the concept. After seven (7) years, 91%
of franchised businesses are still in operation, in comparison to 20% of individual
new start-ups in the United States and this goes to show the advantage of franchised
businesses compared to individual start-ups Franchise USA (2008). Investment in a
franchise lasts longer than in individual businesses. An increase in the number of
franchise concepts stimulates the Small and Medium sized Enterprise (SME) sector.
A good reason for national policy makers to stimulate the development and roll-out of
franchises concepts Franchise USA (2008).
In planning sales and distribution, it is important to ensure effective territory planning
so as to maximise profitability.
a) Franchise Territory planning in Sales & Distribution
Elgin (2011) highlights that many, but not all franchises grant an “exclusive territory”
to their franchisees as part of the rights given under the franchise agreement. Elgin
explains that this means the franchiser believes that the area is large enough and
has sufficient number of potential customers to enable you to build a successful
business. He argues that a territory should be “Fair and reasonable” to avoid
cannibalization of sales. The Franchise builders (Online) argue that poor territory
planning always equal poor profits. They state that franchise territories must be “just
right” to avoid losses. Below are the three scenarios they argue.
Franchise Territory
Plan
Result
Territories too
large
Extending defect nationwide means a franchisor
designates a fraction of the territories that should have
been made available [leading to lost opportunities]
Territories too small Franchisees struggle to reach profitability, due to failure to
meet sales targets. They may feel that the model is
maculate yet it is poor territory planning.
Territories are not
designed at all
Leads to inconsistent territory sizing, franchise disputes
and possible business “losses” for both franchisee and
franchisor.
23
The Franchise builders argue that franchise territory planning is often neglected
largely due to the cost of the expert resources needed to perform the task. However
the benefits outweigh the costs in the long run. Below are the benefits:
1) Enables Franchisors to create ideally sized and equitable territories.
2) Provide both the franchisor and franchisee with greater success results and
profits.
3) Legal consistency across the franchise system.
Wilson (2012) highlights an explanation by franchise attorney, Harold Kestenbaum
that, “A protected territory provides a franchise with some protection against the
franchisor putting another franchised or company owned unit on the next block or
very close by.
Below are advantages and disadvantages of franchisees operating in an unprotected
territory, Wilson (2012).
Advantages of operating in an unprotected
territory
Disadvantages of operating in an
unprotected territory
Competition may be healthier than artificial
impositions by franchisor.
Leads to intra-brand competition
and inhibits franchisee co-operation
and collaboration for the good of the
brand.
The system has room for flexibility to react and
respond to market changes
Marketing efforts can be weakened
due to poor focussing.
For service businesses in which sales or
service are important, this can be great benefit
to a go-getter who is entrepreneurial and
creative.
Franchisees may continually feel
threatened by franchisor marketing
decisions.
Franchise focuses on building core business
values rather than relying on a protected
territory as an inherent value of the business.
Franchisor may have own territory
policies that they effect “randomly”
affecting franchisee profitability.
Allows for more modern marketing strategy
(social media and networks) rather than
marketing within a compartmentalised and
stunted artificial territories
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b) How to mark territories
Adapted from Buxton Franchise Consultants.
The above process demonstrates how a Franchisor can mark territories for its
Franchisees so that they enjoy the benefits outlined in the section above. Ultimately,
profitability coming from focussed sales and quality customer service is what is
desired from territory demarcations.
vi. Advertising and Promotion
Franchisees benefit from any national advertising campaigns launched by the
corporation with which they have gone into business. In addition, many franchisors
provide their franchisees with a wide range of point-of-sale advertising materials,
ranging from posters to mobiles to brochures. Since such materials are often
expensive to produce, they would otherwise be beyond the reach of some individual
franchisees.
vii. Operations
Franchisors provide franchisees with a wide range of help in the areas of
administration and general operations. The entrepreneur who becomes a franchise
owner is instantly armed with proven products and production systems; inventory
systems; financial and accounting systems; and human resources guidelines. Many
franchisors also provide management training to new franchisees, and ongoing
seminar workshops for established owners.
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viii. Buying Power
Franchisees are often able to fill inventory needs at discount prices because of their
alliance with the franchisor, which typically has made arrangements to buy supplies
at large-volume prices. This is an increasingly great advantage because today one
has to compete with national chains, conglomerates, buying consortiums, and other
large franchises. The small-business person who purchases in small quantities
cannot easily compete in terms of buying power. By becoming a franchisee, a
business has the collective buying power of the entire franchise system.
ix. Research and Development
Most small business owners are able to devote little time or money to research and
development efforts. Franchising, then, can provide a huge lift in this regard, for
many franchisors maintain ongoing research and development systems to develop
new products and forecast market trends.
x. Consulting Services
It is in the franchisor's best interests to do all it can to ensure the success of all of its
franchisees. As a result, the entrepreneur who decides to become a franchisee can
generally count on a wide range of training and consulting services from the larger
company. Such services can be particularly helpful during the start-up phase of
operations.
xi. Risk sharing
Keizer (2008) argues that the franchisee and franchisor share the risks of an
expanding business. For the franchisor it means that it can overcome the sometimes
problematic acquisition of scarce capital. Without this capital some businesses would
not be able to grow as fast as they do with franchising. For the franchisee, buying
into an established franchise system with a proven track record results in less risk
compared to starting a business from scratch. The investment costs for the first
franchise are relatively high, and are made by the franchisor. All the following
franchises require smaller investments than the first franchise, making it interesting
for potential franchisees. The cost of expansion is usually limited to the cost of
franchise recruitment, training and assistance prior to opening. Franchises invest
their own equity and borrowed funds in premises, equipment, fixtures, furnishings,
26
inventory and the working capital necessary to establish a franchise unit. The only
cost to the franchisor is that of the overheads not met by the franchisee’s initial
franchise fee.
5.1.3 Disadvantages of Franchising
As with any investment there is always a certain amount of risk associated with
starting a business. There are of course pitfalls associated with franchising and for a
comprehensive analysis they should be mentioned (Bradach 1998).
i. Less control over franchisee staff
The franchisor cannot superimpose the franchisee management styles as
franchisees are independent businesses. Moreover, they have different goals from
the franchisor which can easily conflict and even lead to legal trouble (Kidwell et al
2007). Franchisors for example make money by collecting a percentage of sales as
a royalty for letting the franchisee use their brand name and operating system.
Franchisees make money from the outlet's profits. Anything that boosts sales, but
not profits will create conflict between the franchisor and the franchisee.
ii. A weaker core community
It's more difficult to get franchisees as opposed to hired store managers to work
together. Franchisees have an incentive to profit from each other's efforts to
generate business. Franchisees might try to get out of paying for the advertising
needed to attract customers, figuring they will get the customers anyway if other
franchisees buy the advertising.
iii. Legal Regulation
Franchising is a regulated activity and requires compliance with federal and state
franchise laws (Rahatullah and Raeside 2008). To successfully establish a
franchise‚ franchisors are required to work with an experienced franchise lawyer to
establish a solid blueprint for franchising. Although franchising serves as a source for
the capitalized expansion of the business, the establishment of a franchise system
requires the investment of capital to cover legal fees and the cost of establishing a
franchising infrastructure.
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5.1.4 Franchise Benchmarking
i. What is benchmarking?
In franchises, benchmarking usually refers the process and outcome of collecting
sales and expense results of individual businesses, compiling averages and ranking
results. It’s a good way to get a picture of how a network and individual franchisees
are performing. Significant benefit can be obtained when this information leads to
understanding the different processes and practices of top performers and
establishing ways to share these insights and support continued performance
improvement, Kate (2011)
According to Kate, there are three basic types of benchmarking: performance,
process and strategic. Performance benchmarking deals with comparing one
company’s results to that of another, and determining how each company achieves
these results. Strategic benchmarking deals with executive-level, long-term results,
while process benchmarking deals with analysis and comparison of daily operational
practices, Franchising World, (2006). All of these types can be extremely effective
when used properly; however, this article will focus primarily on process
benchmarking, as it is the easiest to apply to franchising and can result in concept-
wide benefits quickly.
No matter if a franchise system is in the food industry, retail or business services, no
concept is outside the benefits of a focused benchmarking effort. In order to keep
pace with competitors in your marketplace, streamlining common tasks and reducing
costs are a continuing effort. Benchmarking is important to the profitability of your
concept as well as your franchisees individual profitability, Franchising World (2006).
Kate, (2011) argues that while many in franchising business agree to the notion that
benchmarking is a good idea, not every franchise system does it. Even in those
which do, some franchisees don’t participate or make the most of the information
that is presented. A thoughtfully constructed and well executed benchmark process
helps sustain strong performance for franchisees and franchisor and is one of the
most powerful ways to support franchisees.
ii. Problems that benchmarking solves
Without adequate attention to broad business metrics, and a program to address
performance, franchises can face serious adverse consequences that will threaten
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their survival, and the wealth of franchisees and franchisor. Over time, even the best
performing businesses slip from their peak performance, threatening survival and the
wealth of owners. For example, upward pressure on cost of goods sold and labour
costs will erode profits unless noticed and addressed through business
improvements.
Without a mechanism to look at broad financial and non-financial measures, sales
can become the primary measure of success and focus of attention. Sales results
are important but sales alone are no guarantee of profit and cash flow. Gaps
between expectation and performance can lead to disputes. These are costly for
both franchisee and franchisor. Because franchising amplifies the effect of poor
performance. It makes good sense to keep an eye on the overall financial
performance and have a means to address deficiencies.
Inadequate franchisee profit can restrict access to funding, hamper ability to reinvest,
and compromise customer service through operational cut backs. Financial stress
can also reduce franchisee satisfaction and advocacy. This can diminish the brand
and make it harder to attract franchisees. It can also result in poor cash flow for the
franchisor and stress for owners and staff.
5.2 Franchise Benchmarking against Econet Franchise Shops
For this project Franchise benchmarking was performed by investigating and
interviewing similar models in the local market. These included interviews with Seeff,
Toyota, and O’Hagans.
Seeff is a real estate company. Its parent company is in South Africa. We selected to
review this organisation because it is in the service industry and we also had an
internal contact to help with getting an interview at the right level.
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Toyota is in the automotive industry and main focus is car sales and parts. The
parent company is in Japan. We chose to benchmark with Toyota as it is sales
driven in nature and believe this would add value to Econet`s current needs.
O’Hagan’s is a restaurant and pub which focuses on food and beverages. It is also
popular for event catering. Its parent company is in South Africa. We selected to
bench mark with O’Hagan’s it is both a sales and service focused franchise which is
similar to the desired ideal Econet Franchise model.
From the interviews we were able to determine the following comparisons, strengths
and weaknesses of each franchise model.
Econet Toyota Seeff O’ Hagans
Model type Franchise Dealer License Franchise
Initial outlay
Recurring fees
Commission
Comprehensive training provided
Training paid by Franchisee
Credit lines provided
Design of Store
Site location assistance
Recommended suppliers N/A
Site standards audits
Advertising assistance
Recurring advertising fee
Stocks @ wholesale price N/A
Retail price set ?
Stock audits N/A
Restrictions on stocks in store
Unexpected costs
Revenues as expected
Adequate escalation channels
Effective support systems
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i. Toyota model feedback
Toyota provides design assistance and standards for its show rooms and workshops
(look and feel, furniture, and layout). The company performs regular audits of shops
to ensure adherence to its price guidelines, and prevention of selling “Grey” stock.
Vehicle sales to the dealers and compared against dealer sales figures reported and
regular (weekly/fortnightly) site inspections are done to prevent sales of unauthorised
stock. A recommended stocking model for dealers has been provided but there has
been a low adoption of the model.
Toyota holds monthly meetings with dealer principles and Toyota GM’s to keep
channels open and speed up issue resolution. It also operates an open door policy
for dealer principles to make appointments with the MD or respective departments,
such as the National Parts Manager and National Sales Manager. Toyota
acknowledges that the market in Zimbabwe is tough, and vehicle sales dropped by a
third for all dealers after the increased duties levied on new car sales in Nov 2014
was implemented.
a. Strengths of Toyota Dealer model
Training is provided completely by Toyota, except for materials which are charged
for.
The dealers can leverage on Toyota’s global brand, with the dealer only responsible
for their own local marketing.
Toyota sell stock at wholesale prices and provide price guidelines to be used for the
retail selling price by the dealer. The dealer also benefits from Toyota’s bulk
purchasing power.
All shipping and logistics is done by Toyota, giving their dealers an advantage that
their main focus can remain on growing sales and customer service.
Toyota applies restrictions on site locations, to ensure there is no competing
between existing and new dealers.
Finally, Toyota offers case-by-case credit accounts to allow dealers to buy stock,
however, this is only for parts and not for vehicles to mitigate against loan risks.
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b. Weaknesses of Toyota Dealer model
Toyota has a recommended list of suppliers for the design and set up of sites,
however, this is costly, and is seen as a hidden cost by dealers.
While Toyota offers support and escalation channels to its dealers, there is a long
turnaround time on requests as local management need to liaise with Japan for any
final decisions.
Toyota covers all logistics for dealers, however lead times are usually lengthy and
hence often face difficulties in meeting orders on time. This is as a result of the
Zimbabwe market being less of a priority to Toyota International, due to the relatively
small number of annual new car sales.
The discounts offered by Toyota on stock are based on bulk purchases, and due to
the size of the Zimbabwean and Southern African market, the size of the discounts is
very minimal in comparison to other countries and regions.
ii. Seeff model feedback
Training is provided with the bulk of materials being provided free of charge. There is
an annual conference and a Seeff Training Academy. Any face-to-face training
comes at a cost for the licensee.
The License fee is calculated on the commissions achieved over the prior calendar
year. This essentially means that the better the Licensee does in a year, the higher
their commission charges are the following year. However, the licensee does not
have to pay commissions on individual sales to the Licensor. They have a system
which requires you to enter every listing and every sale you get. The system is open
to abuse, so it is based on trust. However, any violations found result in termination
of licenses. The Licensee’s focus is mostly on Quality and Customer Service.
a. Strengths of Seeff License model
The training provided is extensive, and it uses leverages on low cost technologies
such as online content and Skype seminars.
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Licensor is very strict on compliance, and if any deviations are noted the license is
cancelled. This works well, as it is a very lucrative sector. Support is given to ensure
brand conformance, in the form of templates for signs and accessories (pens, pads,
calendars, etc.). Seeff maintain brand standards through yearly office awards, where
each site has to submit site photos. They also perform occasional office checks.
Their Information Technology systems give them a cutting edge against other Real
Estate companies in Zimbabwe.
They leverage on their international contacts, giving them a much larger database of
people who want to buy properties. Licensees’ sales efforts are also supported
through a referral system between licensees.
There is a quick turnaround time provided on any requests for support from the
Licensor, with options and recommendations provided within a week.
b. Weaknesses of Seeff License model
The licensor offers no assistance with site location or design. They also offer no
financial assistance. The Licensee is required to pay a marketing levy of $400 per
month in addition to the license, even though there is no Seeff Marketing in
Zimbabwe by the Licensor. The licensee then has to do their own local marketing
with no assistance.
The License fee calculation can be prohibitive, if there is a crash in the market
following a good year. This is because the annual license fee is based on the
previous good year. The listing system is also open to abuse, and requires honesty
of the licensee and constant audit of overheads.
iii. O’Hagan’s model feedback
O’Hagan’s provides design assistance and standards for the look and feel of the
restaurant/Pub. The franchisee is required to pay an annual franchise licence
They perform regular audits of the pub to ensure that they maintain the image of the
brand in terms of the menu offering, quality of the food and the pub. The menu that is
33
provided is standard across the franchises although they allow some slight variations
for local cuisine.
Currently, the local O`Hagans does not enjoy bulk purchase discount from the
O’Hagan’s franchise in general, as there is only one outlet in Zimbabwe.
The tough economic conditions in the Zimbabwe has seen their sales declining as
people do not have as much disposable income as they used to have.
a. Strengths of O’Hagan’s model
Training is provided to the management team and regular workshops are held for the
owners and the general managers. Workshops are usually held in South Africa.
The brand is well known amongst the local clientele that they seek to serve, as most
of them have been educated at South African universities. They have a well-
established business model that is successful towards its target market.
b. Weaknesses of O’Hagan’s model
There is only one franchise shop so they cannot leverage on the bulk purchases
other entities outside Zimbabwe have as they are the only outlet in Zimbabwe
The model depends mainly on brand recognition and word of mouth for its
advertising in Zimbabwe, this means that, they do not enjoy fully the benefits of
being part of a franchise as would be the case if the Franchisor was based in
Zimbabwe.
The franchisee is responsible for making the business work in Zimbabwe and due to
the difference in the market environments between Zimbabwe and SA they have no
real support to help them when they have challenges. They are also not offered any
credit facilities so the franchisee has to ensure that they have all the necessary
capital to start and run the business.
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5.3 Franchising in African Telecommunications Companies
It was also important to review Franchising in Southern Africa where Econet
operates in to glean insights from bigger telecommunication companies in the area
of Franchising. Telecommunication operators in Africa such as MTN, Vodacom and
Safaricom just to mention a few use Franchisees to increase distribution and
customer services reach. Former sales manager for MTN, Cohen (1999) stated that
franchising is the way to expand the growth of the South African Cellular business.
He went on to re-iterate that, the Key is in providing people with the means to
empower themselves whilst servicing communities throughout urban and rural South
Africa.
According to the Cell C website, the company has over 150 franchise stores in South
Africa and has a clear, ideal profile of a franchise owner outlined. Fin24.com
reported that Hanley, who handles franchise activities for Vodacom have 179 shops
in South Africa, with 30% (51) run by franchisees.
The main reasons why Telecommunication companies expand using Franchises are:
1. Speed to market faster using franchisees
2. Simpler business financing due to established network, secure brand and
effective structure.
3. Established business and so all operating techniques are already tried and
tested.
4. Readily available support and security from franchisor such as training
schemes, support with sales, advertising and accounts management.
The graph below shows the ratio of Franchise shops versus company owned by
operator in Africa.
35
5.4 McKinsey 7S Model and application to Franchising.
Any franchise model should be a desirable asset within the market that should be
considered as obviously attractive to potential franchisees. This will be essential to
drive growth of the channel, and must be used to create lock-on of the franchisees.
There is need therefore to plan for competitive advantage using the McKinsey Seven
S Model. Refer to appendix for model and questions used to formulate ideal
constructs of the competitive aspects for any Franchise model, in this case, will apply
it to Econet Wireless franchises.
i. Strategy
The Econet shop strategy should increase its customer touch-points by leveraging
on the franchise model; whose cost model is much lower than that of the Econet
owned shops. The strategy should focus on the following areas for it to be
successful:
a. Territories
Each franchise should have a well-defined area in which they operate to ensure that
there is maximum benefit derived by the franchise in that particular territory. This will
36
ensure that the franchise is more invested in making that territory profitable and in
the partnership.
b. Lease Ownership
It is ideal for Econet to own the leases of the shops so that it has control of the prime
locations and to safeguard any investments made in the shop build and promotion of
the various locations. This will also make it difficult for new or existing competitors to
take these prime locations.
c. Financing
Providing the franchisee with financing will allow franchises to stock Econet handsets
and devices. This will ensure that all the shops are providing similar products and
services at all locations. This will allow for standardisation of customers experience
and access to products when they enter any Econet shops.
d. Reward Model
Commissions should be in line with the sales and quality of service offered by a
franchise to our customers. Incentives should be provided to the franchises to drive
better service quality to Econet customers.
ii. Structure
The franchise model structure should be such that it creates territories that allow the
franchisee to derive maximum benefit from the franchise. This will also ensure that it
is possible to measure performance of the franchise in each area. There should also
be regular structured communication channels between Econet and the Franchisee
to ensure that there is alignment on strategy and the franchisee is kept well informed
on the new products and services that Econet will be launching.
iii. Shared Values
37
There is need for regular workshops, trainings and conferences between the
franchisees and Econet to ensure that the values that are important to Econet are
adopted by the franchisees. These conferences and workshops will ensure that
values are properly communicated and the franchisee’s participation will ensure that
they feel that they are part of the process of coming up with these values and they
had a hand in their formulation.
To support both improved sales and better stock management, there should be an
integrated approach to Supply Chain Management (SCM) and logistics for both
Econet owned shops and franchises, so that stock discount levels can be improved.
This integration will lead to the following the system construct of franchises that
underpins successful franchise implementations. It will also ensure Econet maintains
power and control and takes advantage of one of the key benefits of franchises,
which is Buying Power.
iv. Systems
The systems that are implemented should allow the franchisees to offer all the
services that are available in Econet Own Shops. Automation of these systems will
help to ensure that the service level is consistent and reduce the headcount and
costs to both Econet and the franchisee. The systems should also allow the shops to
be interconnected so that there is a sharing of information between shops; this will
assist in situations such as directing customers to shops that have products that they
might be looking for.
Additionally, Econet franchise model should include best practice internal controls,
audits and risk management, to ensure quality of service, stock management, and
sales are done as per Econet expectation. This is in-line with the store operations
component of the central theoretical construct of franchises and a key benefit for
operations for both sides.
38
v. Staff, Skills and Style
Training provided should ensure that the staff in franchise stores are equipped with
the right skills and knowledge to serve the customer. There should also be
attachment or exchange programs provided for both Econet and franchise staff to
ensure that there is team building and understanding of the unique challenges faced
by each. This exchange will also ensure that the service provided in Econet owned
shops and franchisees is of a similar standard.
6. The Current State
6.1 Introduction
6.1.1 Research scope and methodology
The purpose of this study is to investigate into the effectiveness of the Econet
Franchise model in the Harare area – to identify if there are any opportunities to
improve efficiency and reduce costs.
Limiting to the Harare area and Econet standard shops to Standard Franchise shops
is due to resource constraints in terms of time and human resources to hold a fully-
fledged assessment. However this limitation will not jeopardize the objectives and
results of the research results.
The research methodology that was used for internal stakeholders and all shops was
mainly descriptive in nature. The data that was collected was through open ended
questions in the form of face to face questionnaires and interviews. The study was
restricted to Harare only so that the project would be manageable and not become
too unwieldy.
In this section we explain four main things:
i. The methodology that was used in this project
ii. How the sample of individuals and organisations interviewed were chosen for
the study.
39
iii. The procedure that the team used to design the 4 questionnaires used and
how data was collected from other sources.
iv. How this data was analysed.
6.1.2 The target stakeholders
The target stakeholders to be interviewed where classified as follows
i. Econet Franchisees
ii. Econet Own Shops
iii. Econet customers served in shops (franchise and own shops)
iv. External franchise companies that would be used for benchmarking.
The interviewees in each of the shop target groups were the management and shop
supervisors where possible, to get a view of the issues involved from 2 different
points. The customers however were randomly selected from the shop database of
those who received service of any nature in the past two months.
The table below shows the shop interviews were held.
Econet Franchises Econet Own Shops External
Franchises
Batlet - Borrowdale Avondale Toyota
Cell Services - Plaza Livingstone Seeff
Weph - Chiedza House Herbert Chitepo O’Hagans
Angels - Westgate Econet House
Batlet - Long Chen Chisipite
The sampling for shops was not random but based getting similar size shops of
Econet Own Shops and Econet Franchisee shops for the comparison to be more
comparable. The Benchmark franchisees were selected on the basis that they were
service focused, sales oriented and that at least we had people we knew in the
franchise who could provide information necessary for us to benchmark.
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6.1.3 Questionnaires
6.1.3.1 The questionnaires that were used in the interviews were 4:
i. one questionnaire that was relevant from the Econet Franchisee and Econet
Own Shops as these were to be compared,
ii. another for the External Franchisees to get an understanding of how that
particular franchise model works when compared to the Econet one and
iii. One for the Internal Management to get their opinion of the current model and
what they think we can do to improve it.
iv. One for Econet customers who visited our shops (Franchised and direct
standard shops). Limited the shops to the same ones we investigated.
6.1.3.2 Management Interviews
Interviews were conducted with the management team in Econet across the different
divisions who interact with franchises on a regular basis. The following stakeholders
were selected:
Commercial – to have the commercial perspective on franchises, own shops
and what their expectations and challenges are.
Risk – to look at how franchises might affect the Econet brand and any other
issues that pertain to the level exposure that Econet has with franchises and
how these are mitigated.
IS – To get an understanding of the systems side of franchises and how they
connect to the Econet systems and what challenges if there are any.
Finance – to get an understanding of the costs that are involved and the
revenues that are generated via franchises as compared to our own shops
HR – to gain an insight into the training that is provided to franchisees and
own shops staff.
6.1.3.3 Customer Interviewing Approach
Random numbers were selected from the Econet Own shops and Franchise
shops of customers who received any type of service such as replacing SIM
card, purchasing a device among other services.
41
The customer numbers where randomly extracted from the shops we
interviewed, (refer to table above).
The interviews were administered via telephone as we had customer
numbers.
Refer to appendix 3 for sample questionnaires for each target group.
6.1.3.4 Desk Research
Desk research was used to obtain franchise shops financials and the standard
contract and model to assist in the analysis. The financials obtained included Econet
own shops too, covering operating expenses, shop revenues and the set-up
expenses.
Tools such as PESTEL, McKinsey 7s (Refer to appendix 2), SWOT and cost benefit
analysis as well as gap and situational analysis were used to analyse the data and
come up with recommendations
6.2 The Current Econet Franchise Model
The Franchise model for Econet is such that Econet sets up a shop at a location it
deems appropriate. The main selection drivers being for servicing customers in the
area. Econet then identifies a business owner to operate the shop as a franchise
owner if they commit to paying 50% of set up costs incurred by Econet and also
operating model. The set up cost to Franchisee is interest free spread over 3 years.
The Franchisee is however required to provide a bank guarantee for them to access
credit from EWZ for products and services for resale. There is also a one-size-fits-all
model in granting credit to the franchisees.
The main services the franchisee offers are similar to Econet owned shops which
include selling airtime, connecting new subscribers, collecting bill payments for post-
paid customers, selling devices and other general service enquiries about Econet
products and services. Of strategic importance to Econet is also ‘group’ businesses
products and services such that the Franchisee has also been mandated to offer the
services in their shops. These are services such as EcoCash, a mobile money
transfer service and ConnectedCar, a vehicle tracking solution and Solar products
such as lanterns and candles. The additional services are more avenues for earning
42
more revenue to the Franchise operator. For this study, we limit it to the mobile
operator products and services. Econet advertises all its products and service for
both Franchises and own shops as the branding is the same.
Due to difficulties in accounting or even monitoring customers who come in for
general enquiries, Econet pays the Franchise what is called service fee. For
standard shops it is $3000. However it ranges by shop size from $560 to $3000. This
fee cushions the franchisee from operating expenses such as administration, rentals,
salaries, security costs, insurance and power. In addition, the franchisee receives
commission for various business activities as per table below:
Item Discount/Commission
Receipting customer bills/ purchases 5% commission
Sim Replacement 10% commission
Usage Commission on Post-paid lines 7.5% commission
Airtime Sales 9.5% discount
Bounty on new contract line connection $20 once off per line
Buddie SIM pack sales 25% discount
Notes:
*Discount on handsets is based on handset model ( Range +/- $2)
*Devices, mainly handsets are given on account where the mark-up is $1/$2 per cell phone.
6.3 Financial Analysis of Econet and Franchise Shops- Desk research
Econet shops and Franchise shops both have similar expenditure line items month
on month which enable their operations to run smoothly. These include among
others; Salaries, security, transport and logistics, shop leases and maintenance
charges.
43
Below is a table showing operational expenditures for six months for both Franchise
Shops and Econet shops.
Franchise Shops 6
Months Analysis Sept-
February 2015
Batlet
Borrowdale
Cell Services Weph
Chiedza
Hse
Angels Batlet-Long
Chen
Operating Expenditure
(USD) 55,873 181,820 14,802 21,428 23,469
Econet Standard Shops
Sept - Feb '15 Analysis
Avondale
Shop
Livingstone
Shop
Hebert
Chitepo
Shop
Econet House
Shop
Chisipite
Shop
Operating Expenditure
(USD) 724,643 582,910
718,74
1 1,824,144
363,82
4
6.6.1 Reasons for vast variations in expenditures
From the questionnaire responses, internal management highlighted that it was more
costly for Econet to operate own shops to franchise shops. The costs are mainly
driven by staff costs and professional services. In Econet, the reasons for huge
expenses in these line items where highlighted as below:
i. Staff costs
Econet pays more per consultant than Franchise shops. This is reason for very low
or non-existent staff turnover in their shops to Franchise shops. Each consultant also
accrues leave days, overtime and any other related costs per employee given by
Econet. Most consultants’ educational level is a first degree.
On the other hand, Franchisees recruit lower qualified consultants, pay them the
minimum wage and overtime rates.
ii. Professional services
Econet hires professional services which include security and training. For example,
Econet has cash in transit services every day who collect cash at the end of the day
for them and bank it. They also hire security guards from a company, and per shop
can have at least one or two guards. Franchisees however carry out their own
banking by keeping cash in the safe overnight and banking it in the morning using
own staff member. Instead of hiring security guards, they also have a permanent
staff member hired as a security guard earning a salary. Another cost that Econet
44
incurs is that of training services. To continuously keep service standards excellent,
training is done very consistently unlike in Franchise shops who actually rely on in
store training by going into Econet shops. At times Franchise shop owners do not
send consultants for professional service training as they are required to pay for the
service.
Other costs such as connectivity and fixed administration costs to Econet are not
included in the above expenditures. This is because they are not apportioned to
each shop by head office.
6.3.1 Cost to Econet for operating through franchise shops
Each month, there are financial costs that Econet incurs for operating through a
Franchise shop. The main lines are commission of airtime sales and service fees.
The table below shows the 6 months costs for one of the Franchise shops reviewed.
Econet only pays out a service fees which is standard at $3,000. Some smaller
franchise shops it is $1,500. Depending on volumes sold, the airtime commission
varies per shop. Comparing these costs, to a similar Econet shop costs shows that
Econet is better off Franchising out more - (Econet incurs $478K it pays to Franchise
vs $748K when it operates its own shop).
Month September '14 October '14 November '14 December '14 January '15 February '15 Total
Franchise Shop (Angels) Service fees 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 18,000$
Airtime Commission 98,958$ 95,608$ 78,849$ 70,811$ 65,358$ 50,744$ 460,329$
Total Cost to Econet 101,958$ 98,608$ 81,849$ 73,811$ 68,358$ 53,744$ 478,329$
Econet Owned Shop (Hebert Chitepo) Expenditure 84,282$ 131,058$ 194,389$ 97,000$ 76,195$ 135,816$ 718,741$
Variance (17,675)$ 32,450$ 112,539$ 23,189$ 7,837$ 82,072$ 240,412$
The Franchise model is such that Econet incurs all set up costs for shop build, in this
case $118,0000 and the Franchise owner pays back 50% back over a period of time,
(normally 3 years), interest free. To date Angels has paid $60,000. If Econet would
have borrowed the money, Econet is paying interest for the Franchise shop and not
passing it on to the Franchise shop.
45
6.4 Feedback from questionnaires
In order to get insights on the comparisons between franchise stores and Econet
owned shops, management interviews were conducted with managers from various
divisions across the company such as commercial, procurement, risk, Information
Systems, finance, shop supervisors and shop managers. The management and staff
of franchises were also interviewed. All of the findings from these interviews are
summarised in the sections below.
6.4.1 Internal management feedback on areas of Econet Support
i. Quality of Customer Service and Staff expertise
The general consensus across the managers interviewed was that that the quality of
service and customer experience in Econet franchise shops is poorer than in Econet
owned shops. This is mainly due to the fact that the systems available for franchises
to serve customers are restricted in franchises and do not offer the full customer
support options. The inadequate system access rights mean that the franchise
customer care consultants cannot assist customers timeously, and often have to
refer customers to Econet shops (which are often congested) or the call centre to
have their issues resolved.
Additionally, the level of staff competence is an area of concern. Franchises take on
staff they can afford, whom often don’t fit the same profile as Econet staff. This
requires significant investment by Econet in Training, and this investment often does
not bear fruit, as once the staff are trained and upskilled they move on to better
opportunities. The high staff turnover in franchises also indicates a weakness in the
reward management and this is also evident in the low levels of engagement in
franchises.
This all results in differentiated quality of service in the different types of stores.
ii. Handsets and other service support
Franchises offer limited product and services to customers, for example on
handsets they do not offer the full product range and they usually offer their own
46
which may sometimes be low-end-products. Franchises do not offer the contract
package due to stock availability and credit control restrictions and refer customers
to Econet Owned Shops for such requests, resulting in poorer support services for
customers.
Additionally, mobile phones are provided on account with a significantly smaller
margin compared to non Econet sourced handset. Currently, Econet provides
credit facilities as opposed to consignment stock, which can be abused. This is due
to the fact that currently, overdue debtors (90 day debtors) are increasing every
month and dealers have defaulted on amounts of up to $10m in the past. Added to
this, the lack of controls and processes leads to increased risk
With regards to the EcoCash mobile money service, franchises do carry suitable
float like the super-agents in an Econet owned shops, therefore they have to look
for float from other operators. This causes challenges from EcoCash agents expect
this service from any Econet Shop.
These issues highlight the challenges that franchise shops have to keep up with the
purchasing power and resources at Econet’s disposal, and provides an opportunity
for Econet to partner with these franchises to improve performance.
iii. Training
The training provided is perceived as adequate and franchises are equipped to run
shops as per approved processes and procedures. The training costs are absorbed
by Econet. The shop consultants also get on-the-job training from Econet owned
shops.
iv. Systems Availability
The systems used in all stores are paid for and supported by Econet. While these
systems do experience downtimes, these challenges are experienced in all shops,
thereby not differentiating the service levels.
47
However, the poor investment in back-up power sources by franchise shops (due to
capital constraints) worsens the downtimes they experience, due to the intermittent
power supply nationally.
v. Inventory System
There is no inventory support system hence both franchises and Econet owned
shops have to call other shops to find out where a particular product is available,
resulting in increased customer waiting times.
vi. Network
With current cost management practices in the organisation, the high OPEX costs for
Econet owned and Franchise shops is difficult to maintain. This high OPEX also
contributes to the cost of sales, however, is not fully visible to the business.
Additionally, Franchise owners get provided with network equipment by Econet,
however, they do not maintain the equipment, and Econet are required to replace the
faulty/damaged equipment. For example, power issues at franchise sites blowing IS
equipment.
There exists an opportunity highlight these costs to franchises, so they have a more
holistic understanding of Econet’s operating context, and can buy into the shared
values of the organisation
vii. Processes for replenishing stock
Airtime and products stock movement is inefficient, with franchises having to visit
Econet dispatch premises to stock these items. Decentralisation of stock dispatching
by allowing franchises to purchase from all Econet owned stores would reduce time
wasted on logistics.
Furthermore, the Econet image is negatively affected when we build demand,
without an adequate supply for example with handsets that we advertise to be in
promotion only for customers not to find them in stock.
48
viii. Communication
There are several recorded incidents of Econet taking a product to market without
the service centres being fully informed and equipped to support these. This has an
additional impact on the staff moral within franchises, as they do not feel truly a part
of Econet. This contributes to the notion that the poor communication of Econet’s
Strategy and Culture to its franchises distinguishes the level of service offered at
franchise and Econet owned shops.
ix. Material Support, Branding and Advertising
Econet provides branding, advertising uniforms, equipment and systems to
franchisee staff members for use in service provision. In addition, Econet also
provides branding, however, sometimes after a noticeable delay. This contributes to
the uniformity of stores.
x. Termination of franchise agreement
Franchise agreement can be terminated in instances when franchises flout rules and
regulations, for example when they disrespect another’s territory or significantly
overdue commission payments. Additionally, if they are continuously not meeting
customer service levels, stocks and sales targets set by and agreed on with Econet,
the agreement can also be terminated.
While terminations are catered for in the contract, no terminations have occurred to
date as the commercial team have always taken corrective action by training
franchises and giving them warning letters.
6.4.2 Franchise shops feedback on areas of Econet Support
i. Quality of Customer Service and Staff Expertise
It was generally accepted that the franchise stores service quality is not as good as
that in Econet owned shops. The feedback provided was mostly in line with those
given by internal management. They also added that they feel that they feel that
49
they are treated as outsiders by the same teams they are meant to work with. This
affects their morale and commitment to the business.
It is also acknowledged that franchise staff calibre issues, but advised that this is due
to remuneration and rewards from Econet not allowing them to hire suitable staff.
Additionally, due to their inadequate profits, they cannot maintain staffing levels to
match the business needs. This results in them not being able to service the peak
traffic periods, e.g. Fridays, month-ends and holidays. This result in customers leave
their premises without being attended to.
ii. Handsets and other service support
Both the internal management and franchise management agree that this is the
state of service regarding gadgets and mobile money and the reasons given are
similar. Franchisees added that they have to focus on poorer quality handsets in
order to survive, as Econet handsets do not give them adequate profit margins.
iii. Training
Franchises requested Econet to offer them entrepreneurial training and senior level
management training for the directors and managers, to enable business growth.
Franchises also have valuable experience and input which could be included in
training manuals, indicating poor communication between both parties. Induction
training for new employees is required to bring new employees up to speed with the
full range of product and service offerings.
iv. Systems Availability
The billing system is often unstable system at peak times of month. It is reported that
on occasions when the franchise system is unavailable, the Econet owned shop
system is available. A case in point is the Borrowdale franchise which ends up
referring customers next door to the platinum shop whose system will be up most of
the time. This poses an opportunity for optimisation of the system access and
availability.
v. Inventory System
50
The Econet system does not contain individual accounts for each franchise outlet,
but one account for the group. Franchises that have a number of outlets also have a
number of consultants per outlet hence having one account in the system results in
reconciliation challenges when attempting to trace SIM or airtime movement by
outlet.
vi. Network challenges
The franchise management insist that Econet must provide them with back-up power
sources as they are also responsible for maintaining the Econet brand. They cite the
costs of doing this on their own as prohibitive under their current income levels.
vii. Communication
Econet has been reducing franchisee remuneration without sufficient advance
communication. This directly jeopardises their profitability, as they have existing
commitments e.g. security, rentals and salaries.
viii. Material Support, Branding and Advertising
Econet does not invest in adverts that are specific to particular shopping centres.
x. Factors considered when selecting businesses for a franchise agreement
The previous performance in other product lines is considered as well the experience
in what were they distributing and the training the owner has. They must be a
registered company with adequate capital and credit worthiness. Franchises also
added that their good locations also contributed to them being chosen for
consideration as franchises.
6.4.3 Analysis of Key Pain Points for Franchises
i. Costs and cost drivers
The main cost drivers for franchises are salaries, rentals and bills. The franchises
advised that they make more money from the non-franchised business, but they get
substantial traffic from Econet customers. They remit 96 -97% of revenue collected
to EWZ and retain 3%. This leaves them with little surplus to fund their operations
51
including buying stock, hence further curtailing their revenue generation ability.
Airtime sales worth $700,000 provide revenue of $4,500. The risk associated with
such a high volume of airtime sales far outweighs the benefits. It is clear from this
feedback that the reward model is not satisfactory for Franchises.
Franchisees must also provide bank guarantees to access credit from EWZ, thereby
increasing their costs. There is also a one-size-fits-all model in granting credit to
franchisees. They are requesting that this be done on merit after EWZ also looks at
the historical patterns from the franchises.
Franchise shops struggle to provide all services offered by Econet due to capital
constraints. These include SIM cards, airtime sales, line replacements and handsets.
Franchisees also offer value-added-services such as EcoCash, a mobile money
transfer service and Econet ConnectedCar. Some are now offering the recently
launched Steward Bank Agency Banking service. The additional services are
avenues for earning more revenue but some of the services e.g. EcoCash and
Steward Bank agency require a sizeable cash investment which may not be readily
available as their funds are often tied up in prepayments towards airtime as well as
pay running costs.
This wide product range is under significant demand, and stores struggle to have
adequate stock, and the stock is not well distributed. This results in inefficiencies
where some stores are over stocked and others are understocked.
Franchisees advised that they receive ongoing support from EWZ but this is not
adequate as it does not make them viable. They believe that the airtime commission
they earn is low compared to the risk they take. They believe that there is higher risk
than the return they get. Some feel that they are subsidising Econet.
The cost drivers for Econet owned shops on the other hand are the huge set up
costs and the day to day staff costs. The daily cost of sales and airtime working
capital is also heavy. Econet owned shops’ security, insurance, rentals and CIT
costs are much higher than those of franchises, as franchises are usually not
charged as much as Econet owned shops and often don’t take the security
precautions that Econet does. Some of these costs are compulsory for own shops
52
under Econet procedures, whereas franchises can forego the costlier items that are
not in line with their return.
ii. Shop construction and territories
The cost of building a shop is shared 50/50 with Econet and the franchises pay this
from the commission earned. There is currently no clearer policy and model that
outlines the desired approach. Some franchise outlets were recommended by
Econet while others were outlets that the franchisee was already operating from.
Sometimes franchises mismanage their leases and have to vacate the premises.
This impacts Econet’s footprint and access to prime locations. Econet could take
over their leases and pay on their behalf, while recouping the cost from the service
fees.
There is a lack of territorial protection from Econet as they are opening more
EcoCash agents in areas where there are franchise outlets. Econet are also
deploying green kiosks in close proximity to franchises. At times an Econet owned
shop is set up right next to a franchise outlet hence Econet seems to be competing
directly with their own franchises.
iii. Econet Shops Space and Queuing time
Though it is generally agreed that there is higher customer service level in own
shops and that these are one-stop shops to handle all customer queries, there is a
lack of adequate space in own shops. The shop layout often does not fully meet
customer needs. Accessory display cabinets often take up a lot of space, even in
small outlets. The cabinets are often not in use, hence Econet are often not receiving
a return on investment, and are also reducing the look and feel of their own stores.
This reduces space also leads to longer queues in stores. With these queues
resulting from traffic of which 70% is from people with support queries, rather than
purchase, this directly reduces the revenues generated. Additionally CCTV cameras
show 30% of customers leaving after peeping and seeing long queues.
53
iv. Warranties
Econet owned shops utilise the Econet supplier warranty arrangement, where
suppliers give Econet swap-stock to cater for any products that may be defective e.g.
on every 100 items bought, Econet gets 2 for warranty. Franchises utilise their own
supplier warranty arrangements and there have not been reported cases of
customers who have faced challenges with a franchise due to a defective product
that was not exchanged. Internal management also pointed out that selling grey
handsets does not necessarily mean that they are of inferior quality, but it just means
that these will not have come through the Econet systems and Econet will not be
making a margin on these as they are independently sourced. Some of these will not
have gone through Econet’s rigorous checks for approval for sale in our shops or
franchises.
v. Econet own shops to continue
Management is in agreement that Econet should maintain some Econet owned
shops so that Econet can offer the expected service levels in some key locations. As
such, it accepts that there could be some loss leader shops, such as Joina City
branch, which gives good customer care, despite making a loss.
Own shops also give Econet control on the business, insight into the markets and
sales dynamics as well as profit retention.
vi. Risks associated with franchises
The diversion of money to other areas that may be more rewarding to the franchise
is a significant risk. This effectively leaves the franchise with fewer resources to buy
airtime and stock other Econet products for resale.
Most franchises are family owned businesses so if the person running the business
dies or is no longer in a capacity to run the business, the business also dies.
Sometimes franchises fail to manage their leases well by not consistently paying
rentals and they may be asked to vacate the premises after Econet has invested in
shop-build, and customers are used to a particular outlet. Sometimes Econet has
54
had to take over their leases and pay on their behalf then withhold money from their
service fees. However, the downside of this is that once the landlord knows that it’s
Econet not the franchise paying rentals, they increase the rentals, hence it becomes
more costly to run the outlet.
Commercial management is also concerned about franchises pursuing dollar sales
at the expense of customer service and franchises switching to another telecoms
operator in the event a large competitor enters the market.
There is also a concern that franchise bargaining power can become too powerful
resulting in them demanding more commissions.
vii. Potential areas for working with franchises for greater benefit
Both the internal and franchise management agree that Econet can work on systems
improvement for better customer support by giving franchises access to relevant
systems.
There is need to give more capacity to franchises for them to be 100% like EWZ
owned shops as franchisees are pushing Econet products.
Internal managers agree that franchises are outsiders and are treated as such but
franchise management are of the idea that this is so serious that it actually
demoralises them and hence it negatively affects their effort towards promoting the
Econet business.
It is also clear that there are significant communication gaps between Econet and its
Franchises, and this is an area where a little effort will go a long way.
Franchises do not always have the same value system as Econet hence there is
need to ensure the culture is transmitted to them by engaging them often. This can
be done through regular forums with franchises. Executive teams should visit
franchise stores to get a sense of them, and to build buy in to Econet Values.
55
6.4.4 Customer Feedback
A total of 19 customers were interviewed who had accessed different services from
the 4 Econet Own Shops and 3 Franchise shops. The Econet own shops that were
considered were Livingstone, Avondale, Graniteside and Joina Center. The franchise
shops were Long Chen, Westgate and Margolis Plaza
All the customers had accessed the shop in question more than once. The services
that they accessed in the shops are shown in the tables below.
Econet Owned Shops
Service Livingstone Graniteside Joina Avondale
SIM replacement 5 1 1
Handset Purchase 1 1
Ecocash 1 1 1
Unblocking Line 3
Assistance with handset 2 1
Bundle & Airtime Purchase 1
SIM Purchase/Registration
Franchise Shops
Service Long Chen Westgate Margolis Plaza
SIM replacement
Handset Purchase 2 1
EcoCash 3 3
Unblocking Line
Phone Accessories 1
SIM Purchase/Registration 1 2
Bundle & Airtime Purchase 1
The customers accessed a variety of services from the 7 centres although
Livingstone, Westgate and Long Chen had more services accessed from the
interviews that were conducted. This is however not representative of how busy each
shop is, as it only talks to the sample that was taken.
56
All the interviewees except for two said that for the services that they were interested
in, they could be received from all the shops that were considered. Of the customers
who could not get required services
One could not change the details on his line in Avondale
Another couldn’t purchase a solar lantern from Westgate, which was out of
stock.
The graphs below lists customer perception on various aspects of each shop.
Servi
ce Lev
el
Shop Lo
ok and Fe
el
Agent P
rofes
sionali
sm an
d appera
nce
Knowledge
0%
10%
20%
30%
40%
50%
60%
ExcellentGoodAverageNeeds Review
Graph 3: Survey results for Econet owned shops
57
Servi
ce Lev
el
Shop Lo
ok and Fe
el
Agent P
rofes
sionali
sm an
d appera
nce
Knowledge
0%10%20%30%40%50%60%70%
ExcellentGoodAverageNeeds Review
Graph 4: Survey results for Franchise shops
i. Service level
30% of the interviewees from Econet felt that the service level was excellent.
50% thought it was good. 10% thought it was average. The other 10% thought
that it needed review - these were from Joina where the waiting period was
above 20 minutes
50% of the customers who accessed a Franchisee thought the service was
excellent. 20% thought it was good. The remaining 30% said that it was
average.
ii. Shop Look and Feel
40% of the interviewees from Econet own shops felt that the shop look and
feel was excellent. 30% thought it was good. 20% thought it was average. The
remaining 10% thought that it needed review - these were again from Joina
Center where the waiting periods were high.
40% of the customers who accessed Franchise thought the look and feel was
excellent. 40% thought it was good. The remaining 20% thought it was
average.
iii. Agent Professionalism and appearance
58
40% of the interviewees from Econet own shops felt that it was excellent. 30%
thought it was good. 30% thought it was average.
40% of the customers who accessed Franchises thought the look and feel
was excellent. 40% thought it was good. 20% thought it was average.
iv. Knowledge
60% of the interviewees from Econet own shops felt that it product knowledge
was excellent. 40% thought it was good.
70% of the customers who accessed Franchises thought the product
knowledge were excellent. 20% thought it was good. 10% felt that it needed
review.
v. Waiting Times
Econet Owned Shops
Waiting Time Livingstone Avondale Graniteside Joina
< 5 Mins 3 1 1
> 5 Mins and <10 Mins 1
> 10 Mins and >20 Mins 1
>20mins 2
59
5
1
1
2
Econet Own Shops
< 5 Mins > 5 Mins and <10 Mins> 10 Mins and >20 Mins >20mins
Franchise Shops
Waiting Time Westgate Margolis Plaza Long Chen
< 5 Mins 3 1 2
> 5 Mins and <10 Mins 1 1
>10mins 1
Franchise
< 5 Mins > 5 Mins and <10 Mins> 10 Mins and >20 Mins >20mins
60
One of the interviewees from Livingstone did not state a waiting time in general the
waiting times are acceptable for the customers with 60% waiting for less than 5
minutes at Livingstone and Westgate and the one interviewed at Avondale only
waiting for 3 minutes.
Joina however seems to be the exception as it suffers from congestion and had a
waiting period of 52 minutes. This could be due to its location in the CBD. There is
an opportunity to open another shop or add additional agents.
vi. Needs and Expectations
All the customers’ needs and expectations were meet except in one instance, at
Joina Center, where the customer felt that the staff were not friendly. The needs of
one customer were not met at Westgate due to the item he wanted being out of
stock.
A customer who bought a handset at Long Chen found that it was not compatible
with an Econet SIM. Another customer at Long Chen felt that the agents where not
well versed on the Econet products and services and that the pamphlets by Econet
did not have as much information as they should have.
Some of the key findings from the surveys and feedback was that Econet should
increase the number of shops especially in high-density areas. Additionally, Econet
could increase the sitting area at Joina.
Where customers had a long waiting period their view on service and the shop were
generally negative.
vii. Conclusions
The waiting time affects how a customer perceives things like the service level and
professionalism provided to them at the shops. The longer the wait time the more
negative the perception by customers. This provides an opportunity to improve the
customer experience and perception by adding Automated Self Care Kiosk to all
Econet shops, in a bid to reduce waiting times. This assumption should be further
investigated through focus groups and cost benefit analysis.
61
It appears that Econet owned shop staff are perceived as having more product
knowledge, as the few times customers felt product knowledge was lacking was at
franchise shops. This provides an opportunity for Econet to promote shared values
and improved communication, and could be addressed through the adoption of a
Franchise Strategy.
6.5 Gap Analysis
In order for Econet Wireless to achieve its desired state, a needs assessment has
been done. The table below stems from a review of internal research and literature.
The gaps identified are not in order of priority but listed in view of Econet’s desired
state of ensuring that they offer products and services in the most cost effective and
efficient way than where they are today.
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Current State Desired Gap Analysis
Econet shop operating
expenses significantly higher
than Franchise shops
Lower cost of
sales/distribution for
Econet.
Econet to reduce own shops and
increase Franchise shops.
No defined territories thus
Franchise shops have less
income than Econet shops due
to close proximity in most
cases.
Maximum value per
shop territory
Introductions of territory system that
enforces strict adherence and
compliance, preventing competition
between stores
More incentives for franchises, and
better margins.
Systems in place to assist in rewarding
service, such as customer registrations,
data settings, etc.
Franchise contracts changed
by Econet anytime, Poor
communication on Product
launch times.
Partnership
relationship with
Franchise shops
Create a uniform contract for all
franchises, with strict penalties, and
ownership of the lease
Franchise forum for regular
communication.
Franchisees have limited
access to systems and hire low
cost labour.
Consistent service
level in all Franchise
shops
Alignment of systems used and access
to these systems between Econet
owned shops and franchises.
Econet not financing fully
Franchise stock causing
serious inconsistencies.
Uniform stock in all
shops
Stock management:
Devices to be provided to franchises
at cost price, and Econet to collect
commission from the sales.
Financing mechanism on case-by-
case basis, so that franchisees can
have the correct stock
Bulk purchasing for better discounts
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6.6 The Econet PESTEL
Political Economic
Vendors (who are our main distributors, and
purchase from our stores) are being pushed
out of the CBD.
High interest rates (15 - 30% per annum) -
Shops unable to borrow cash easily to
increase stock capacity
Fiscal and tax policies change anytime
making it difficult to plan long term in pricing
goods. i.e. 25% duty introduced on devices
suddenly, thus reducing sales by up to 30%
as retail prices went up
Low liquidity and low disposable income thus
further straining product sales for all shops
Poor economic conditions and high company
closures are leading to derelict shopping
areas, affection the positioning of our stores
Uncertainty with future economic conditions
is resulting in greater savings, and less
expenditure on Econet products in store
Econet have a low appetite for lending due to
economic environment, therefore affecting
take up of our post-paid and more premium
products
High cost of labour in the market, resulting in
high operating costs for the shops.
Social Technological
Changing spending habits – people want
cheaper services and products and thus
avoid our ‘premium’ branded shops
Highly educated market
a. Good product knowledge
b. Sophisticated market
c. Comparisons against international
standards
d. High level of expectations
Higher rates of criminal activity due to poor
economic conditions, requires higher spend
on shop security
Social media providing a platform for sharing
anti Econet material, resulting in reduced
Rapid change in technologies- shops need to
continuously update their device range to
keep up.
High cost of infrastructure thus shop set up is
usually over $100K.
Automation initiatives can be leveraged on to
reduce cost of service in store, and customer
experience in store
Cashless (mobile money) purchases of
airtime threaten sales in store
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sales in stores
Environmental Legal
Unreliable power supply from ZESA hence
shops rely on generators, increasing their
expenses.
Increased use of generators, leads to higher
compliance requirements to adhere to EMA
regulations (diesel spills, etc.) and City
bylaws (noise levels)
Good solar resources in Zimbabwe leads
to increased sales of solar lantern
products in store.
To operate within the overall regulations of
telecoms governed by POTRAZ. Mainly
around product, pricing and customer
communication.
To comply with RBZ regulations, EMA and
Council Byelaws, as well as the competition
and tariffs commission requirements.
6.7 McKinsey 7S Model Misalignment
i. Strategy
The current strategy for handsets is that each franchise offers its own handsets and
does not offer 360 degree support. This affects alignment between Econet owned
Shops and Franchises in terms of having the same look and feel, as well as product
offerings.
Additionally, there are currently no territories defined for franchise shops, making it
difficult for franchises to have full control and responsibility for sales in their areas.
Furthermore, the franchises currently own the lease to the shops allowing a
franchisee to terminate the contract, resulting in Econet losing prime locations and
any investments it has made to outfit the shop.
ii. Structure
The current processes for stock replenishment are cumbersome and heavily
centralised, requiring the franchises to visit Econet premises/warehouses to
replenish stock.
iii. Systems
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There are significant system challenges faced by franchises currently. Franchises
have restricted access to key Enterprise Resource Planning and Point of Sale
solutions. The billing system implementation has had issues to do with stability and
availability, especially around peak periods when customers want to pay their bills.
There very limited customer self-care and automation of channels to access these
services, resulting in customers going in store of calling the call centre for support.
There is limited ability to track performance at the individual outlet and activity level.
There is no universal inventory management solution resulting in the shops not
currently being able to view stock levels in other stores, thereby not re-directing
customers to shops that are stocking their desired products.
iv. Shared Values
The franchises feel as if they are considered outsiders and are not treated as part of
the Econet team. This affects morale and results in poor quality service offering by
the franchises. Econet does not consult the franchises on development of training
manuals, thereby losing out on the opportunity to learn from the franchises on their
unique problems and challenges, further alienating the franchises
There is currently poor communication both within Econet and with the franchises in
terms of new shop openings and new product launches offerings.
v. Skills, Style and Staff
The franchise staff are do not generally have the same qualification or skill levels as
Econet employees, likely due to their lower remuneration levels. The lower
remuneration levels also leaders to higher staff turnover in franchises. They also do
not have adequate numbers of staff, leading to congestions in franchise shops
during peak traffic times, further compromising the customer experience.
The product knowledge is not as good as that of the Econet own shop personnel.
The training that the franchise teams currently receive is only for their customer
facing staff and does not include training for senior staff on how to run/manage
shops, which could help the franchises to improve their shop performance.
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6.8 The SWOT Analysis- Econet Shops
Strengths Weaknesses
Quality of customer service provided
Brand equity of name ‘Econet Shop’ rides on
the brand strength of mother brand Econet
Wireless which is known for: Market
leadership (innovation, value share, market
value & products & services).
Positive product & services perception such as
Devices (sells genuine labels like iPhone,
Huawei, Samsung etc) & has working Data
network.
Prime siting of shop locations
Access to full range of Econet systems
Qualified and well trained staff
Fully stocked with product range
a. No need for line of credit
No commissions on sales
Alignment to Econet culture and strategy
Consistent training
Customer negative perception:
a. Perceived as expensive
b. Perceived as arrogant
Fragmented service due to Franchise
shops and own shops service
inconsistencies.
Slow service at the service centres
a. due to limited staffing (labour
costs expensive)
b. due to the full range of products
and services driving demand
Poor after sales support (Poor systems
due to low investment)
High cost of sales
a. Have to pay staff salaries
b. Security fees
c. Cash in transit costs
d. Rentals (Econet pay highest
rates)
Staff less focused on sales
Opportunities Threats
Improve customer services in all shops via
a. System upgrade (inventory
management)
b. Automation (self-care kiosk)
Improved procurement and logistics processes
to ensure correct stocking in stores, resulting
in improved sales
Rightsizing of shop human resources, to
ensure shops can meet demand
Regulatory changes which drive
increased need for customers care (E.g.
Number portability driving traffic into the
shop)
Poor implementation of customer facing
systems, e.g. network, call centre, etc.
driving traffic into the shop
Poor customer perception could lead to
boycott of the shops
Poorly performing economy- threat to
product uptake.
Regulatory pricing policy, erratic taxation
policies on the operators affecting retail
prices, and product uptake.
Increasing competition from other service
providers as they are slowly increasing
shop presence and service levels in the
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Harare area too due to cheaper
government loans availed to i.e NetOne.
The high cost of doing business in
Zimbabwe- labour, OPEX is generally
very high.
Suppliers (especially landlords for shop
leases) overcharging Econet because of
the brand equity.
6.9 The Econet SWOT Analysis Franchise shops
Strengths Weaknesses
Brand equity of name ‘Econet Shop’ rides on
the brand strength of mother brand Econet
Wireless which is known for: Market
leadership (innovation, value share, market
value & products & services).
Shops located in strategic areas
Staff are highly sales focussed
Consistent induction training
Lower operating costs:
a. Salaries
b. Security
c. CIT
d. Lease cost
Customer negative perception:
a. Poor customer service
b. Perceived as expensive
c. Perceived as arrogant
Fragmented service due to Franchise
shops and own shops service
inconsistencies.
Poor focus on service, as they receive a
flat fee for service levels.
High staff turnover due to low salaries
Poorly qualified employees
Limited access to full range of Econet
systems
Poor stock levels
Access to capital is limited
Poor after sales support (Poor systems
due to low investment)
No/limited refresher training
Shop ambiance and look and feel of staff
Opportunities Threats
Improve customer services in all shops via
a. System upgrade (inventory
management)
b. Automation (self-care kiosk)
Financing may allow improved stocking and
access to full product range to increased sales
Ongoing commissions on new pre-paid
registrations, for a limited period, to drive sales
and usage
Poorly performing economy- threat to
product uptake.
Poor credit rating hence access to cheap
capital (+/-2%) is difficult. Local capital
prohibitive (+15-30%).
Regulatory pricing policy, erratic taxation
policies on the operators affecting retail
prices, and product uptake.
Increasing competition from other service
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Introduction of territories to govern and
improve shop footprint and availability
Econet to own the lease, to ensure access to
prime locations
providers as they are slowly increasing
shop presence in the Harare area too due
to cheaper government loans availed to
i.e NetOne.
The high cost of doing business in
Zimbabwe- labour, OPEX is generally
very high.
Regulatory changes which drive
increased need for customers care (E.g.
Number portability driving traffic into the
shop)
Poor implementation of customer facing
systems, e.g. network, call centre, etc.
driving traffic into the shop
Poor customer perception could lead to
boycott of the shops
Poor communication from Econet on new
products and services, leading to poor
customer experience.
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7. Key Issues
7.1 Costs
Costs for shops mainly driven by costs below, with Econet own shop costs being
more exorbitant than the Franchise shop.
Staff costs for Econet owned shops are exorbitant
CIT and Security
Lack of automation and self-care
7.2 Efficiency
Inefficiencies in most shops is mainly driven by the issues below. This greatly affect
Franchise shops more, this affecting service delivery.
Lack of defined shop territories
Lack of automation
Lack of standardised systems
Poor communication and product knowledge
Shared values disparities
7.3 Quality of service
Quality of service is affected by issues below, with Franchise shops being more
affected than the Econet owned shops.
Variations of products and services offered per shop
Lack of balance between sales and quality of service
Lack of defined shop territories
Standard look and feel
Refer to appendix 4 for detailed Key issues.
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8. Possible Solutions
Key
issues
Possible Solutions Components of Solution
Cost Adopt a Franchise
Strategy
Enforce a ratio between Econet Owned and
Franchise shops as per regional best practice
Costs &
Efficiency
Automation and
Standardisation of
systems
Similar IT system access for all stores
Introduce stock management systems
Introduce automated customer self-care
Track genuine devices and provides alerts on
grey handsets
Efficiency Optimise shop foot print Enforce operating territories
Econet to own all shop leases
Efficiency &
Quality of
Service
Enforcement of Standard
on Franchise
Ensure standard products and services
offered across all shops
Standard look and feel for all Franchises
Quality of
Service
Develop shared values Improved Communication of our products to
franchises
Refresher Training
Sales academy
Review of reward models Balance between sales and quality of service
Offer Franchises credit
lines
Improved access to stock for our franchises
Refer to appendix 5 for detailed list of option ideas. These where filtered to above table.
9. Business Constraints
Econet is operating under constraints which are crucial to highlight so that the
proposed solutions become realistic in light of these constraints.
Econet’s profitability decreased by 40% over the last financial year. Profitability is
being affected month on month by the general decline in voice revenues. This is a
global phenomenon in telecommunication companies due to the change in customer
habits as customers are preferring to use Data services that are significantly cheaper
and with margins of 20% to voice which had margins of 70% at peak.
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Econet is operating in a fairly tough economic environment where there is deflation
and as such the consumer is already cash constrained. The rate of product uptake is
lower than prior years and customers now highly price sensitive. This has caused
Econet to fail to meet its top line revenue budget in the last 6 months, and yet
overheads remain the same especially staff costs. The pressure of overheads has
driven Econet to try and better manage or reduce all cost items including cost of
sales and operating costs. Additionally, due to the tough economic conditions,
Econet’s risk appetite is now low and hence the company not too keen for post-paid
services or advancing huge quantities of products and services to third parties
including franchise shop owners.
With the above constraints, Econet would benefit from possible solutions that will
either bring revenue growth, business efficiencies and or reduce costs.
9.1 Selection of Solutions - Decision Matrix
Filtered recommendations after application of constraints
Business
Constraints
Adopt a
Franchise
Strategy
Review of
reward
model
Automated
self-care
kiosk
Stock
financing
Optimise
Shop
Footprint
Revenue Increased
revenues
Increased
revenues
No impact No Impact* Increased
revenue
Costs Reduced
costs
Increased
costs
Decreased
costs
No impact No impact
Risk level Low Low Low Medium Low risk of
overcharging
Staff Costs Reduced No impact Reduced No impact Reduced
Recommended
* A Cost Benefit Analysis was performed for the Stock Financing option and is included in
Appendix 6. However, after internal discussions with the Device Manager, the assumption of
increased sales was deemed to be unsound in the current economic environment.
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10.Recommendations
After the Cost Benefit Analysis for the proposed actions to improve revenue and
reduce costs on the franchise model, the following are the recommended actions.
Action Details Justification
Adopt a Franchise
Strategy
This will be based on the
recommended approaches below,
and align the implementation to
Econet’s Strategic vision
A unified Franchise Strategy will lay
down a vision that Econet can track
against the key issues identified
around cost management, quality of
service and business efficiency.
Review of the
reward model
Review of reward model to
reduce costs and improve
earnings – effect on hiring
Remuneration for pre-paid airtime
bought by customers they will
have registered
A reward for customer education
and query resolution
Franchises can hire quality staff
members that they can retain. This will
translate to a saving on training and
uniform costs, an improvement in the
customer experience and an increase
in business volumes.
A return on pre-paid airtime will
encourage franchises to look for new
customers to register on the platform.
Customers are well educated when
they visit franchises, thereby reducing
traffic for queries at other shops and
call centre. Other customers can be
attended to faster, thereby generating
more revenue.
Automated in-store
customer self-care
To have automated customer-
care in-store
Automation will result in higher
customer satisfaction Satisfied
customers become loyal customers
that will recommend the business to
others. Quality of service improves.
Waiting time becomes shorter as the
time taken in having one job done
Optimise shop
footprint
The enforcing of territories e.g. to
only have 1 shop within a 5km
radius
To maintain the strategic
locations
Reduction of set up cots
Improvement in efficiency
Franchises concentrate on getting
more customers on board and serving
them well rather than competing with
one another for business.
Econet will maintain control of strategic
locations even if the franchise
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Reduction in set up costs of
another outlet
Set up time minimised. Econet
can continue earning revenue
without erratic service provision.
relationship were to end.
Customers will be used to those
particular outlets.
This will reduce the costs to Econet to
setup in the event of change of
Franchise as there will not be a need to
refurbish another Shop.
Owning the lease means that the time
to setup the shop will be eliminated
and hence customers will continue to
use the outlet.
10.1 Franchise Strategy
To ensure that Econet adopts a holistic long-term view to its franchises it is important
to define and adopt a Franchise Strategy. This will set the tone for engagements with
future potential franchises, as well as allow Econet to leverage on existing franchises
for the benefit of the business. It will also set a direction and alignment of resources
that will help Econet reach its organisation strategic goals on this key element of
sales.
As such, we propose the adoption of the below strategic approach. Firstly, Econet
should determine a percentage of their shops that are maintained as Econet owned
shops. It is recommended that to begin with 20% of shops are Econet owned, and
that these shops are defined as “Centres of Service Excellence”. This percentage is
taken from the Exclusive Channel Comparison graph in the benchmark section of
this report, however, the 20% figure is provided as a conservative recommendation
(as opposed to the 10% regional average) to ensure that Econet continues to have
control over its franchises and customers. All other shops (80% of our shops) should
be migrated to franchises, and should focus on sales, with an incentivised
component of service delivery.
74
In the Harare area, there are 6 Econet owned shops and 15 Franchise shops. This
would mean that the Econet owned shops should be reduced to 4, and that two of
the existing Econet owned shops should be transformed to a franchise.
An analysis of all franchise stores and owners will be required to identify the best
performing, who have values aligned to Econet’s corporate values, resulting in a
ranked list of franchises owners
In parallel to this, an analysis of our existing store footprint should be conducted to
determine the suitability of each shop location, and should result in the definition of
franchise territories that will allow Econet to optimise shop location, and prevent
cannibalisation of sales.
Once these two streams of analysis are completed, a select group of franchise
owners should be selected as Master Franchises. These Master Franchises should
be enabled, through strong partnership, to grow their presence in the Harare region,
in line with the newly defined franchise territories.
This strategy is aimed at providing a platform for Econet to grow its store footprint, at
a lower cost of sales, while dedicating certain stores to focus on key results areas for
the business.
i. Key Mitigations:
In order to allow for the successful implementation of this strategy there will need to
be some key controls put in place to ensure we learn from previous challenges with
our franchise model.
1. Strong contracts
There will need to be improved controls in our franchise contracts, to ensure
there is exclusivity with Econet for the franchises (particularly Master
Franchises), to prevent Franchises holding Econet to ransom by threatening
to leave. The exclusivity agreement will result in the franchisee being “locked
in”/prevented from working with another Telco for a 5 year period, if they
decide to terminate the contract with Econet.
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2. Econet to own the lease of franchises
For the strategy to be successful Econet will need to own the lease for all
franchises. This will ensure that Econet can control locations of its store, and
prevent it from losing prime territory locations due to its Franchisee’s
decisions.
3. Self-service kiosks to be installed in each franchise store
To ensure the service levels in our franchise stores are maintained to a
suitable standard, Self-service kiosks will be required to be installed in all
franchise stores.
iii. Next Steps:
Econet will need to continue to refine its Franchise Strategy, based on in depth
analysis of the financial performance of each store over a 3 year period of time, to
determine useful trends and areas of optimisation.
In addition, Econet will need to research how other Telco companies handle and
manage their Franchisees, and adopt the best practices in the field.
The strategy should be supported by the adoption of the implementation plan
provided in this report.
If this strategy is successful in the Harare area, then it should be rolled out to the
whole of the Zimbabwe market.
10.2 Review the franchise reward model
The proposal to review the Franchise reward model is based on the assumption that
Econet will pursue the strategy of increasing its Franchise shops versus its own
shops and that it totally buys into fully supporting the growth of franchises.
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Reward Model Review
Item Current Discount/
Commission
Proposed Reason
Receipting customer bills/
purchases
5% commission 0% commission However include
this in the
standard shop
service fee.
Sim Replacement 10% commission Remain
Usage Commission on Post-paid
lines
7.5% commission Increase to 10% To ensure a
service culture
in Franchises so
they ensure
repeat business.
Airtime Sales 9.5% discount Reduce to 8%
Bounty on new contract line
connection
$20 once off per line Reduce to $10 Focus on
connecting the
right customer
and earn 10%
on ongoing
usage
Buddie Simpack sales 25% discount Remain 25%
Discount on handsets is based on
handset model ( Range +/- $2)
Standard device
discount of 10%
To allow
competitiveness
On-going usage
commission
To enable
increase in
sales to and
customer
management
10.2.1 Cost benefit analysis-Reward Model
The cost to Econet for a franchise shop will not increase significantly by changing the
reward model as it is the franchise owner`s prerogative to ensure profitability by
balancing customer services and sales in the designated territory.
Below is a table showing the likely changes.
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Reward Model –Cost Benefit Analysis
*Cost Item Cost Amount
Econet
Benefit to Econet
1.Service fee $3,000 Increased customer
satisfaction
2. Commission on airtime. (Assuming increase of 5%
due to improved territory marking.
$77,000 Sale of $1,3m to
Econet
3. On-going commission per prepaid line. ( Assume
they connect 1,000 customers spending $2/month)
(0.05%)
$100 Customer retention of
base + $1,900
4. Usage commission per post-paid line at 10%.
Average Franchise base is 200 post-paid subs and
average bill @ $50
$5,000 Customer retention.
Revenue $45,000
Total 85,000 1,346,900
*Cost benefit analysis is based on a month performance.
The total cost to Econet operating through the franchise outweighs the revenue
accrued to Econet. Furthermore, the franchise still is able to earn more in discounts
given for devices and other non- telecommunication products such as EcoCash.
10.3 Automated In-store customer care
Automation of all Franchise shops will bring benefits to Econet such as:
1. Satisfied customers (reduced time in queues, short waiting time etc.)
2. Eliminate difference between Econet own shops and Franchise shops.
3. Increased productivity on the shop floor.
We recommend this automation as part of the shop set up cost so that in the long-
run, the Franchise would have paid for it too.
10.3.1 Cost benefit analysis - Automated In-store customer care
While there are benefits behind automating the customer service centers, there are
significant costs that that have to be met by the business. Costs associated with
automated in-store customer care in one franchise shop with current costs of about
$8,884.00.
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Cost Item Cost Benefit Detail of benefit
This involves the
hardware and software
issues as well as the
maintenance charges
once automated
systems are put in
place.
10%
increase in
costs of
$8,842
Increased
sales
Automating the franchise
touch points may increase
revenue by 5%
Number of touch points
that have be added
$1,400 Improved
efficiency
Many customers will
experience real time
responses to queries. There
is enhanced customer
satisfaction. There is need
to wait for feedback from the
call centre.
Linking the customer
interface to the Econet
Customer care service
unit
$800 Cost
reduction
Labour costs can be
reduced as most of
customer touch points will
be automated resulting in
real-time responses. Staff
freed by automation can be
assigned higher level duties.
This can result in loss
of emotional connection
on the customer
Elimination
of human
error
Execution of tasks and work
orders consistently
lessening the need to re-
work
Customers who are not
tech savvy will have
challenges in using the
machines, and can be
frustrating to some
customers
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10.4 Optimize Shop Footprint
The proposal to optimize shop footprint is supported by the team because in the
Harare area, there was demonstration of clutter and revenue cannibalization. For
example, Borrowdale has two Econet shops demarcated by exactly a wall. One is a
Franchise shops, and the other an Econet owned shop. In each territory, it is
however proposed that all leases be owned by Econet so as that in the case of a
Franchise owner deciding to abandon the business, Econet simply identifies a new
partner to operate the shop. Below are the cost benefit analysis for territories and
Econet owning leases.
10.4.1 Cost Benefit Analysis for territory mapping:
Cost Item Cost Benefits
Territory mapping
Contract agreement
Localised marketing
material
$30,000
$5,500
$2,000
Right customer profile and increased sales
(20% ± uplift)
Increased focus on customer service
Franchise profitability (bringing stability) (15%)
Cost of moving/merging
shops (where applicable)
$2,000
Total $39,500 Revenue from Franchise sale +/- $1,3000,00
10.4.2 Cost benefit analysis Econet Owning the Lease
Costs: The costs that have been taken into account is that Econet will meet the
annually
Cost Item Detail Cost in Y1
Average Monthly
Rentals for shop
The monthly rentals for a shop vary
depending on location from low as $70 to
upwards of $8,000.
An average cost of $1,500 is assumed per
shop
$1500*12 =$18,000
Total cost Assuming a 15% increase in rentals due to
landlords changing Econet more
$18,000*1.15
=$20700
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Benefits for owning the lease:
Benefit Item Detail Cost in Y1
Maintain control of
prime location sites
We will maintain control of important
locations should the franchisee decide to
leave the franchise or should Econet
decide to cancel the contract with
Franchisee
Intangible
Reduce Franchisee
set-up costs
This will reduce the costs to Econet to
setup in the event of change of Franchise
as there will not be a need to refurbish
another Shop. This assumes that they can
be a need to change a Franchisee every 2
years.
$25,000
Reduce Congestion
in Shops
Owning the lease means that the time to
setup the shop will be eliminated and
hence customers will continue to use the
Intangible
Total benefits $25,000
Analysis conclusions:
From the above it can be seen that Econet owning the lease will provide Econet with
control of the prime locations that they currently occupy in the event of the
dissolution of the franchise with the Franchisee.
This will also safeguard Econet in the event that Franchisees are lured by
competitors or a new entrant.
Although they will be the monthly rental introduced to the costs of franchising this
can be off-set using the monthly fee that is paid to the franchise.
The outcome of the analysis clearly show that the benefits outweigh the costs, as
shown below:
$25,000 benefits - $18,000 costs = + $7,000 total benefits. This can be reduced to
zero if it is part of the monthly fee that we are already paying the franchisee.
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11.Change Management Process
The adoption of our Franchise Strategy and recommendations will require a change
management process that will assist the business in effectively implementing the
new approach. It is recommended that Econet use the ADKAR model of change
management and John Kotter’s 1995 'Leading Change' steps, to ensure that “people
see, feel and then change”.
ADKAR has 5 key goals namely;
Awareness of the need to change
Desire to participate and support the change
Knowledge of how to change (and what the change looks like)
Ability to implement the change on a day-to-day basis
Reinforcement to keep the change in place
ADKAR Model. Adapted from Prosci, Change Management Toolkit, 1994
The process will start with communication to staff by senior management, inspiring
them and raising their awareness of the need for change within the business. This
can be done by presenting the findings of the surveys conducted in this report as
well as presenting the key highlights from the cost-benefit analysis to portray the
value proposition of the change. The leadership will take a lead in communicating to
staff to improve staff buy-in. This will also show that a number of options have been
considered, and will help secure the trust and confidence of staff.
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Continuous communication must be provided so that employees do not feel
threatened by the switch to more franchise stores. Employees should be encouraged
to give constructive feedback by providing a platform to ask questions and get their
concerns addressed.
A franchise project team will be appointed to lead the project. The team should
consist of people with the right level and mix of skills as well as the necessary
commitment to change. The team will be tasked with establishing the vision, fleshing
out a strategy and coming up with the creative aspects as the organisation evolves
towards the desired future state. These individuals must demonstrate the desire to
participate and support the change as well inspire others to be part of it.
The knowledge of how to change must be imparted through thorough training
sessions. The teams involved should be trained on all the relevant aspects while the
franchise shop staff will receive thorough training to provide them with the ability to
play their role well. It is recommended that the change be done in stages broken
down into SMART goals (Specific, Measureable, Achievable, Realistic and Timely).
To ensure continued support over the duration of the lengthy implementation,
milestone based rewards/incentives should be used.
Reinforcement is required to ensure the success of the adopted model and keep
the newly attained desired state in place. In the end the change will transform the
culture and ration of Econet’s distribution model.
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12. Implementation Plan
The following are the proposed implementation plans for the above recommendations.
12.1 Implementation plan for the Quick Wins
3 4 5 6 7 # 11 # # # 17 # # # # # # # # # # 1 2 3 4 7 8 9 # 11 # 15 # 17 #M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F
Quick Wins H H
Implement franchise monthly meetings 3-Aug-15 12-Aug-15 Givemore Jojo x x x x x H H x
Alignment of Econet IT systems with Franchises
3-Aug-15 28-Aug-15 Tigere Matthews x x x x x H H x x x x x x x x x x x x x
Franchise Shop Staff Refresher Training 8-Aug-15 12-Aug-15 Cleopas Chiketa H H x
Staff Exchange programme 17-Aug-15 18-Sep-15 Cleopas Chiketa H H x x x x x x x x x x x x x x x x x x x x x x x x x
Begin supporting franchise staff recruitment 3-Aug-15 3-Aug-15 Cleopas Chiketa x H H
24-Aug3-Aug
Week 2 Week 5Week 3 Week 4
Project Task Task OwnerEstimated Due Date
Estimated Start Date
Project Task Information
31-Aug 7-Sep 14-Sep
Week 6 Week 7 Week 8
10-Aug 17-Aug
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12.2 Implementation plan for the Reward Model revision
Revise Reward Model Implementation H H
Monthly remuneration plan H H
Financial analysis & plan for proposed changes 3-Aug-15 1-Sep-15 Finance x x x x x H H x x x x x x x x x x x x x x x
Approvals 31-Aug-15 31-Aug-15 EXCO H H x
Implementation 1-Sep-15 1-Sep-15 Commercial H H x
Commission on pre-paid airtime usage H H
Approvals & implementation 3-Aug-15 3-Aug-15 EXCO x H H
Change in shop construction payment model H H
Financial analysis 3-Aug-15 1-Sep-15 Finance x x x x x H H x x x x x x x x x x x x x x x
Rewards for QOS & query resolution H H
Approval of the proposal 3-Aug-15 3-Aug-15 EXCO x H H
Processes and procedures for the initiative 4-Aug-15 4-Aug-15 Commercial x H H
3-Aug 10-Aug 17-Aug 24-Aug 31-Aug
Week 2 Week 5Week 3 Week 4
Project Task Task OwnerEstimated Due Date
Estimated Start Date
Project Task Information Week 6
12.3 Implementation plan for the Automation and Standardisation of IT Systems
Automation and Standardisation of IT systems
Developmnet of self-service system 17-Aug-15 28-Sep-15Tigere
Matthewsx x x x x x x
Rollout of self-service kiosks in all harare stores
5-Oct-15 11-Dec-15Givemore
Jojox x x x x x x x x x
Develop integrated stock management module in point of sale solution
31-Aug-15 2-Oct-15Tigere
Matthewsx x x x x
Integrate point of sale with device database to improve product management
5-Oct-15 6-Nov-15Tigere
Matthewsx x x x x
Wk 6
Wk 7
Wk 8
Wk 5
Wk 4
Wk 3
Project TaskTask
OwnerEstimated Due Date
Estimated Start Date
Project Task InformationWk 10
Wk 11
Wk 12
Wk 9
Wk 13
Wk 14
Wk 15
Wk 16
Wk 17
Wk 18
Wk 19
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12.4 Implementation plan for the Optimisation of the Shop Footprint
Optimising shop footprint
Allow existing lease agreements to expire
1-Aug-15 31-Jul-16 Exco
Take over the lease from the Franchise stores
31-Jul-16 31-Aug-16 Legal
Define Territory Mappings 31-Aug-15 30-Nov-16 Commercial
Sign new territory agreements 29-Jan-15 29-Jan-15 Legal
Enforce new territory agreements
1-Mar-15 1-Mar-15 Commercial
Jan-16 Feb-16
Month 1
Aug-15
Project Task InformationMonth
2Month
3Month
4
Task Owner Nov-15
Month 15
Month 16
Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16
Month 13
Month 14
Oct-15
Month 5
Month 6
Month 9
Month 7
Mar-16
Month 8
Dec-15Project TaskEstimated Due Date
Estimated Start Date
Nov-16
Month 10
Month 11
Month 12
Sep-15
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13.Conclusion
From the research it is clear that the existing Econet franchise model is robustly
implemented. It consists of an established contract format, which articulately defines
the expectations of franchise behaviour and performance, as well as some definition
of standards to be adhered to.
Additionally, there is common understanding of the value of franchises, and the
benefits they offer to Econet in extending the shop footprint. This understanding is
complemented by reasonable split between shops which are franchises and those
that are Econet owned.
Furthermore, Econet offers a wide range of complimentary and charged support
services to the franchise shops, allowing them to continue to operate, despite the
tough economic conditions present in Zimbabwe. These range from technical
support to training and advertising support. Finally, Econet’s shop coverage is better
than that of existing competition.
While Econet has already leveraged significantly on its franchise model, there still
remains great potential for improvement.
The first recommendation from the investigation, is that Econet should adopt a
Franchise Strategy that lays down the vision for franchise adoption and optimisation
in the future. The proposed strategy is based on research and benchmarking, and
recommends that Econet streamline their existing Econet owned shop footprint, and
establish increased franchise presence.
To complement this strategy, Econet should adopt the territory model defined in the
report, to restrict competition between its shops, and optimise sales performance.
Improved automation and system optimisation offers further opportunities to achieve
business efficiencies that will speak to the core needs of the business, while
continuing to support excellent quality of service.
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Finally, the review and implementation of an improved reward model will allow
Econet to further improve the profitability of its franchises. In turn, the franchisees will
be incentivised to provide a better quality of service, and focus more on exclusively
retailing Econet’s products and services. This will also allow Econet to focus on its
core business, rather than focusing on the retail industry.
All of the recommendations above provide an opportunity to improve the relationship
between Econet and its franchises. This will strengthen the partnership, and result in
increased loyalty from franchises to Econet. The recommendations also contribute
significantly to reducing the cost of operations, while also improving business
efficiency for all parties and the quality of service offered to customers.
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14.Personal Learnings
i. Personal Learnings – Mellany Msengezi
The group project key learnings for me are:
1. Time management
2. Co-ordination
3. Giving feedback
4. Team work is important to achieve desired goals
5. Communication
6. Franchising in Econet
During the BDAL project, I learnt that time management is important when working
on a time limited project. There was need to ensure that as an individual member I
played my role and completed tasks within the given period so as to build into the
team’s project progress. Failure to meet time usually meant that as a team we fall
behind, and at times pull each other up.
There was a requirement of serious co-ordination also as a team for us to meet the
BDAL time limits. Co-ordination of a team is not easy when working with a diverse
team with strong personal opinions, own work and personal commitments and
different working culture. It was important therefore to have a leader directing
meetings by setting an agenda and ensuring that every meeting had action points
towards achieving the BDAL goal.
In the BDAL process, I believe I sharpened my skills on giving feedback. I learned
that it is important to convey feedback to team members in a way that ensures that
the individual remains motivated and continues to contribute positively to the group
work.
I also learned that teamwork is crucial in order to achieve goals. Teamwork for me
during this period meant that we all had to have one common goal, to learn, give
value to the business and complete the BDAL project. This goal drove the team to do
their best in meeting set work targets.
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Communication played an important role during the process. I learned that constant
communication has positive influence on people when done well. In silence, it
seemed less was done, people sank into usual behaviour and not focus on BDAL.
However, whenever we engaged more as a team via email, telephone and meetings,
then people felt motivated and an urgency to accomplish the tasks before them.
I also had the opportunity to understand more about the Franchise strategy in Econet
and also from a global view. I had the opportunity to understand the Econet model,
its inefficiencies and how Econet shops are also operating compared to the
Franchise shops. I was really surprised on the expenses that Econet incurs to run a
single shop compared to the Franchise shop as Franchise shops are more efficient
and lean. To get more understanding of Franchising, I had to interact with internal
management and realised that at times we all assume that there is a common
understanding of the commercial and business strategies, but it was not the case.
Some managers seemed to have not much idea about Econet Shops and
Franchising, but I managed to get good feedback from those who did. This showed a
level of silos in how people are operating.
Overall, I enjoyed connecting and working close to the team I was working with. We
shared personal and work issues as we progressed, and believe this worked
positively towards us remaining focussed on the ultimate goal.
ii. Personal Learnings - Itayi Biza
The Econet Franchise model though not perfect is critical for the business to be
closer to and more in contact with its customers in a cost effective manner. It allows
the business to have presence in areas where it might not have been economical for
it to set up shop due to high operating costs. It also allows the business an
opportunity to empower local entrepreneurs to participate in the mobile industry while
at the same time increasing the reach for most of its products and services. The
number of participants is further increased by its policy of not having any one
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franchisee accounting for more than 10% of all Econet sales in terms of products
and services.
Through the interviews that I conducted I was able see the strengths and
weaknesses of the current franchise model that we have in Econet. Some of which
include the allowing of franchisee to hold lease agreements for shops that we would
have invested in their renovation and remodelling to meet Econet standards. The
need for letters of credit have also hampered the franchisees ability to have
adequate stocks of some of our products due to the thin margins that they get from
commissions. There is general concern that Econet needs to do more to assist the
franchisee to control those individuals who can sell within the franchisee designated
area. This has seen franchisees being found in areas where they are not supposed
to be and in certain instances Econet itself moving into a franchise’s territory.
They key things that I have learned is that the model although not perfect is assisting
the business to reduce its operating costs. I have also learned that we need to
seriously look into how we can tie the franchisee to Econet; so that we do not lose a
key location to competitors or even the franchisee deciding to move out of the
business; when we have made significant investments in developing the shop.
There is also need to constantly seek to improve the model through regular meetings
with the franchisee to see how they can be more effective and improve their
profitability and allowing the franchisee to feel that they are part of the Econet family
and not an inconvenience.
On a personal level it has allowed me to have a broader perspective of the
franchising in general by seeing it from 3 points of view, that of the Econet
Franchisee, Econet as franchisor as articulated by the different individuals in Econet
and franchise that is external to the Econet model. I have also learnt that there is no
one correct point of view but each point depends on the circumstances.
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iii. Personal Learnings - Sophia Myers
From the BDAL project I learnt more about what franchising is in general and more
of the Econet franchise model in particular. I also learnt how other franchises that we
used for benchmarking are operating and drew some lessons from them. I learnt
about how Econet can get more value as a business from the franchise model.
The research gave me a chance to interact with departmental heads from different
Econet business unit. I learnt more about the business from them and managed to
understand the bigger EWZ picture. I also interacted with directors and management
of franchises and learnt how we are running with the same brand but deliver
differently.
When we started engaging franchisees and internal managers I had set a targeted
completion date but not all were available to meet me within the stipulated time. I
had to be flexible and allow those who wanted to respond to the questions in writing
to do so, while I also interviewed others telephonically. I learnt that I had to make an
alternative plan to get the desired results rather than stick to my original time if I
wanted to submit my contribution in good time.
On a personal level I learnt how to get the best from group work. It started with
finding my way in a group with dynamics that were different from my usual
colleagues at the office. I worked with a diverse team that has different educational
backgrounds and work experience and we managed to work well together, correcting
and developing one another in the process. All team members operate from different
geographical locations and are in different parts of the business with different areas
of responsibility (Networks, Products and Services, Higher Life Foundations and
Sales) but we managed to pull together as one and learn from each other’s
experiences.
I was away on an international assignment in February and part of March 2015 and I
had to communicate with my group members via skype. The network connectivity
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was not so good at times so we had to use teleconferences and emails to make sure
that we progressed well in our group work despite the barriers to the preferred mode
of communication.
When I came back from the international project and started attending group
meetings in person, the other team members were already comfortable around each
other but I had to work with them face to face hence I learnt I had to fit in early and
be part of a group that was already comfortable with each other.
I also learnt to deliver within a very short space of time and to take direction from a
group leader, who is not my boss but a group member we appointed as our leader.
I also learnt to balance the requirements of group work, individual assignments, work
and family demands as well as my own individual activities that I didn’t want to stop
because of the studies.
iv. Lessons from the Project – Martin Manatsa
1. Interaction between peers
I have worked in the social responsibility department which is development in nature
and there has been limited interaction with peers at the corporate. From the time that
we have been interacting with peers in the corporate world, I have learnt that there
are many lessons that one can draw from the corporate that can be applied to the
social responsibility section of the department. These may relate to how one can
bring efficiencies and cost efficiencies.
2. Uniformity of the Franchise Contracts
I had an interview with one of the Franchise Shop owners who lamented the
differential treatment that is given to Econet Franchise shops. In fact, the Econet
Franchise shop operate with different contact, yet best practice should be lie in the
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uniformity of contracts. Rather Franchise contracts should be standardised to ensure
an even play field.
3. The importance of benchmarking
For an effective Franchise model, there is a need for benchmarking with other
business counterparts not necessarily in the telecommunications industry, but
perhaps those in the in the manufacturing or the service industry. Econet should
draw lesson from how other counterparts in the manner in which they run their
franchise model. Such companies include McDonalds, Seeff Property Services,
Toyota and Coca-Cola in the manner in which they run their franchise model. Such
organisation provide all the necessary services including access to information
systems and defined territories to ensure maximum reach of the intended customer. I
discovered that this is not given precedence at Econet Wireless which compromises
the Franchise Model. Franchise shop have challenges in providing real time
solutions to customers. I leant that for an effective Franchise Model, one has to draw
lessons from how other companies have been running.
4. Territories and Distribution Model
The Franchise Model is an efficient distribution model for the business particularly in
the service industry. I leant that despite being an effective means for spreading the
service and increasing the customer touch point, it has to be done in a coordinated
manner. The Econet Distribution model which includes the Econet Shops and the
Franchise Shops, seem to provide a deaf ear to respect of territories. Territories
seem to intersect which compromise effective reach to the customer. While one may
argue that location of shops depends on the availability of space but I believe it
should be done in a strategic manner from a business and customer perspective.
5. Cost management
Business success hinges on profitability which is one of the major reasons for
engaging in business. I discovered that despite Econet Shops recording profits, their
margins are eroded by the high cost structure as compared to the Franchise Shops.
The later run profitably with limited costs. I leant that business success should not be
measured by profitability but one has to consider the extent of the cost and perhaps
find ways of reducing the costs.
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v. Personal Learnings - Andrew Tigere Matthews
This assignment has given me the opportunity to really expand my understanding of
the general concept of franchising, as well as identifying the similarities and
differences between dealer and license models. I have understood the benefits to
the Franchisor of enlisting entrepreneurs to grow their footprint, extend their brand
and drive product and service sales, while reducing the financial commitment and
risks that come with driving this growth through owned shops.
It has allowed me to gain an in depth view of the Econet franchise model, including
its strengths and weaknesses. The disparate approaches taken to each franchisee
has limited the effectiveness and efficiency of the existing model. Additionally, I have
understood how the lack of financing for franchisee stock hampers sales growth, and
customer experience in the market. Furthermore, the importance of territory
management has also come to the fore, as existing competition between stores has
also limited the success of the existing models.
However, I have learnt that despite the key weaknesses, the lower cost of sales and
capital investment costs of the franchise model still offer significant benefits to
commercial team within Econet. Additionally, I have learnt that there are many
factors that can be altered to ensure a franchise model can be tailored to the
environment and organisational conditions. This also means that
continuous/incremental review and modification of the franchise model is one of the
best long term approaches to achieving the desired benefits of a franchise model.
On a more personal level, I have learnt more about my value in a team. As a project
manager, I have been responsible for planning, monitoring and controlling the
delivery plan for all the project milestones. These organisation skills have been
essential to ensure that all necessary inputs are tracked and the necessary
highlighting of delays was done to the team.
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Additionally, this has highlighted the importance of time management for delivering
such a project within the tight timelines, alongside meeting the demands of the
teams’ full-time responsibilities.
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15.References
1. Australian Government Department of Immigration and Citizenship, Stakeholder
Engagement practitioner handbook, 2008, Version 2, National Communications
Branch of the Department of Immigration.
2. BLAIR, R.D. and LAFONTANTAINE, F (2005). The Economics of Franchising.
Cambridge University Press
3. BRADACH, L. (1998). Franchising Organisations. Boston. Harvard Business
School Press
4. BUXTON FRANCHISE CONSULTANTS: Your Roadmap to Franchise Growth.
static.buxtonco.com/Frnachise-Growth.pdf
5. CENGAGE LEARNING, (2000). Online.
http://cws.cengage.co.uk/hoffman/students/cases16-18/case_18.pdf
6. DOHERTY, A.M. (2007) "The internationalization of retailing: Factors influencing
the choice of franchising as a market entry strategy", International Journal of
Service Industry Management, Vol. 18 Iss: 2, pp.184 – 205
7. ELGIN, J. (2011) www.entrepreneur.com/answer/222280, Visited March 29
8. Encyclopedia of Small Business 2007,
htttp:www:/encyclopedia.com/topic/franchise.aspx
9. FRANCHISE BUILDERS. (2015) Online
www.thefranchisebuilders.com/franchise-territory-planning
10.HAINES, G., STEPHEN (2007). Strategic and Systems Thinking. The
Winning Formula: Systems Thinking Press.
11.HING, N. (1995) ”Franchise Satisfaction: Contributors and Consequences”
Journal of Small Business Management Vol 33, No.2 pg 12-25
12.JOHNSON, G., and SCHOLES, K., (2004). Exploring corporate strategy-Text
and cases. Singapore: Pearson Education Pte. Ltd.
13.KIDWELL, R.E. et al (2007) Antecedents and Effects of Free Riding in the
franchisor-Franchisee Relationship. Journal of Business Venturing 22, pp522 -
544
14.LIBAVA, J. (2011) Introduction to Franchising
15. MCDONALDS CORPORATION, (2008). Online
http://www2.mcdonalds.com/static/pdf/aboutus/education/mcd_franchising.pdf
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16.QUINN, B. (1999) Control and Support In an international Franchise Network.
International Marketing Review. 16 (4/5). Pp345-362
17.RAHATULLAH M., K. and RAESIDE, R Developing a Model of Franchise
Business Relationships, in Central Asia Business Review, Vol 1,No 1, 2008
18.RAHATULLAH, M., K. and RAESIDE (2008) Developing a model of Franchise
business relationships in Central Asia Business Volume I, No. 1, 2008. 21
19.POSTAL & TELECOMUNICATIONS REGULATORY AUTHORITY OF
ZIMBABWE: Q4 (2014). Postal & Telecommunications Sector Report: Q4.
20.WILSON. S. Online: www.allbusiness.com/author/Sara-Wilson
21.KATE., S. (2011) www.starfishconsulting.com.au
22.FRANCHISING WORLD (2006). Online: www.franchise.org/metrics Metrics that
matter Benchmarking.
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16.Appendices
Appendix 1: Commercial Division Structure
Appendix 2:
McKinsey’s 7 S
Model
Chief Commercial & Customer
Services Officer
GM Sales & Distribution
GM Products & Services
GM Business Enterprise GM Marketing GM Interconnect
& roamingGM Customer
Services
GM High Value Customer
Management
PA to CC&CSO
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Adopted from McKinsey’s 7 S model [Online]
http://www.valuebasedmanagement.net/methods_7S.html
To come up with the desired and current states, the McKinsey’s 7 S model is one of
the tools that were used to determine to be state for the Econet Franchises. The 7 S
model was chosen because it is especially effective when an organisation is going
through rapid and uncertain change; something that is currently prevailing in the
Zimbabwe economy to date.
The model was used to answer the following questions for the two states:
Strategy
1. What is our strategy in real terms?
2. What are our strategic objectives?
3. How will we deal with our competition?
4. What is it that our customers are demanding and will demand in the future?
Structure
1. How is the franchise model set up?
2. What is its organisational structure?
3. How do the teams work together to achieve goals?
4. How do the team members work together?
5. What is the quality of communication?
Systems
1. What are the main systems we use in the company?
2. How do we monitor and measures the systems?
3. What processes do we currently use?
Shared Values
1. What are the values we keep in the business?
2. What is the corporate culture?
3. What is the strength of these values?
4. How are we communicating these values?
Styles
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1. What style does the management team keep?
2. How effective is it?
3. How would we rate the teamwork among our staff?
Staff
1. How do our teams specialise in their roles or are they more general in their
responsibilities?
2. Have we the right people in the right places?
3. What development do they need?
Skills
1. What are the strongest skills we have in the company?
2. What skills gaps are there?
3. Do we have staff that can do the job competently?
4. How do we measure success?
Appendix 3 Sample Questionnaires
INTERNAL MANAGEMENT QUESTIONNAIRE
Introduction
Good day my name is {Interviewer Name} from Econet. We are currently contacting internal
management to better understand about the value of Franchise shops and Econet own shops. This is
part of a Management Development Program we are undertaking with the University of Stellenbosch.
Our topic is “An investigation into the effectiveness of the Econet franchise model in the Harare
are any opportunities to improve efficiency and reduce costs.” Thank you for meeting with me,
we appreciate giving us your time. Discussion is a minimum of 20 -minutes.
Introduction
1. Which level of management are you?
Executive
Senior
Middle
Junior
2. Which division do you work in?
3. What are your main concerns about franchise shops?
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4. What are you main concerns about Econet owned shops?
5. What benefits do you see from franchise shops?
6. What benefits do you see from Econet owned shops?
7. Are there any ways to ensure that franchise shops do not procure and distribute “grey”
handsets?
8. What are the main cost drivers in running an Econet Shop? Start from highest
9. Given the existing economic conditions, in your opinion is it profitable to run an Econet Shop
or Franchise? Explain.
10. In your observation/opinion, what are the logistical issues regarding the running of;
Econet Shop
Franchise Shop
11. How do you manage Product guarantees in the Shops (both franchise/own shops)
12. How good is the Econet Franchising system as opposed to running Econet Shops?
13. In which other areas do you think you can cooperate with franchisees for greater benefit?
14. What issues do you consider when selecting a business as a suitable candidate for
franchising?
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15. How do you reduce conflict with franchisees, if any?
16. Under what circumstances do you terminate a franchise agreement? Can we offer it to a
business in close proximity to one whose licence was cancelled?
17. Can consistently poor customer care or a high incidence of complaints lead to penalties to the
franchisees? Has any ever been penalised for poor customer service?
18. Do you think we should increase the number of franchisees as opposed to own shops? Why?
19. How does the business manage the risk that may come from franchisees providing
inadequate or incorrect information to customers?
20. What are the risks associated with franchise shops?
21. How do you handle the issue of the business reputation that may be tainted by franchises
selling grey products?
22. Is there something we can do to the remuneration of franchisees so that they can only sell
genuine products supplied by Econet?
23. Type of training, how extensive is it, does it differ from training of internal staff?
24. What are the insurance costs for the franchisees, what liability comes to Econet in case a
customer is not handled well by the franchisee?
25. How does the business division support franchise/ own. How can we improve support?
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26. Are you happy with processes in place to support franchise/ own. How can these be
improved.
27. What is the role of franchises in Econet Strategic Pillars
ECONET FRANCHISE SHOPS & ECONET SHOPS QUESTIONNAIRE
Introduction
Good day my name is {Interviewer Name} from Econet. We are currently contacting Franchise
Owners/Managers and Econet Shop branch managers to understand about the business operations.
This is part of a Management Development Program we are undertaking with the University of
Stellenbosch. Our topic is “An investigation into the effectiveness of the Econet franchise model
in the Harare are any opportunities to improve efficiency and reduce costs.” Thank you for
meeting with me, we appreciate giving us your time. Discussion is a minimum of 20 -minutes.
Introduction
1. How long have you been running/managing this shop?
2. What are the key services you offer?
3. Do you face high staff turnover challenges? Explain
4. How do we handle employees who receive a high number of customer complaints? Are there
penalties for such employees?
5. What can be done to allow you to provide a better level of customer care? In order of priority.
6. Are there any ways (or areas of support) to improve your level of service to customers, while still
meeting your sales targets?
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7. Do you get adequate marketing collateral to make it easier for you to serve customers? Explain
8. In terms of communication, how can Econet assist you to make the customer experience better?
9. If offered a similar position in a related business, would you stay or leave the outlet you work in if
offered another position?
10. Are there any areas that need improvement from the Econet management team that monitors and
inspects your outlets? In order of priority.
11. What are the main cost drivers in your outlet? Start with highest.
12. Are you a profitable outlet? Explain your answer.
13. What is driving your profit or losses?
14. What support do you need to improve this business? Is there any other support you need?
15. What are your sales targets for the shop (internal and external)?
16. How many staff members do you have? Are they adequate?
Franchise Section only
i. What is your current franchise model?
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ii. Are you satisfied with the current model?
iii. Do you believe there are areas that the model can be improved so that you become more
profitable?
iv. What are the major challenges you experience in running the franchise?
v. Are there any contractual challenges in running an Econet Franchise.
vi. Are there any areas that should be relaxed for the efficient running of the Econet Franchise.
vii. If another service provider were to approach you, would you continue running an Econet
franchise?
viii. Is there any territorial protection from Econet?
How do you protect your territory, in what ways can Econet assist you to protect territory. Do
you believe territories can be beneficial?
ix. Which areas do you think you can work on with Econet to improve the customer experience?
x. Are there any changes to the model that you would suggest, that can help both Econet and
yourselves?
Thank you so much for your time.
QUESTIONAIRE FOR CUSTOMERS
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Good day my name is ………………………………. from Econet. We are currently contacting
customers to determine the service levels they have received from any of our shops. Thank you for
meeting with me, we appreciate giving us your time. Discussion is a minimum of 20 minutes.
Introduction.
1. We note that you visited one of our shops at ………………………..
2. Have you used this shop more than once? YES NO NO
3. What services do you normally receive at this shop?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………
4. Are there any services you get from other Econet shops that you cannot access at this shop?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………
5. If yes what are the noticeable differences in terms of products and services
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………
6. What is the service level like in the shop?
Excellent Good Average Below standard Needs Review
7. What is your perception of the look and feel of shop?
Excellent Good Average Below standard Needs Review
8. How would you rate the customer care agent’s appearance and professionalism?
Excellent Good Average Below standard Needs Review
9. How would you rate the customer care agent’s knowledge of Econet products?
Excellent Good Average Below standard Needs Review
10. What is the average waiting time you experience in this shop
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……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………
11. Did you find what you were looking for in store?
YES NO
If not what was the problem?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………
12. Does the service level you experienced in the shop match your expectations of Econet?
YES NO
If no which areas needs improvement?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………
13. Are there any ways in which you feel the service you experienced can be improved?
Additionally, do you have any other recommendations?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………
Thank you for your time
Appendix 4: Key Issues by Shop category
Key challenges into their relevance to Econet owned shops or Franchise shops, as
found in the below table.
Challenge Own Shops Franchise
Customer
experience
Inconsistent customer experience
between Econet Shops and
Franchise shops.
Inconsistent customer experience
between Econet Shops and
Franchise shops.
Communication of Econet Strategy,
culture and direction is not handled
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well within the franchise as a whole,
resulting in a vastly different
approach between franchises and
Econet owned stores.
Staff Turnover Low staff turnover in franchise
shops
High staff turnover in franchise
shops
Often once the staff are trained and
upskilled they move off to better
opportunities at a higher pay.
Training Training prioritised in Econet
shops
Training not prioritised in Franchise
shops
Franchises take on staff they can
afford, which don’t necessarily have
a profile that is at the same level as
Econet staff. This requires significant
investment in Training
Franchise managers do not have
knowledge or experience of the
Telecoms sector.
Product Range Offer Full Product Range Limited product range in Franchise
shops due to lack of/limited financing
of stock options from Econet
Access to
Systems
Fragmented systems in the
shops. Consultants have over 20
screens they use to serve
customers. This creates queues if
the systems are slow, and also
when there is a downtime.
Ordering system is very
cumbersome with too many
processes such that a product
may physically be in the shop, but
cannot be sold to the customers
till the next day.
Franchise shops have limited access
to support systems, thus tend to
refer certain issues to Econet shops.
Logistics Products distribution logistical
challenges in Franchise shops. They
have to collect product on their own
physically
There is also poor stock
management, so there are instances
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where there are products wanted in
one store, where there is demand in
another store. Econet also create
significant demand for their products,
but do not always have adequate
stock, and the stock Econet has is
not well distributed.
Territories No area Zoning. Econet can decide
to set up own shop or new
Franchise shop near an existing
Franchise shop. Typical example is
Borrowdale set up.
Operating Costs Higher operational costs for
Econet shops compared to
franchise shops
With current cost management
practices in the organisation,
maintaining the high OPEX costs
for IS Systems in Econet owned
and Franchise shops is difficult to
maintain. This high OPEX also
contributes to the cost of sales,
and this may not be entirely
visible to the business.
Budget planning inputs from
Commercial are not shared with
IS, so it is difficult to plan IS
budgets to be able to keep up
with the demand for new stores.
Lower operational costs for
franchise shops compared to Econet
shops
Unfavourable trading terms for
Franchise shops
Franchise owners get provided with
network equipment by Econet,
however, they do not maintain the
equipment in the best manner, and
Econet are required to replace the
faulty/damaged equipment. For
example, power issues at franchise
sites blowing IS equipment.
Capital Franchise shop has very limited financial
capacity to fully stock Econet Products
thus affecting service levels.
also leads to heavy footfall in Econet
stores
Franchisor-
Franchisee
Relationship
Franchises will escalate network
issues to Senior Econet staff
without reporting it directly to the
network team, which is
inefficient.
IS KPI’s to maintain network
uptime are impossible to meet,
Franchise treated as third party and
not as partner. Rarely get involved in
any Franchise decision making and
contracts changed by Econet
randomly
Communication of our new product
ranges, and pricing models/bundles
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as Franchise shops decide not
to invest in generators, or the
fuel to keep them running?
is poor and franchises don’t always
know the changes before the
customer does.
While we survey our franchise
owners a lot, we don’t seem to take
on board their inputs, and don’t
seem to have crafted a strategy that
caters for what they want.
Communication Currently IS do not get informed
of new shops until well after
contract stage, and little planning
time leading to short deliver times
to connect to new sites.
Communication of our new product
ranges, and pricing models/bundles
is poor and franchises don’t always
know the changes before the
customer does.
Appendix 5: Possible Solutions extensive list
List of options and impact to address key issues of (Costs/Efficiencies and quality of
service identified)
Option Category
Improving communications Increase efficiency
Exchange program Increase efficiency
Sales academy Increase efficiency
Territories Reduce costs
IT systems access Increase efficiency
Improved communication to IS security Increase efficiency
Review reward models Reduce costs
Mystery Shopper Increase efficiency
Regular performance reviews Increase efficiency
Econet hiring profile Reduce costs
Tiered lines of credit Reduced cost of sales
Stock management system Increased efficiency
Automated customer self-care kiosk Reduced costs
Self-acquiring of stock Reduced costs
Integration to device serial number DB Increased efficiency
Owning the franchise lease Reduced costs
Regular refresher training Increased efficiency
Appendix 6: Cost Benefit Analysis – tiered lines of credit
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To better understand the feasibility of the tiered lines of credit proposal, we must perform a cost-benefit analysis for this approach. We will begin by listing the costs, and the underlying assumptions supporting these costs. Then we determine a dollar value for a year for each of these costs.
Once the costs are understood, we will also need to list the benefits as well as their underlying assumptions.
Costs: Take an example of a $1,000,000 credit facility. Currently one can expect a deposit of 80% for the average Econet franchise in Zimbabwe’s environmental context. However stronger partners with a history of desirable practice may quality for a 60% deposit, and this is what we will use for this example.
Cost Item Detail Cost in Y1 Cost in Y2 Total CostOpportunity cost
The opportunity cost of not using this to invest in other areas.Assume current investments expect a 5% return.
$30,000 $12,000 $42,000
Risk/exposure The risk/exposure of franchise owners defaulting on their payments (less 60% deposit)
$240,000 $0 $240,000
Capital cost The cost of the capital to fund the credit facilityCurrent corporate financing averages 12% per annum
$72,000 $28,800 $100,800
Total cost $342,000 $40,800 $382,800
Benefits:
Benefit Detail Y1 Benefit Y2 Benefit Total BenefitIncreased sales from stock
Making available more device stock to the market, to drive sales/revenue through financingExample store that sells 1000 device sales, with an average price of $600 per device. $600,000 worth of device sales per month (e.g. Batlet Long Chen)Assume 10% increase in sales for 20 months (1 and 2/3 years), until stocks run out
$360,000
$240,000 $600,000
Improved operating conditions
Allowing franchises to stock more than their capital reserves allow, removing this constraint from sales
See above
Improved relationship
Improving the partnership with our franchisesAssume improved customer careAssume minor increase in sales
Intangible
Reduced load on Econet shops
To reduce the congestion at Econet owned shops, and the pressure to meet the demand for the whole market. Assume a reduction in 2.5%
$29,000 $29,000 $58,000
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of staff costs (or one member of staff) across 3 main town stores (Herbert, Joina and Econet House)
Interest rate Econet to negotiate preferential interest rates for customers with their own Steward Bank, assuming 12% interest rate
$43,200 $28,800 $72,000
Total benefits
$432,200 $297,800 $730,000
Analysis conclusions:
From the above analysis, it is evident that aside from the risk/exposure to defaulting, the costs of this recommendation are relatively low, totalling to $142,800 for every $600,000, which comes to 24%
The benefits are mainly accrued from increased sales, however, the reduced staff costs could prove to be a sizeable benefit for Econet in the long run, especially if this financing offer gets extended to multiple franchises.
The analysis shows that the payback time for Econet should take 20 months from the below calculation
$600,000 total loan amount / 30,000 increase in sales per month = 20 months (1 year and 2/3 months)
The outcome of the analysis shows that the benefits outweigh the costs, as shown below:
Year 1 o $432,200 benefits - $342,000 costs = + $90,200 total benefits.
Year 2o $297,800 benefits - $40,800 costs = + $257,000 total benefits.
Totalo $347,200 benefit
Implementation plan:
Analyse the current credit line offerings and security requirements (2 weeks) Analyse all franchises history and sales patterns (1 months) Categorise existing franchises based on prior history (2 weeks) Define a tiered system for extending lines of credit (3 weeks) Negotiate terms with existing franchises, and define contract terms (2 months) Create a cash flow provision credit facility (1 month)
o Corporate finance to secure funding if cash flows do not permit (3 months)
Agree and signoff terms (2 weeks)
Total timelines (including corporate finance): 37 weeks (approx. 9 months)
Total timelines (excluding corporate finance): 25 weeks (approx. 6 months)
