November 2007 Franchising World

Success in ensuring and building your brand can be achieved through the compliance/quality audit process.
By Kathy Larson

The mere mention of the word “compliance” conjures a vision of men in laboratory coats with clipboards inspecting a factory. Announce an audit and it creates gut twists, a rash of prayers for survival, and irrational fears that someone might uncover an unknown that could bring everything tumbling down.

Franchise companies deliver compliance audits on a regular basis and more frequently if problems are uncovered. The compliance or quality audit process can be one of the greatest tools for successfully ensuring and building the brand.  There are some great audit processes that are designed to help the franchisee grow revenue and operate better. And there are others that add little or nothing to the value of the brand.

So how does one transform an audit process from a necessary evil to a collaborative process that helps grow the system?

If one wants the audit process to reinforce and grow the brand, he needs to clearly understand the brand and the elements that define it.  There have been several articles in Franchising World and elsewhere that describe defining and growing the brand.  Remember them as the audit is designed. 

Incorporate the key elements of the brand.
What often happens with the compliance or quality audit is that it gets relegated to a junior person or added to an already extensive task list or outsourced to a company specializing in compliance.  Everyone knows what goes on a compliance checklist, right?  There is a cleanliness section, a service section and a quality section.  If the concept serves food, there is a safety section.

Wrong.  This is your brand being discussed.  Compliance is part of the DNA of any brand.  It is critical that the audit process reinforces and grows the brand.  Don’t take some audit that was used five years ago and apply it to the concept today. Do it right.  Start by deciding which behaviors and characteristics are important to the business.  Then design the audit form to measure them.  Sure, they will include such standards as quality, service and cleanliness.  They will also include indicators of how well employees are being managed and how healthy the culture is.  They should include indicators such as business management and customer satisfaction. 

Link the audit directly to key indicators of success: profitability, employees, customers, operations broken down into the measurable elements such as revenue and operating efficiency, employee attraction, retention, and training, customer attraction and retention, procedural compliance, waste management, and inventory management.  Does the brand know what its customers care about?  Too often organizations will place emphasis on things that really don’t matter to the organization.

The best quality or compliance audits are designed not only to ensure adherence to the model, but also to drive and inform improvement and growth. Establishing clear goals and results for the audit is an obvious first step, correct?  If one asks most franchise systems, the goal is to make sure franchisees are following the model.  Following the model is part of it, but the real goals should be improvement and growth. By tweaking the focus of the audit, the brand can use it to identify problems or shortcomings in the model and opportunities to improve the model.

Once the process is established, it runs itself.  This is especially true if the brand uses technology to deliver and manage the process.

Keep the audit simple.
One of the most common mistakes is to make the audit itself too complex.  Consider this situation: an audit form was extremely long with complex weighting and multiple pages.  There was only one person in the system who understood how it worked. This defeats the purpose.  Franchising is about making success more predictable.  The compliance audit is designed to help with this.  Keep it as straight forward as possible.  It shouldn’t be a “gotcha” process.  
•   Measure the items that make a difference. 
•   Make the rules and weighting understandable.
•   Publish the audit so franchises can prepare and ensure success.

Position the audit to demonstrate commitment to franchisees’ success.
The best audits aren’t called audits. Even the name one gives the audit process should reinforce the brand. Call it a “business review” or a “value builder” or something that conveys the commitment to help each franchise location improve performance by remedying the little things, optimizing operations and maximizing profits. 

The compliance audit can either serve to build greater trust between the franchise company and franchisee or to break that trust. No franchisee wants their business to fail.  Use the audit to establish trust that the brand is there to support franchisees and help them grow their business, not beat up on them.  Yes, franchisees must follow the model.  They should want to follow the model. If the model is flawed, the compliance audit should help point out where improvement is needed.  The audit should help expand the system to the benefit of everyone involved.

Focus on improvement not punishment.
Many audits are punitive. Perhaps a certain percentage of franchisees should fail the audit to ensure that the audit is tough enough…like grading on a curve.  Thirty percent of the group passes with high marks, another 50 percent squeaks by with a passing score and the remaining 20 percent fails. There is logic to making sure that the test is not too easy or too difficult.  As a strategy for a franchisee audit, however, it is unwise. Performance and results are no longer predictable. The focus shifts from improvement to test-taking strategies. Most people have been trained from grammar school to “give the teacher what he/she wants,” regardless of whether we learn anything or change our behavior.  The audit should be a constructive tool not a destructive hammer. 

Passing and failing should not be subjective.  Try to create a culture of continuous improvement in the brand. Audits can do a great deal to either build relationship or deteriorate trust. It is always easier to remediate a situation when the relationship is intact.

Remember, the more successful the franchisee, the larger the royalty check.  If the franchise system can improve each location’s performance by 5 percent, what would that mean to the value of the entire system? 

Address both high- and low-performing locations.
What if at least 10 percent of the locations are high performing?  So what does the audit do for them?  They pass it with flying colors every time.  Sure, there might be the occasional empty toilet paper roll in the ladies restroom, but for the most part, these locations are managed well and making money.  So what value does the audit process bring them?

Identify opportunities for improvement and drive greater performance in both the highest- and lowest-performing franchise locations.  For those at the lower end, improvement may include keeping restrooms clean and shelves arranged neatly. In others, the goal is to attract more customers. Think about how the franchise company can help these top performers perform better.  Can the brand identify additional growth avenues for these performers?  Can the brand identify best practices among the top performers and incorporate them into the model? Can more locations fit into the high-performing category? Drive greater value into each franchise location regardless of where on the performance curve that store lives.

This approach makes the value to the franchisee explicit. Top performers sometimes feel that the system is actually holding them back. These beliefs will affect performance and harm relationships. Avoid breeding contempt among the system’s top performers.  Relationship issues always affect the brand. 

The audit may also help identify ways to evolve or improve the existing model.  High-performing stores clearly are doing some things right.  The audit should be designed to capture best practices in the field.  Keep it flexible so that the audit process can incorporate best practices as they are identified.

Provide action-planning areas for remediation.
Each audit should provide a specific action-planning process that allows the location to pinpoint opportunities for improvement, create an actionable plan, and track progress.

The action-planning process should allow franchisees to create clear plans.
•   Identify the goals for both poor–and high–performing locations.
•   Goals should include both current state and future growth.
•   Establish a score card for the organization.

Connect the dots.
Remember the adage, “Don’t bring me problems, bring me solutions?”  Provide tangible tactics and strategies for corrective action instead of just responding with negative results.  For each area of the compliance audit, the operational procedures or training resources should be linked to provide clear direction for improvement.

The audit is designed to test performance in the key elements of the brand and success.  Training is designed to train the key elements of the brand and success.  Operations manuals enable those same key elements to be put into procedures.  Make remediation simple by linking the audit results to actionable elements of the training and ops manual.   Making the connections may seem overwhelming, but that is the beauty of technology.

Use the right tools to assess and deliver results.
Paper-based assessments are easy to use. One just prints them, marks them up, faxes them into corporate, and hands them over to the franchisee.  Then someone at corporate enters them into some kind of system or spreadsheet, so participants can see how people are doing.  And the field representatives follow up on particular areas that need attention.  Then reports can be run to see if there are trends that need to be addressed in particular regions or across the system.  All this activity is very time-consuming.

Technology can save a great deal of time and effort in capturing, tabulating and reporting on results.  When it comes to audits, technology is a friend.  One can sign up with a service that manages the results, provides access on mobile devices and through the Internet, and provides the ability to edit and manage the audit. Use technology to:

•   Manage the audit form
Creating the form, making changes to reflect the evolving model and creating links between results and remediation is greatly simplified by using technology.  If the brand has operations procedures and training modules stored in a database, it can create the links and when those materials change, the links remain intact.

•   Monitor progress in real-time
The company should be able to view a dashboard at a glance that shows who is performing well and who needs help. Managing the progress and improvement should be transparent for everyone involved.

•   Report
Monitoring trends to identify the source of problems across the brand and possible system-wide corrections becomes significantly easier with technology. Let franchisees view their own results.  Make the process as transparent as possible. Some franchisees request audits or conduct self-audits to improve their businesses.

•   Conduct the audit
The technology for using handheld devices has come of age.  It is now quite simple to conduct a quality audit, or at least the onsite portions, using a Blackberry or a Palm Pilot or even a laptop computer.  The field representative can move down a checklist and score the different elements.  Numbers that are pulled from other systems can be available over the device for discussions.  Results and calculations can be ready on the spot.  

The bottom line is to consider the compliance or quality audit as a key element in maintaining and growing the brand.  

Kathy Larson is vice president of business development with Franchise Roadmap powered by Xegy.  She can be reached at 303-302-1186 or kalarson@xegy.com.