The Impact of Technology on Franchising: Uber Yourself Before you get Kodak’d
While the concept of franchising remains sound, what worked in 1950 to through to the 2000s may need revision today.
All sorts of industries are being disrupted in the second decade of this century – in fact some (like music) are already going through their second or third iteration of disruption. While it’s fashionable to think of businesses like video rental stores or vinyl record stores as being the victims of technological change, the reality is most of the businesses we think of as being dominant today can overnight go the way of the dinosaur as a result of advances in technology that are happening right now. Advances such as 3D printing, Uber, Airbnb, driverless cars, drones, crypto-currencies such as Bitcoin, mean that ways of doing business for a host of industries is on the cusp of change – and few franchise systems will escape its impact.
Fourth industrial revolution
We are entering what is commonly termed the fourth industrial revolution,
- The first having been Energy (steam followed by electricity);
- The second Mechanisation (Ford’s ‘you can have any colour as long as it’s black’);
- The third computerisation, culminating in the laptop; and now
- The fourth is now the Internet of Things.
This latest industrial revolution finds its apex in the trend for entire industries to be ‘disrupted’ by a complete outsider – such as is the case with Uber in transport, Bnbair in hospitality and now restaurants, Google in the automotive industry.
Companies typically keep an eye on their competitors, but the reality of this Industry 4.0 as it is termed, is that your future competitor will come out of nowhere, and by the time you’ve spotted him it will be too late – your whole business model will already be disrupted. Just ask taxi drivers and hotel owners.
The usual recourse – as we already see in South Africa in the case of Uber – is for traditional industries to seek protection from regulators. In fact, there is no greater give-away sign that the disruptive technology is unstoppable because consumers have already embraced it.
Deloitte professional services firm are leaders in the study of these disruptive technologies and argue that the only way to protect your market share is for you to establish your own R&D arm, focused not on the current business, but looking at future ‘way out there’ technologies. They cite the case of one Israel firm who did this and so evolved from manufacturing umbrellas to making drones.
Companies which fail to take steps now to address their potential for disruption are in effect “sitting ducks”. Disruptive technologies by their nature will happen whether or not you like it, whether you are prepared for it or even consider it fair. The bigger fear is not the disruption, that’s coming, it’s rather the consequences of not transitioning. Companies at this very moment must be learning to adapt as a business, but also looking at their innovation eco-systems to ensure their people are not left behind.
Which industries may change
Within a mere five to ten years, certain industries employing tens of thousands of people – from clothing manufacturers to car dealerships – will start disappearing from the South African business landscape in the face of technological advances. Here are some sectors at risk of disruption:
1. Fitness – Over the last few years, fitness franchises have boomed around the world. From apps to wearable calorie-trackers, the future of fitness franchising is tied to tech. Here are four ways that technology is forever changing the industry.
- Members’ eyes are glued to their smartphones. From calorie burning to motivation pushing, there’s an app for everything in fitness – and gyms are working to get in on the game.
- Classes can be ‘cloned’ more easily, offering standardised quality.
- Equipment is getting fancy
- Wearable tech is being eyed as the ultimate fitness tracker
2. Retail – Following the global trend, the omni-channel strategy has witnessed widespread adoption with internet and mobile retailing having emerged as the most dynamic channel within Africa’s retailing market, albeit from a base of just 0.59% of total retail sales in South Africa in 2014. In the last Black Friday in the US, for the first time more goods were sold online than in-store. See retail franchises here
3. Healthcare – Based on international trends, South Africa’s next generation healthcare delivery system is anticipated to take monitored care into the homes of outpatients and to provide a more patient centric approach. South Africa is already being propelled into the digital health age by the increasing take-up of mobile health via increasing use of smartphones among clinicians and patients. Banks, anticipating disruption of their own industry, are among the leaders of the advance into healthcare, and this is anticipated to ultimately drive down the cost of healthcare as a percentage of GDP. See healthcare franchises here
4. Agriculture – it is estimated that, through technological innovation, the Internet of Things (IoT) has the potential to increase agricultural productivity in Africa by 70% by 2050 – exactly the figure by which demand for food is set to increase based on population growth. This is according to a Deloitte report on the impact of IoT on agriculture, titled Dirt to Data: The second green revolution and the Internet of Things. Agriculture, for all its earthiness, is a high-tech industry in most regions of the planet, with technical innovation and data analysis the reasons why food production has been able to keep pace, more or less, with the world’s rapid population growth from three billion in the late 1960s to an estimated 7.3 billion today. Technologies such as advanced sensors and monitoring equipment can now allow farmers to monitor crops more precisely and continuously, thereby enabling more strategic decision-making to increase productivity with reduced impacts on the environment, thereby doing more with less.
5. Financial services/banks – within 5-10 years the very concept of a physical branch will be obsolete. Without need for a physical infrastructure, many more virtual banks can open.
6. Food franchises – demand for restaurant meals has already been disrupted my Bnbair, but almost any app presents the opportunity for this highly fragmented industry to be affected. See food franchises here
Here are some broad trends any franchise system needs to keep its eyes on:
- Innovation – should companies be focusing on cost containment or developing new markets?
- 2016 was predicted as the year companies would become remote-friendly, or even built to be mobile from inception
- Everything on the consumer Internet is easy to use, everything inside the company is hard to use – that has to change
- What companies are doing to transform themselves in preparation for a tough future, and their need to become more nimble and virtual