Value-Creating Franchises and Licenses

Professor Dennis Gayle
UCC Executive Chancellor

When a franchisee or licensee decides to agree upon a new venture with a franchisor or licensor, such an agreement is driven by an assessment that the input involved in putting the franchisor’s or licensor’s intellectual property and brand to work in a new environment will create significant new value.

An analogy might be the purchase of seeds to be carefully planted in fertile, correctly sloped land, with sufficient sunlight, to be watered and protected from marauding insects, until maturity.

But what are the prerequisites for success, from the perspective of an intending franchisor or licensor? Could an institution be too small for the purposes of an international franchise? Actually, once such an institution is able to reap economies of scale and scope, accompanied by an established brand, the factors that determine success include committed, visionary leadership, and sufficient funds to prepare for, and market the franchise or license internationally.

At the core of the franchise process is a set of systems, based on standard operating procedures that can be followed, or replicated, by teams seeking to create expected outputs and outcomes. Quality assurance is a critical component of each procedure, which can be intentionally varied, within pre-determined limits, in order to take account of institutional environment changes.

Where franchises represent the use of intellectual property, a brand(s), and standard operating procedures (SOPs) across an institution, or group of institutions, licenses are more limited, focusing upon aspects of what otherwise might be a franchise. Value-creating franchises and licenses harness the power of a brand, expressed in terms of wordmarks and logos, to intellectual property, and SOPs, so as to meet effective demand, and to delight institutional customers.

The collaborative provision of education represents an increasingly important form of franchising and licensing, where an accredited higher educational institution, such as a university, decides to create an agreement with a tertiary education institution, such as a college, institute or center, without accredited programs in the desired disciplines, or at the desired level(s), at an agreed cost, typically including fixed fees and royalties.
Where both institutions agree that the projected outcomes of the franchise or license are beneficial to both, and that the inter-institutional arrangement should be articulated in a written and executed instrument, this becomes an expected value-creating collaboration.

To recapitulate, a company seeking to expand may decide to use another company’s successful business model and brand name, to operate an independent branch of the company. Where this arrangement assumes the format of a franchise, the franchisor maintains significant control over the franchisee’s operations and processes, but also provides support and training in areas such as branding and marketing support, as well as in implementing standard operational procedures.

In the case of a licensing arrangement, a company may sell usually non-exclusive licenses to typically smaller companies, allowing the use of intellectual property, brand, designs or programs. The licensor normally controls the way in which its intellectual property is used, but does not control the business operations of the licensee. Where a legal framework exists, franchises are often governed by securities law, and licenses by contract law.

Where franchising or licensing is applied to collaborative education provision, both parties should implement due diligence procedures, to ensure that offers made, and considered for acceptance, are based upon positive track records and reputations, including program or institutional accreditation, on the part of the franchisor or licensor, and access to an appropriate, dedicated location, a viable market, expressed in terms of effective student demand, and sufficient investment capital, for the purposes of the project at hand, in the case of the franchisee or licensee.