Know-How Exchange : Strategy

It may depend on how much control the parent company wants over the individual locations. If they want to let the local "owners" run their own shows and simply have a loose affiliation with the parent, then licensing would seem more appropriate.

If, on the other hand, they want to have strict control over the appearance of the locations, the methods and procedures, etc., then a franchise arrangement would seem more in order.

There are probably a few legal considerations too, but since I'm not an attorney I can't (and won't) comment on those. In my experience licensing is somewhat more straightforward and easier than franchising ... but maybe that's just a function of the specific experiences I've had, and not inherent in the two forms of business relationships.

What you buy with a franchise is consistant processes. Everyone looks the same, delivers the service in the same way. Included in the fee is any equipment, again consistant in every location. Usually there is a residual payment on sales-- which would pay for the call center.

For a licensing example-- I am licensed to deliver a couple seminars. I can do it any way I want. All I have to do is pay my renewel fee.

I think franchises (to the franchise) is one of the most lucrative of businesses. Think of it-- you buy a Quizno's and you pay for everything upfront- before you get a single paper cup.

So it will depend on how complete a package is. if they are delivering a turnkey business -- franchise. If they are only providing a process-- license.

Puzzled by your question. The employee goes to a facility and the facility performs a service. Surely you mean the employee performs a service, otherwise you do not need the employee.
How is the service paid for and how much control do you want to keep over the employees and the transactions?
If you are planning a call centre it appears that you want a say in what goes on, and to monitor and control quality, response time, costs, possibly many other aspects.
Licensing may not give you the control you need, as many licence holders think they are running their own business (they are), not a branch of yours, and therefore a franchise model might suit better. You can determine the exact procedures you want, the marketing methods, feedback, costs, commissions etc. It might be more expensive to set up initially, but you will recoup all of this with the franchise fee, and possibly many franchise fees.
Consider setting your fees at a level to attract the first new entrants and if successful rewarding the early entrants by raising franchise fees for the later joiners.

Randall, this sounds to me like a franchise model.

A license implies more of an "intellectual property permission" idea. You have some intellectual property, say, a molecule you have developed. I see merit in it for my own commercial purposes, and would like to use it. I pay you, usually in a two-part tariff (a fixed component and a variable rate per unit or dollar amount), and you don't have too much to say about what I do with the molecule. You may license it for a particular application or industry, but you may not control its use very directly. For that reason, it's often an advantageous model to use when you want to enter a foreign market. You give up some control, perhaps some consistency (at least, between the US and foreign operations), and avoid a lot of cost, with the foreign licensee handling advertising execution and product customization, as well as legal and other local matters.

In a franchise, consistency within the served market is a key, as Carol points out. Your advertising and other mix elements won't work well without it. To maintain consistency, you specify exactly what is provided in the way of product or service, and how it is performed. You also probably specify a more tightly-defined territory, and you may require of the franchisee the purchase of uniforms, equipment, and consumables. You may also require timely response or hours of operation, and you may require a contribution to advertising and other promotional efforts. You may require ongoing training and certification classes, which may not be costless to the franchisee.

If control is important to your client, look a long way down the road. You need to think from the start about the relative power in the value chain of franchisees and the franchisor. It may not be relevant in a service model, because perhaps the franchisee has to be there, physically, for the service to be performed. But here's what I'm thinking about. If you don't limit the number of locations franchise holders may own, you can end up over time with a smallish number of extraordinarily powerful franchise holders--Pizza Hut franchise holders, for example, own multiple locations each, and the home office has to treat them with considerable deference. If you limit the franchisees to a small number of locations, you have to find and cultivate more franchise holders, which is hard, but your reward may be that none of them individually can exert much control over the franchisor.

Regards,
jn