C’mon, You Don’t Really Need All That Money, Do You?

Written by Todd L. Michaud
November 18th, 2009

Franchisee Columnist Todd Michaud has spent the last 16 years trying to fight IT issues, with the last six years focused on franchisee IT issues. He is currently responsible for IT at Focus Brands (Cinnabon, Carvel, Schlotzsky’s and Moe’s Southwestern Grill).

Who doesn’t love the fall season? The leaves are falling off the trees, football season is in full swing and budgets are up in the air. What would the fall season be if it weren’t for questions like, “Can’t you just squeeze it in?” or “Can’t we just do that in-house” or my personal favorite, “Do you really need all of that money and all of those IT people?”

As at most companies, my past several weeks have been largely focused on preparing our budget for next year. There are three major challenges that a franchisor faces when creating an IT budget: Franchisees are not involved in the budget process; a franchise chain has additional responsibilities over and above a traditional IT shop; and in many companies, the budget process (and the associated project prioritization process) is broken.

Challenge #1: Franchisees aren’t involved in the budgeting process.
Maybe franchisees are involved in some chains, but in my experience the yearly budget covers only the expected corporate IT spend. I believe most chains look to prove out any expected franchisee spending through business case presentations or “sell-in” meetings. Those meetings often start with a statement like: “We are proposing moving to a new POS platform and here is the business case that outlines the costs and benefits of this new system.”

Although that approach is good, I believe each franchisee should have an expectation of a yearly allocation of dollars toward IT spend. Large, up-front purchase costs make the spotlight in the pro forma (due to the size of the expense), but the ongoing expenses often do not. I can’t tell you how many times franchisees have complained to me that they had no idea that their IT systems were going to cost so much to maintain.

Another part of the equation is that I do not believe many franchisees plan their IT spending in advance. Even if a franchisee isn’t directly involved in the process of determining what will be done each year, I think it is important that they allocate some amount of spending for IT systems. “I am going to budget about 1.2 percent of my sales for IT costs. I know that it will cost me about 0.7 percent of sales to support my existing IT systems. Based upon experience, I expect the chain and franchisee leadership body will propose additional IT systems that will cost another 0.5 percent of sales.” Or how about: “I understand that the average lifespan of my IT systems is about 5 years and, because my POS is that old, I should plan on having to purchase new equipment this year.”

I believe franchisees should plan their spending in this fashion. The chain’s leadership should educate their franchisees on the reality of IT spending within their system and help franchisees plan their IT spend for the year, even if no specific projects are planned or business cases presented. This way it is not as much of a surprise when that sell-in meeting happens.

Challenge #2: Franchise IT groups have additional responsibilities over and above their enterprise peers.
When it comes to setting IT budgets, most companies try to benchmark IT spending as a percentage of revenue. Companies often use this metric to gauge whether their IT spending is appropriate. Depending on which analysts you speak with, and what spending is classified as “IT,” most companies spend between 1 percent and 5 percent of their revenue on IT projects.


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