Managing Changes to Franchise Operating Systems

A business preparing to franchise needs consistent systems, but that does not mean those systems must never change. Replacing point-of-sale software, upgrading equipment or adjusting service processes may become necessary after franchisees join the network. Before offering a franchise, business owners need to establish how changes will be decided, communicated, funded and implemented. Within a franchise network, a predictable process helps maintain standards while ensuring fair treatment of franchisees.

1. Distinguish routine updates from material changes

Start by classifying changes according to their impact, rather than the label head office gives them. An update described as a “minor adjustment” can still place a burden on franchisees if it requires new equipment or interrupts service.

Use the following three categories as a framework for your internal policy:

• Routine updates: clarifying work instructions, changing report formats or improving the sequence of checks without significant investment.
• Material changes: replacing core software, requiring equipment purchases, changing outlet layouts or adding tasks that increase operating costs.
• Urgent changes: action to address safety hazards, system security issues or legal obligations that cannot be delayed.

These categories are management tools, not classifications specifically established by franchise regulations. Assign responsibility for assessing the impact of changes and set an approval process for each category.

For example, updating instructions for using the point-of-sale system may be treated as a routine update. Replacing the software with a subscription-based system that requires new equipment, however, should be assessed as a material change. This distinction determines the consultation, preparation time and cost-sharing arrangements needed.

2. Define the limits of authority in the agreement

The principal legal framework for franchising in Indonesia is Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It establishes a business system and ongoing support as part of the criteria for a franchise. Franchise operations are based on an agreement under which the parties have equal legal standing and Indonesian law applies.

The need to maintain a business system should not be assumed to give franchisors unlimited authority to impose changes on franchisees. Before recruiting franchisees, ask a legal adviser to align the update process with the rights and obligations set out in the agreement.

Address at least four points:

• The types of standards the franchisor may update by giving notice.
• Changes that require discussion or the parties’ written agreement.
• How responsibility for capital investment and recurring costs will be determined.
• The procedure to follow when a franchisee can demonstrate difficulties with implementation.

Avoid relying on broad wording such as “franchisees must comply with all latest policies” to cover every situation. If an update affects agreed rights or obligations, assess whether an addendum is needed; do not simply amend the manual.

Government Regulation No. 35 of 2024 also requires the franchise offering prospectus to be provided at least 14 calendar days before the agreement is signed. Explain the update policy and any potential related obligations at the offering stage, rather than after the franchisee is bound by the agreement.

3. Assess the impact before issuing instructions

Every proposed material change should be supported by an impact assessment. The aim is not to create lengthy paperwork, but to ensure that benefits to the network do not come at the expense of overlooked burdens on individual outlets.

Record the reason for the change, the problem it is intended to solve, the available alternatives and the consequences of postponing it. Then calculate what each outlet will need: equipment, installation, subscriptions, training, additional staff and any potential downtime.

When replacing a point-of-sale system, for example, the cost extends beyond buying equipment. Franchisees may need data migration, adjustments to sales reports, a backup internet connection and support during the switch. Check how historic transaction records can be accessed once the previous system is discontinued.

Be transparent about how costs will be shared. Franchisors may consider installation assistance, a phased rollout or allowing existing equipment to remain in use where it is still compatible. These options are commercial decisions that must be consistent with the agreement, not automatic entitlements for either party.

Pilot the update on a limited scale before making it compulsory across the network. Document any disruption identified and the improvements made. Pilot results help establish a realistic implementation timetable, but should not be treated as a guarantee that every outlet will achieve the same results.

4. Give notice and complete the process with a review

A change notice should answer practical questions: what is changing, why it is necessary, who is affected, when it takes effect and what support is available. Include a breakdown of costs and the actions franchisees must take.

Set the preparation period according to the complexity of the change and the contractual arrangements. Do not present an internal deadline as a statutory one. For urgent changes, explain why an accelerated timetable is necessary, what interim measures apply and when the change will be reviewed.

Provide a single channel for questions and keep a record of responses. If several outlets encounter similar difficulties, review the proposed change before concluding that franchisees are failing to comply. Distinguish unwillingness to implement a change from problems with equipment, skills or operational capacity.

After implementation, check that the system works, staff can use it and costs are in line with estimates. Retain notices, approvals, training records and review findings so that future decisions have a clear basis.

Practical step: before offering a franchise, prepare a one-page change policy and align it with the agreement. Make sure every update has a clear rationale, an accountable lead, a cost allocation, a preparation period and a review process that franchisees can understand.