As with many businesses across franchise businesses which span many sectors from retail to hospitality, care and leisure, AI is being embraced as a way of improving business performance and efficiency and to counter the increasing costs of running a business.
Vitally in franchising it is also a useful tool to employ in ensuring consistent adherence to the model by the network.
What concerns about AI are particularly prevalent in franchising?
Franchising is all about the brand and proprietary materials and systems which it is vital the franchisor owns or has exclusive rights to. Where AI is used to create content, logos, manuals, designs, software, systems etc, AI is the creator per se, which then begs the question as to how the franchisor derives ownership rights which it can then grant licenses to others to use. This may result in franchisors that use AI to create content inadvertently divulging proprietary elements of their business which then may become generally available and/or sampled or replicated for others.
Likewise, the veracity of data and/or information supplied by systems such as chatGPT has been called into question. Therefore, when used to create content that is required to be accurate, such as territory maps and boundaries to denote exclusive areas granted to third parties, unintentional boundary overlaps etc can happen.
Franchise businesses are using AI tools that are potentially involving the business in the unlawful processing, sharing and storage of personal data by businesses. This occurs, in particular, when AI is used for notetaking purposes in meetings with prospects, franchisees or head office staff. Expedience and convenience is a given, but what is that data then being used to do by the chosen AI tool and where is that information stored. Do franchise manuals and client/customer contracts, or head office team contracts and policies, contain clauses that clarify how personal data will be used in this way or potentially exported outside of the UK?
How should franchisors (or franchisees) respond to the AI opportunity and challenge?
Franchisors should clarify with third party contractors that are creating proprietary systems or IP for them, how it is being created and to what extent AI is involved. That way IP ownership issues can be identified from the start. We are also urging caution when using AI in the business or as a means to police the network that appropriate notification and/consents are used. There is a clear need to balance the risks of using AI with the expediency so that a considered approach is taken.
By way of illustration, there is widespread use of AI note taking systems without full understanding of the sensitivity involved in using such systems to record conversations that involve the disclosure of personal data.
Brand owners are also involving AI in recruitment processes that use AI to garner profiles, the veracity of which is open to challenge. With historic systems denoting bias in interpretation of the data, caution is urged in using such systems as the only decision tool.
The key point is to identify the use cases for AI and to identify and manage the risks. Those using AI in the network need to have training to ensure that they understand the pros and cons of doing so, and shrewd franchisors will want to ensure such use does not result in issues concerning the confidentiality of the proprietary elements of its system. This means robust policies are needed in operations manuals to address this issue.
From a franchisee perspective we are also advising that businesses consider adopting policies regarding the use of AI and mandating at least that verifiable types are used (eg chatGPT).
There are also nuances specific to certain sectors to consider, for example, care and other regulated sectors, where heightened data protection concerns are prevalent as this concerns the processing, sharing and storage of sensitive medical personal data.
Finally, the use of AI in the UK is yet to be regulated which means that it is currently open season, and anything goes. This is both a huge risk and opportunity for those in the franchise industry, but it is unlikely to last long. With both the EU and the US implementing legislation to regulate the use of AI and address some of the risk areas identified in this article the window of free rein is likely to close soon. Businesses should be mindful of strategies or processes reliant on AI technology whose use may become restricted imminently.