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Artificial intelligence (AI) is transforming business.
Sophisticated franchises are using it to create efficiencies and
Businesses are using AI more than ever before. In a recent
workplace survey of 13,000 people across 18 countries, 50% of
respondents said their company was using AI – up from 22%
just five years ago. Businesses are also using AI in an ever
increasing variety of ways. In another survey of business and
technology executives, the most commonly cited uses for realizing
value with AI were increased productivity through automation,
improved customer experience, and improved decision-making. These
experiences can also enhance and present significant AI
opportunities for franchise businesses. However, because the legal
and regulatory environment remains largely underdeveloped,
franchisors should be aware of the potential risks as well.
What is artificial intelligence?
The first AI computer program was developed in the United States
in 1956 by three researchers working for the RAND Corporation. The
program, called the Logic Theorist, was designed to mimic human
problem solving skills and was presented at an influential
conference at Dartmouth University that same year. One of the
organizers, John McCarthy, is widely credited with coining the
phrase “artificial intelligence” and the
conference would prove to be a catalyst for significant
research into AI over the following decades.
Through the 1960s and early 1970s, research into AI benefitted
from funding from US government agencies but struggled due to the
limited computational power available at the time. The next burst
of research activity came in the 1980s, which saw more innovation
and significant funding from the Japanese government. The 1990s and
2000s saw more advances, such as when IBM’s Deep Blue
computer program beat a chess grand master. AI technology became
more mainstream in the 2010s with the release of Apple’s Siri
and Amazon’s Alexa voice assistant programs.
Artificial intelligence is an umbrella term that refers to an
application or machine that mimics human intelligence. Machine
learning is a subset of AI and describes a machine or program that
is trained on existing data to find patterns, make predictions, or
perform tasks when given new information. Deep learning is a
subcategory of machine learning that uses machine learning
algorithms, but structures them in layers to create artificial
neural networks modeled after the human brain.
In November 2022, San Francisco-based tech firm OpenAI released
ChatGPT – an AI tool that users can interact with
conversationally and prompt to generate text. The ability to
generate new content is one of the attributes that sets generative
AI apart from previous AI technologies. ChatGPT was an overnight
success and amassed more than 100 million users around the world
just weeks after launching. Investors quickly took note, as
significant venture capital poured into startups focused on
Opportunities for franchise businesses
Franchise businesses can use AI in various ways to streamline
their operations. A key use case already being implemented by many
franchisors is automation. AI chatbots – programs that use AI
and natural language processing to understand and answer customer
questions – are a common feature of many websites. However,
certain fast food franchisors are taking the concept further and
have been experimenting with using AI to take customer orders.
McDonald’s has been a leader in this area. It acquired an AI
company in 2019 and introduced its first automated restaurant this
year. Franchisors in other industries are also using AI to automate
the customer experience. Hilton Worldwide’s collaboration
with IBM on an AI concierge service is an example.
Operations and human resources
AI can help franchisors create more effective standard operating
procedures customized to the individual franchise owners and
locations. Franchise businesses can also find efficiency with AI in
the recruitment process. Human resources is a time-intensive
business function and AI tools can be used to save time on
analyzing cover letters and resumes.
Marketing and customer service
There are several applications for AI in sales and marketing.
Franchise businesses in the retail sector can utilize AI tools to
provide pricing recommendations. AI can analyze transactional data,
competitive price data, marketing data, and other factors to
simulate pricing scenarios and create actionable recommendations.
Many franchise businesses are also using AI to improve customer
service. For example, many franchise gym businesses such as F45 and
Orangetheory use AI software developed by MINDBODY that uses an
extensive fitness industry customer data set to better serve
While AI presents many opportunities, franchise businesses
should also be aware of potential risks. The legal and regulatory
landscape for AI in Canada is still largely underdeveloped. One
area to monitor for franchise businesses relates to privacy. Under
existing law, the federal Personal Information Protection and
Electronic Documents Act (PIPEDA) sets the rules for how businesses
must handle personal information in the course of commercial
activity. AI is able to produce responses to user questions by
learning from the data that is available to it. If AI is provided
personal information, including names, locations, buying patterns,
and other identifying information, AI may inform decisions that
pull sensitive information and use it to analyze and predict
patterns and behaviours of its users. Businesses that use AI in
their operations should be aware of their obligations under
the Act if personal information is used.
The law related to artificial intelligence in Canada will
continue to evolve. Allowing AI to access sensitive data related to
its users may impact individuals’ fundamental privacy rights,
as well as impact business decisions relating to fairness,
accuracy, bias, and discrimination – all of which the
Canadian Government is reviewing and amending various privacy laws
as necessary. Currently, Bill C-27 completed its second reading in
the House of Commons on April 24, 2023 and will go to review at the
Standing Committee on Industry and Technology. If passed, it would
replace PIPEDA with new legislation including specific rules for
AI. Franchise businesses that are interested in adopting AI
technology should monitor developments with changing privacy
legislation and position themselves for compliance going forward.
Failure to comply with federal privacy laws may have far-reaching
effects that outweigh the benefits that AI can generate.
The business risks of being on the wrong side of AI are real. In
May 2023, a publicly traded education technology company admitted
on an earnings call that ChatGPT was starting to negatively impact
sales. The stock dropped 50% the following day. What franchise
businesses cannot afford to do is ignore this technology. AI
presents franchise businesses with significant opportunities to
unlock value. Through automation, franchisors can allocate human
capital more efficiently and insights and recommendations from AI
can enable more effective sales and marketing strategies and allow
for improved customer service. Franchise businesses should embrace
these opportunities, but proceed with caution and due
Originally published by Canadian Franchise magazine
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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