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Family Owned Business - How They Manage To Thrive?

June 17, 2020

Emergnce Of Indian Family Businesses:

India has age old tradition and glorious history of family owned businesses. Infact, Indian Family owned businesses practice had flourished throughout different era’s, but slowly and gradually changing its nature and structure over the period. During the early days, barter of commodities in exchange of commodities / services, trading and money lending was done in bazaars through shops, madies (markets), owned and confined to a few communities across India regions, perceived to be money minded. They were also called Seth’s or Sahukaars (the rich). Certain community specialised in trade activities and known since ages to be super perfect in business were Baniyas / Marwaries and they are found in nearly every business across the length and breadth of Indian Territory.

Such families still dominantly control majority of the businesses. Almost 90% of the businesses in India – whether SMEs or large conglomerates, are still owned, controlled and managed by families. India ranks third in terms of the numbers of the family owned businesses. More than 50% of the top performing businesses in Asia, excluding Japan is from India. Large corporate business houses like TATAs, Ambanis, Godrej, Bajaj, Hindujas, Ruias, Mittlas, Thapars, Adanis, Birlas, Jindals, Mahindras, Wadia’s and many more are still controlled by the respective families, where the role of family patriarch is very important and respected, which is quite similar to the Emperor Model in a family business.

Family owned organizations continue to grow and are a large part of the Indian society. They form the backbone of the Indian economy and societal growth. Though the family owned businesses face challenges, they have time and again shown better performances than public and multinational companies by finding ways to overcome the limitations and surviving.

The financial performance of family owned businesses such as revenue growth, gross margins, earnings before interest, tax depreciation, and reserves is far better than the non-family owned businesses.



Challenges In Indian Family Businesses:

In the fast paced era of disruptive technologies and digitization, family businesses can no longer continue to operate with old traditions and methodologies. Traditional mind-sets need to change for better.

The operational methodology in the businesses has changed for its own survival. The changes caused changes in the family dynamics and the businesses as well. With the increase in the business size, the business families found it difficult to manage the operations and mobilize resources for continuity. As a result the financial control of the businesses gradually started shifting from the promoters to the financial institutions.

Family firms need to find a good balance between profits and maintaining family relationships. Over a period of time, ownership management and creating professionalization with great transparency become quite challenging. Lack of communication between family members, too much control by the family patriarch, no written or agreed family policies, etc. can become detrimental to the business in the long run. Career growth of the family members and the employees are hampered.

Many family businesses were incorporated in late 1980s and early 1990s, when economic reforms were introduced. As on date, most business founders find themselves at the brink of retirement with no planned succession either from within the family or outside. More than 50% of the global family CEOs do not have a formal retirement plan and around 75% of the global family businesses do not have a formal succession plan. This has led to acrimonious relationships, bad or delayed decision-making within the family.

Many business families have separated and partitioned for internal peace and better management control. Some succeeded and branched out bigger and better, while some failed and collapsed totally.

Since 1970s the family businesses have been splitting quite rapidly. Birla’s, Tata’s, Modi's, Wadia’s, Singhania’s, Mafatlal’s, Shriram’s, Thapar’s, Sarabhai’s, Goenka’s, Ambani’s, have gone through the splits.


What Makes Family Run Organizations Thirve In India?

Most family firms were born out of the business activities started post-independence or during the economic reforms during the 1980s-1990s. So, family owned businesses are still young. However, they are changing the way they are controlled, managed and governed.

Families are really concerned about wealth creation and protection, social status, family reputation and good will. To ensure this, self-discipline and self-governance is high, leading to sound foundations and good monitoring of the business. Family constitution and family council play an important role in keeping the family aligned.

In medium to large size business houses, professional teams are engaged to run the business on day-to-day basis under the guidance and strategies of the Board of Directors. Good governance creates a good business image and produces better results.

The next generation is now well educated, being exposed to global practices. They along with the available in house talent are trained for professionally managing the business, which lays the foundation for continuity and creating a legacy.

Family firms are now readily accepting professionals on board. The professional help on Family Constitutions, Family Councils, Structures, Roles and responsibilities, performance driven rewards and recognitions for the employees and family is being addressed. Increased participation and involvement in encouraged across all levels without any gender bias.

Strategic Planning, Decision making, Risk Analysis, Capability and Capacity building, Talent Management, Wealth Sharing through equity etc. Under the guidance of the Business Coach are being seriously considered and practiced.

Indian families have a huge emotional connect along with business aspirations. The commitment and passion for the business is outstanding. The next generation involves and participates in the business with a more progressive outlook with all the energy. Along with business expansion, wealth creation with the support of the next gen, the older family members feel greatly satisfied and happy.