08 Sep 2016 21:00 IST

Time family-owned businesses took the next big leap

Staying power alone is not enough if family businesses want to thrive, and not just survive

In India, both, traditional conglomerates and new-age companies have been nurtured by promoters or family enterprises that are characterised by drive, determination and a never-say-die entrepreneurial spirit. Entrepreneurial or family-owned firms thus comprise around 60 per cent of the market capital of the top 500 companies in India, and are growing faster than MNCs and PSUs.

Family businesses have had the benefit of long-term vision and have survived multiple cycles of downturns and upheavals. However, staying power alone is not enough if such businesses want to thrive, and not just survive.

The very fact that family-owned firms have done incredibly well by consolidating their global and national positions demands that they move beyond the “why fix it if it ain’t broken” logic, and proactively address challenges such as:

~~ Succession planning and leadership development

~~ Centralised decision-making, and

~~ Talent-related issues

Additionally, in the next five-ten years, there will be other challenges. These include:

~~ Changing dynamics of the global work-force (as highlighted in WEF’s “Future of Jobs” study),

~~ Disruption of business models driving innovation (as dealt with in PwC’s Industry 4.0 study)

Addressing these challenges thus becomes key to achieving their next level of growth aspirations, or achieving Vision 2020.

Managing family dynamics

A robust approach towards helping family businesses thrive also requires a deep understanding of managing family dynamics, which are delicate and sensitive. It requires an understanding of the interplay of different roles played by the stakeholders: owners, family and the business, and the intersections across these.

Thus, whether owners have taken on non-executive positions or are owner-managers, or whether people from the family are engaged in individual businesses of their own, or aspire to have a professional management, will have a bearing on the journey the family businesses undertake.

“One-size-fits-all” problem

The adage “one size fits all” is clearly not apt when one compares a family business with an MNC. Thus, interventions towards professionalising family businesses are not the same as those for MNCs. Several Indian and international family-owned businesses display motivation, strong values, agility and speed of decision-making; and deep industry insights define their overall mojo. Some of these firms have grown with a compound annual growth rate of over 20-25 per cent, driven by entrepreneurial zeal and an astute business sense.

Incremental re-invention

Any recalibration in the way they do business must ensure that this will not make them MNC-like, but instead will try to address some of the specific challenges they face in their current businesses, while preparing them better for roadblocks ahead.

Such incremental recalibration will be game-changing for family owned businesses if implemented in a holistic manner. It will also depend on the initiatives implemented by the business along some of the key operating models — the leadership and talent dimensions.

Recalibration

The recalibration will also help family businesses add capabilities, like the need to continually innovate by attracting the right talent as well as retaining key executive talent. Indian family businesses have done well not to ape their MNC brethren and are working towards defining their own growth trajectory. However, going forward, they will need to take a more holistic approach:

~~ Separation of ownership and management by several leading Indian MNCs: Several players have addressed the classic conflict where the family plays both owner and executive; families are now involved mostly at the strategic level, encouraging and empowering professional leadership across verticals.

~~ The going-global initiative by a leading Indian MNC: The management team comprises 66 per cent global executives while current global revenues contribute 33 per cent towards the topline — this reflects the firm’s aspiration of being a global player.

~~ Integration of aspects of the Indian value system by several Indian family-owned MNCs: The Indian value system is now embraced as one of the elements of a company’s DNA (family culture, Bhagavad Gita principles, vaastu, and the like) and reflects the growing confidence of Indian businesses leveraging their roots.

Efforts at such recalibration will put Indian family-owned businesses on a firm path towards Vision 2020 and empower them to pursue a stronger growth agenda.

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