KEY CONCEPT

With 75% of the Indian workforce employed by a family-owned business, how they are run and what challenges they face will be of interest both to organizations in the country and to those interested in doing business there. In this Idea, some of the key features of India’s family-owned businesses are looked into, and some advice is offered to such firms for their long-term success.

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IDEA SUMMARY

Family businesses are large contributors to the Indian economy, forming an integral part of Indian culture and society. They account for approximately 85% of business in the country, but have traditionally been plagued by concerns about their susceptibility to emotional decision-making, non-professionalism, governance issues, etc. Now, however, it seems that family businesses are gradually shedding this stereotypical image and going through a transitional period, according to Kavil Ramachandran and Navneet Bhatnagar from the Indian School of Business (ISB).

They conducted a survey of over 200 family business owners in order to identify key management practices within such firms. Some of their findings included the following:

• Decision-making in family businesses is gradually becoming more participative, with 68% of respondents agreeing that younger family members now contribute to decision-making processes.
• More firms seem to understand the importance of succession planning and have begun to document such plans with clear roles and responsibilities defined for family members joining the business.
• Free and open interpersonal communication is increasingly being promoted in family firms, as owners have realized the importance of harmonious relationships among family members for achieving business success.
• Unlike in the past, family hierarchy is not the only criterion for assigning business responsibilities; personal capabilities and skills are playing an increasingly important role in determining assignments.

Overall, it seems that Indian family businesses have a long way to go on many issues to build sustainable organizations that can succeed in a global business environment; however, considerable movement in a positive direction is taking place.

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BUSINESS APPLICATION

There are unique features of family-owned firms that distinguish them from non-family businesses. For executives in India, and international organizations interested in doing business in the country, an understanding of the challenges being faced by such firms can be valuable particularly as, according to ISB, 75% of the employment of Indian citizens is in family-managed enterprises.

Facts that may be particularly useful include, for example, what industries are predominantly covered by family-owned businesses (Ramachandran and Bhatnagar found that most firms covered services, followed by mining and manufacturing). Similarly, the majority of firms surveyed were found to be less than 40 years old, with more than half still being led by the first generation of the owning family.

For the family-run firms themselves, the advice from Ramachandran and Bhatnagar to the top management is that they must consider inputs from various stakeholders while making important decisions. Nurturing and empowering the next generation in particular is essential for long-term success.  It is also important to focus on harmonizing familial relationships, as strong family bonding is the main source of strength for such businesses.

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REFERENCES

Challenges Faced by Family Businesses in India. Kavil Ramachandran & Navneet Bhatnagar. Indian School of Business White Paper (April 2012).

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