1.1 INTRODUCTION

India has been of the country where in family business had a large stake in the

development of its economy. This was going on right from pre independence days.

This was so in view of high importance being implied on family values, culture etc.

Even today we do have families operating their business across the country as well as

abroad running in crores of rupees as turnover.

In view of the success attained in the form of business during the past two decades

various areas of entrepreneurship especially family business have attracted the

attention of researchers, academician and policy makers. The contribution of family

business to economic growth and wealth creation has made it an important topic for

various groups especially researchers.

Family business is an institution in India. It has been credited with the unprecedented

growth, India has achieved in the last 50 years. In spite of the role played by family

business and its importance many people still think of family business as a small and

somewhat insignificant component of the Indian economy. This is far from the reality.

More than half of the population of India works in family owned businesses. In

addition, up to 90% of the nations GDP can be attributed to family business.

In view of the changes taking place not only in Global but also in the Indian economy

many Indian family firms are nervous today because they are afraid that a family-run

business may not be able to cope with the competitive demands of the post-reforms

scenarios. They should feel reassured by the persistence of the family business in

advanced societies. Many of us have acquired a distorted view of the economic

history. In the distorted picture, economies are dominated by massive corporations

that are listed on stock exchange and owned by an army of dispersed investors. The

family firm is often portrayed little more than an early point on a graph of corporate

evolution. Another major reason for the decongestion of family business in India at

present is in view of changed perceptions and views of the younger generation that

leads to division of the family run organization into smaller entities. An example for

this is the division of Reliance Industries between both brothers Anil and Mukesh as

well as Division of the Bajaj group among the brothers Rahul and Shishidar Bajaj.

In all nations and institutional contexts family firms not only survive but numerically

they have the largest share of the business organizations. In emerging markets their

number and share in the economy are more pronounced. Many family firms seem to

have grown into very large entities.

The Indian economy depends heavily on the continuity and success of the family

business. Many of the family businesses in India have also come to terms with the

present day requirements, and understanding their limitations, have engaged

professionally experienced personnel to operate their business in a professional

manner and have also welcomed the public investors to invest into the companies by

listing the companies on stock exchanges.

The family business not only at the corporate level but also at the local level or rural

level has been doing a roaring and successful business as generating several

employment opportunities to lakhs of personnel.

1.2 OBJECTIVES

1. To outline the history of family businesses in India.

2. To outline the issues on the concept, contribution and challenges of family

business.

3. To outline how to handle and avoid conflict in a family business.

4. To analyze the questionnaire presented to family business

entrepreneurs/manager.

1.3 SCOPE OF THE PROJECT

The purpose of this project is to highlight the contribution of family businesses in

India. To outline the advantages and disadvantages of family businesses in India.

Since family businesses in India have a huge impact on the economy it is important to

completely understand its contribution to the growth of the economy. It is equally

important to understand the issues and challenges faced by family businesses in India.

This project has been concluded with an analysis within the twin cities of Hyderabad

and Secunderabad. The analysis discusses the challenges faced by family businesses,

the presence of a succession plan, the factors responsible for the growth of a family

business, the presence of senior generations.

1.4 METHODOLOGY

The study is conducted with the help of both primary as well as secondary data.

Primary data: The data was gathered by conducting a field survey of family business

managers/entrepreneurs. Once the objectives were framed, questionnaires were

framed that basically are close-ended questions.

Secondary data: In this connection various journals, books and websites were referred

to.

1.5 LIMITATIONS

Every study conducted may have certain shortcomings. A few errors might have crept

in, despite of my efforts to avoid them, but still my study and findings related to the

project are very relevant.

1. The sample size was very small.

2. Extensive study could not be conducted.

2.1 INTRODUCTION

The most beautiful thread in this world hat binds hearts together is the family. The

business world is a cutthroat place. Owners need good people behind them – people

whom they can trust no matter what. Since good help is always hard to find, one-way

companies can ensure that they are filled with trust worthy people is by keeping the

business in the family. A business would become successful if it has got this, thread

of dedicated family members.

The Indian family business dates back to the latter half of the 19th century, which also

marks the beginning in India. While there are several characteristics that are common

to businesses everywhere, Indian business traditions are strongly linked to the nations

culture and spiritual identity. A family business can be regarded as an incubator for

values and goals. Not all businesses are started for growth, profit maximization or

even for eternalness many are established or purchased with the needs and preferences

of the owners and their families being paramount. That is the essence of family

business and it sets them apart from enterprises, in which the owners and their

families matter little to the strategy or operations of the enterprise.

The family business is the world’s most common form of business organization. In

India, family owned businesses had a greater role and will continue in future also.

Many companies that are now publicly held were founded as family businesses. They

are going to become major contributors to the economic development. Dominance of

family businesses in economies across the world despite their additional challenges

vis-à-vis non-family businesses is an established and acknowledged fact. The

launching of a journal on family business viz, ‘family business review’ in 1988 and

the introduction of specialized programs in this field has popularized family business

in many countries including India.

Indian firms, by and large, continue to be family-run. And that, too, by the Bania

families of the traditional trading cases. It is predominantly the Aggarwals and Guptas

in the north, the Chettiars in the south, the Parsees, Gujarati Jains and Banias, Muslim

Khojas and Memons in the west, Marwaris in the east and in fact across the country.

Of these, the Marwaris have been the most successful. Fifteen out of the twenty

largest industrial homes in 1997 are derived from the Marwari sub-castes in

Rajasthan; only five became big and prominent in national commerce. There were the

Maheshwaris, Oswals, Aggarwals, Porwals and Khandelwals. The big old business

houses in India include Tatas, Birlas, Bajaj, Reliance, Mahindras and Wadias.

2.2 MEANING OF FAMILY BUSINESS:

According to several experts, “ a family business is a company owned, controlled and

operated by members of one or several families, usually, family businesses are

conceived and run by one member of a family who may act as a matriarch or patriarch

of the family as well as the business leader.

A person starts his/her business to fulfill the needs of his/her family. When this

business passes from one generation to other is known as family business. Family

business is a business governed and/or managed on a sustainable, potentially cross-

generational basis to shape and perhaps pursue the formal or implicit vision of the

business held by members of the same family or a small number of families.

Family business can be regarded as the interaction of three distinct but related systems

–ownership, management & family. Family members often create new firms together;

fund new ventures rather than seeking true venture capital. It has also been observed

that as exit strategy, entrepreneurs are more likely to pass their firms to their families

instead of going public.

Family businesses are basically two types. The first one is the business having only

the family members are principals as well as agents. Usually, outsides are suspected

and sullied. The second type of business represents the family members and outsiders.

Family has a major stake and controlling power on the business. A family owned is

one in which two or more extended family members influence the business through

exercise of kinship of ties, management roles and ownership rights and/ or which the

owner intends to pass to a family heir.

2.3 DEFINITION

Donnelly (1964) defined the family firm as “one which has been closely identified

with at least two generations of a family and when this link has had a mutual

influence on company policy and on the interests and objectives of the family.”

Davis (1983) mentioned, “Family businesses are those where policy and direction are

subject to significant influence by one or more family units. This influence is

exercised through ownership and participation of family members in management. It

is the interaction between two sets of organizations, family and business, that

establishes the basic character of the family business and defines its uniqueness.”

Chua et al. (1999) in their definition of the family business have pointed out that the

family business is governed and/or managed with the intention to shape and pursue

the vision of the business held by the members of the family in a manner that is

potentially sustainable across generations of the family. Family firms have a complex

array of factors that may impact performance outcome of the business. The interaction

of the family, individual family members, and the firm, create unique conditions and

constituencies that have diverse value propositions and outcome expectations.

2.4 HISTORY

The Indian family business dates back to the latter half of the 19th century, which also

marks the beginning of business in India. It is not surprising then that family-run

businesses currently account for a whopping 95 per cent of all Indian companies.

Considering that one-third of the companies listed in Fortune 500 fall under this

category, including the currently second Wal-Mart, family businesses have

indubitably cemented their place in the world economy.

The Indian economy, currently in a state of rapid development, is burgeoning with

innumerable small and medium-sized family-run enterprises. Family businesses in

India initially started in the 1890s as a means to promote import substitution and

attain economic freedom from the British. These enterprises were an integral part of

India’s freedom struggle, and as part of the Swadeshi movement, got special treatment

and subsidies from the government.

The businesses consolidated their positions, as near monopolies under the protective

environment of the license raj and their inefficiencies did not get exposed to the

indefatigable market realities. Some of the prominent business families during the

1960s were the Modis, Thapars, Shrirams, Singhanias, Birlas, Wadias and Godrej.

In 1991, India’s forex reserves dwindled rapidly and the IMF extended help but at a

price, forcing India to open its markets to the outside world. With the protection gone,

the family business had to face stiff competition from both new domestic players and

well-established international players who were better equipped both technologically

and managerially and were backed by much deeper pockets. The business scenario

was changing and a new breed of businesses emerged in the 1990s, with the focus

now shifting from the manufacturing to the service sector with IT and consulting

being the buzzwords.

At this time of change, many big Indian business houses faced a crisis situation; either

to change or perish. A handful of companies adapted well to the pressures of the new

economic policy, while a greater share couldn’t cope up to the challenges of the

competitive environment and struggled.

The businesses that succeeded had the foresight to adjust according to the new

conditions, professionalize their management and open up to new options, while

relinquishing certain ideas, which were losing favors.

The ones that lost out were the business families whose boards didn’t carry the vision

to think beyond, and had not put in place a potent governance structure to deal with

the onslaught of liberalization. The boards of these companies were too inert and

inwardly focused to address the need of the hour. The prime reason for the indolence

of the board was the over representation of family members in the decision-making

body and also the top management.

Apart from the governance issue, the Indian family enterprises faced another issue

that of ineffective, ill-structured board and management performance reviews.

A large number of companies failed because of their inability to measure the

performance of its personnel. The lack of scientifically designed appraisal techniques

has cost Indian family businesses a lot more than ill designed governance structures.

They paid the price for a people based management style and were slow to adopt the

process-based approach.

The great Indian family business has seen many ups and downs; every few decades a

new crop of family businesses emerges.

2.5 CHARACTERISTICS:

Generally, the characteristics of family business are:

1. High involvement of family members in the business: This means the policy

and decision-making, strategic planning and daily activities in the company

will be operated by family members. The focus is on control and participation

of family members in the business. In family firms the owner-family s likely

to be influenced at every step of the process. This kind of characteristic is very

unique; therefore if an outsider professional wants to join the family business,

first he/she should give full consideration about this matter. Usually the owner

of the family business will his/her children to the business as soon as possible

because he/she wants his/ her children to understand about the business of the

family. It gives a positive impact to the company as it gets full commitment

form the children because they have high involvement from the very

beginning.

2. Learning and sharing environment within the organization is high: It means

that sharing about the business happens many times even in family gatherings.

Therefore, all family members usually understand about the business progress

because they often get to hear about the business.

3. High reliability and trust in each other: For example, if the owner or the

person who is in charge of the business gets ill or periodically cannot involve

in the business it is easier to trust on of the family members to handle the

business.

4. Family-hood management style: The emotional binding within the business is

very high; therefore the business will manage in the sense of family-hood.

Most of the family members respect the founder, as the founder is the parent

or grandparent.

5. High sense of belonging from family member to the business: The family

member has high sense of belonging to the business because the business

belongs to them or to their parent or grandparent. Thus absorbing the values in

the family business is easier than in private companies.

6. Less formal management and dual leadership: The business management

tends to be less formal and usually dual leadership exists. The dual leadership

happens when the owner delegates the business to the outsider processional or

the other family member. However, the owner will still intervene in the

decision making process and will control the business tightly. It is normal

because the owner has high emotional involvement towards the business and

high expectations towards the success of the business.

2.6 DIFFERENCES BETWEEN A FAMILY OWNED BUSINESS AND

A NON-FAMILY OWNED BUSINESS:

Fundamental differences are identified between the nature and functioning of family

owned and managed businesses with those that are not family-controlled.

AREA OF CONFLICT FAMILY SYSTEM BUSINESS SYSTEM

Goals Development and support

of family members

Profits, revenues,

efficiency, growth

Relations Deeply personal Semi personal/impersonal

Rules Informal Written and formal

Evaluation Members rewarded No systematic evaluation

Succession Caused by death, divorce,

voluntary willingness

Caused by retirement

Authority Based on family position

or seniority.

Based on formal position

Commitment Lifetime, based on identity

with family

Short term, based on

rewards received

2.7 SCOPE AND SIGNIFICANCE OF FAMILY BUSINESS:

In most countries family business is the dominant form of business ownership and

management. Historically, companies and other forms of ownership developed

following individual and family run farms and businesses, particularly to meet the

needs of generating larger amounts of capital and dealing with legal issues such as

protection against lawsuits and bankruptcy. It was the Industrial Revolution that

replaced family based craft industry with larger manufacturing enterprises. More

recently, the rise of a giant service sector generated numerous new opportunities for

family ventures.

Although big, public companies tend to attract the most attention, especially in terms

of share offerings, stock values and speculation, family businesses will undoubtedly

endure as the backbone of enterprise. The desire for autonomy to be ones own boss

and for family independence appears to be a basic and unchanging human trait. This

motivator accounts for many career-switching entrepreneurs.

2.8 CONTRIBUTION OF FAMILY BUSINESSES:

Family businesses make numerous, critical contributions to the economy and to

family well-being both in terms of money income and such intangibles as time,

flexibility, control, and personal expertise. Family businesses add the complexities of

family life to business challenges, expanding the range of issues, personalities, needs

and potential solutions for every decision. Knowing something about family types,

communication patterns, managerial styles and the amount of support members can

expect from their families may be as important to beginning entrepreneurs as knowing

how to reach a market or managing cash flow.

India’s richest business families were: Azim Premji (Wipro); Ambani (Mukesh and

Anil) (Reliance Industries); Sunil Mittal (Bharti); Shiv Nadar (HCL); Dilip Sanghvi

(Sun Pharma); Birla KM (Hindalco, Grasim...); Bajaj Rahul (Bajaj Auto); Hamied Y

K (Cipla); Munjal B (Hero Honda). On October 29, 2007 billionaire Mukesh Ambani

became the richest person in the world.

The contribution of family business was also high in India in terms of employment

and income generation and wealth creation. Several visionaries had established their

business ventures at different places of the country and also abroad. Some of them

were: Ajim Premji, Ratan Tata, KM Birla, Brij Mohanlal Mnryal, Parvinder Singh,

Dirubhai Ambani, Sunil Mittal, Ramalinga Raju, Mallikharjun Rao, Sashi Ruai, Anji

Reddy, etc.

In India, family businesses account for about 70% of the total sales and net profits of

the biggest 250 private sector companies. The role of business in the society has

witnessed a dramatic change in the recent times.

Yesterday, it was the business as family. Today, it is the family as business. And

tomorrow, it will be the business of the family to ensure that there is a future for both

the business and the family.

Family Business contributes 60-70 percent of GDP of most developed & developing

countries. India is no exception. Indian Family Businesses forms the ‘backbone’ of

the Indian economy and hence there is a need to extend the life span of the family

businesses so that the economy can continue to derive benefit from their contribution.

Most of the Business families face unique management challenges because of the

differences in the attitude & aspirations of family members. As new generations join

the family business, it is an enormous challenge to keep the family & business

together. Some sacrifice the business to keep the families together, while others

sacrifice the family to keep the business.

It has been observed that

Just 13 percent of the Family business survive till 3rd generation & only 4

percent go beyond third generation

One third of business families disintegrate because of generational conflict.

Sixty-six of Business India’s Super 100 companies are family-run. According to

Business Today, family-run businesses account for 25% of India ink's sales, 32% of

profits after tax (PAT), almost 18% of assets and over 37% of reserves.

In 1947, 18 families owned nearly every company of consequence in Indian economy.

In 1997-98, as the global economy closely watched, 461 of the 500 most valuable

companies in the country were still controlled by 50 families (Agarwala, 2001). In the

post-liberalized India Inc., as reported by Business World (2007), 17 out of the 30

companies listed in the benchmark Bombay Stock Exchange’s (BSE) Sensitive Index

(Sensex) are family owned. Thus, it is the business family that remains the most

powerful and enduring entity in corporate India from its very inception.

2.9 ADVANTAGES OF FAMILY BUSINESS

Forty years of socialism was not able to destroy India's legendary entrepreneurship

even though it distorted its behavior. Indian companies still have a number of

strengths. The primary one is that they have been founded largely by the trading

castes that have demonstrated great financial acumen, an austere lifestyle, a

propensity to take calculated risks, and an ability to accumulate and manage capital.

For the past 50 years Birla companies have monitored performance of their numerous

enterprises across the globe on a daily basis. The Ambanis single-handedly created

'the equity cult' among the Indian middle class by building a two million-shareholder

base in the '80s, one of the largest for any company in the world. Because many

Indian industries were under severe price controls in the past 40 years, companies

were forced to become low-cost producers in order to survive. These constitute

significant strengths, and provide a basis for competitive advantage as India joins the

global economy. Some of the advantages are:

1. Common values: The entrepreneur and his/her family are likely to share the

same ethos and beliefs on how things should be done.

2. Strong commitment: An entrepreneur is more likely to put in the extra hours

and effort needed to make his/her business a success.

3. Loyalty: Strong personal bonds means the individual and his/her family

members are likely to stick together in hard times and show the determination

needed for business success.

4. Stability: Knowing that the business is being built for future generations,

encourages the long-term thinking needed for growth and success.

5. Decreased costs: Family members may be more willing to make financial

sacrifices for the sake of the business. For example, accepting lower pay than

they would get elsewhere to help the business in the longer term, or deferring

wages during a cash flow crisis.

6. Independence of actions: high rate of independence of action means that there

is no stock market pressure, no take over risk and the profit belongs to the

family (no other party to share with). Therefore financial decision process is

faster.

2.1O DISADVANTAGES OF FAMILY BUSINESS

1. Family business sometimes become a confusing organization in terms of

family member who is absent in business activities can influence the business

for the sake of family reason over business logic.

2. Unfair reward system.

3. The difficulties to attract outsider professionals.

4. The other disadvantage of family business is the possibility of the rising of

spoiled child syndrome or high tolerance for incompetent family member.

5. Potential of rising conflict.

6. Disappointment of family member when their goal is unreachable.

7. Too many financial problems.

8. Losing privacy.

9. Getting some critiques from other family members.

The strengths and weakness of a family business can be summarized as below:

Parameter Strength Weakness

Infrastructure Informal, flexible

Entrepreneurial

Innovative

Unclear

Confusing

Lack of

organizational chart

Roles Flexible

Multiple

Quick decisions

Role conflict

Nepotism

Dual roles

Leadership Creative

Ambitious

Entrepreneurial

Autocratic

Family involvement High commitment

Loyal

Shared values

Family Dream

Can’t keep family

issues out of

business

Inability to

differentiate between

family and business

needs

Rivalry

Succession Training can begin

early

Inability to choose

successor

Governance / Ownership Family owned high

degree of control

No outsiders on

boards

High premium on

privacy

Culture Can have creative

culture

Rich integrity of

goals

Emotional

Inefficient

Resistance to

change Risk for

conflicts

2.11 SUSTAINING A FAMILY DYNASTY-KEY ISSUES FACING

COMPLEX MULTIGENERATIONAL BUSINESS:

As a business family moves from the second to the third, fourth, and succeeding

generations, and seeks to maintain shared family control of its often highly diversified

financial and business assets, families around the world have created a complex web

of structures, agreements, councils, and forms of accountability to manage their

wealth. In working with such multigenerational dynasties around the world, we have

begun to see that successful transmission of wealth, and sustaining of family

connection, depends on a highly creative web of such structures. As a family enters

the third generation, it has become a complex structure with several family branches,

diverse interests and stakeholders, and challenges to sustain collaboration and

effectiveness.

The challenges for a family to succeed in sustaining a family business or diversifying

into several investments jointly owned by family members multiply with each new

generation. Although the family’s original fortune is usually created by a single

founder/entrepreneur, over generations the fortune is subjected to pressures to be

divided among a growing pool of heirs and relatives. A family that succeeds in

keeping its fortune unified within a single business or series of shared investments,

with multiple family branches sharing control and ownership, is quite rare and the

journey is difficult. If the family is successful, the value of its businesses and

investments can multiply through the generations or family members inherit their own

fortunes and go their own ways.

Some issues or challenges need to be overcome to promote shared family identity and

investment, rather than having its fortune subdivided into smaller individual estates.

To succeed, families with substantial wealth cannot leave their operations to chance,

nor can they completely delegate their financial dealings to advisors. They have to be

active stewards and responsible owners in making key decisions and overseeing their

assets.

Conflict or a breakup of a group of assets is more likely as time goes on, as prior

agreements can be misunderstood, or be informal and thus open to varying

interpretations. Thus the nature of collaboration, conflict resolution, and shared

governance is made more difficult. Even so, there can be great rewards when a

consolidated fortune is able to grow over generations. Family issues often intrude on

the business and financial decisions of dynasties. The family wants to sustain

connection with more and more members having less and less of a common

foundation, but often with simmering rivalries, and different perspectives. As

individuals grow up, they know they come from a well-known and wealthy family,

but they need guidance in learning their responsibilities, and in developing a personal

identity and career. They may also feel a personal need to break free from the rest of

the family and strike out on their own. Many dynasties find themselves fragmenting

or greatly reducing their wealth, but throughout the world, global family dynasties

control an important share of the world’s wealth and commerce. Family control of

major corporations and investments form the backbone of the economies in many

developing countries including India.

2.12 ISSUES FACED BY FAMILY BUSINESS:

1. Family Emotions: Emotion is a big dimension in family-owned firms, as

brothers and sisters, uncles and aunts, nephews and nieces, and fathers and

children work together. The problem arises in recognition of these dimensions

of emotions and to make objective decisions. Emotional outbursts are many in

family-owned businesses and the quarrels and ill feelings of relatives have a

way of spreading out to include non-family employees. It is very difficult to

keep the bickering from interfering with work and the company becomes

divided into warring camps.

2. Family or Business what comes first: One of the main concerns for the family

members is to decide over the direction of the business. There will be times

when it has to sacrifice the interest of either business or the family.

3. Succession Planning and fair to all approach: Succession planning is almost

absent in family owned business in India. Even a visionary like Mr. Dhiru

Bhai Ambani failed to see the future. It was expected that younger brother will

work under the guidance of the elder but the cracks started showing when

Senior Ambani was himself alive. Also, families end to act on a fair to all

approach meaning that the business pie is divided equally among all the family

members without seeing the contribution they have made to the business. It

results in fragmentation of business and cross holdings to ensure that the

weaker family member share is taken care of. This system has worked well for

the family but has played havoc for business because in every generation the

business gets divided into smaller units and it also encourages rivalry between

various SBU’s.

4. Retaining non-family professionals: It can be a big challenge to retain the best

talents in the organization who are but non-family members. This is mainly

because promotions are closed to them after a certain point and they see

relatives being pushed into executive offices in spite of not being competent.

Outsiders are necessary and managing them is very important.

5. Organization structure: This relates to the placing of people in the company.

The powers and roles in a family business are usually not clear. The company

is supposed to be clear in describing the competencies and skills needed in one

position. The organizational structure also must give a clear description about

leadership, which means that is the company is built by more than one person,

the organizational structure can assist the employees to understand who the

person in charge of the business process is. Organizational structure also

assists the company to avoid the rising of dual leadership.

6. Compensation: There is a thought that the family business usually gives a

different salary to the employee who is not a family member. For the purpose

of fairness to all employees, compensation system must be designed in

fairness and based on performance or job specification. It is not fair if the

salary is designed on the family status.

7. Competencies: A successful company is supported by the competent human

resources. Family business must be able to manage the diversity of

competencies among the people involved in the business like the owner, the

outsider professional or family members professional. Sometimes it will be

problem when company has to decide which one must be hired, the candidate

from outside or the family member when one of the family members need a

job at the time. In this case, the business should be professional and should

hire the one who mostly fits to their needs.

8. Revenue distribution: This relates to the company’s profit. How does the

company distribute its profit, whether it is to be reinvested into the business or

withdrawn by the owner for personal goal. There will be a conflict of interest

between the owner and professional in company about the usage of revenue.

9. The survival challenge: Survival and longevity of family firms is a subject of

interest not only for academicians but also for the business community. A rule

of thumb is that only one out of three family businesses survive to the next

generation. Indian family firms used to operate in a controlled economy and

license raj are facing threats of sustenance. Challenges from the multinationals

and global players are not only in terms of management but also in terms of

long term viability if the business.

10. Speed of excepting change: Change is something that does not happen in

family-owned businesses in India, change is undertaken as a last resort when it

is believed that the business will close down. In order to survive in the global

arena it is essential for business houses to change at a fast rate and adapt to

changing business times.

11. Tunnel vision and lack of strategy: The biggest failing of Indian companies is

that they want to do everything. Whether it is the Tatas, Birlas, Singhanias,

Modis or Thapara- the vast majority of big businesses in India lack focus. The

average business house is engaged in 18 different businesses. Reliance is a

refreshing contrast. Yet, Indian businesses teats the serious decision of

entering a new and unrelated industry as though it was a ‘flavor of the year’. It

would be all right if it was a child’s game, but the tragedy is that they are

playing with thousands of crores of hard-earned savings of ordinary people.

The most important decision of a manager is what not to do. Successful

managers find that success and happiness lie in absorption and mastery over a

small area of life.

2.13 MANAGING CONFLICT IN FAMILY BUSINESS:

Having family members can make or break a small business. Conflict within a family-

owned and operated business can create wars. Similarly, a family business that works

together peacefully can reach goals efficiently, communicate effectively and deliver

success.

The potential for conflict in family businesses can be greater that from many other

businesses-typically due to a clash between commercial and essential concerns.

However, such conflict can be seen as a challenge –or even as a positive drive for

change. For example, a dispute between family members on the strategic direction of

the business may result in a much needed rethinking of the business plan and a new

agreed vision for the business.

It is believed by many business thinkers that emotions are vital to operate a business.

But these emotions and passion have to be related to business. Ego Clashes, sibling

rivalry, feeling of been left out, deriving importance etc are some of the Problems

generally seen in a family business. Controlling of ego clashes and sibling is tough

but all the same if the head of the family encourages open communication among

family members and has a system of mentoring every member who enters the family

business then issues can be controlled.

The business should decide over a crystal Clear HR-Policy based on performance and

commitment of every employee (family and non-family). The vision should be to

nurture and develop talent wherever spotted. Promotion structure should ensure

secure elevation of all the best talents available in the business and this elevation

could also reach to the top position if there is a case. Non-family executives should

not feel insecure in the organization.

Family and business are two different systems having different environments, needs,

values, perception etc. Family has got emotions deeply entrenched in it and business

can do well if they are kept in control. But it does not mean that there should be no

emotion at all. Emotions are also responsible for keeping the families together.

Business is an activity, which requires rational and objective decision-making. There

should be a genuine effort to synergize the two institutions of family and business.

And this effort can be made effective only when the family is dedicated towards the

welfare and global growth of the business.

Succession planning is something, which every family business must do well in

advance, most appropriately in the first generation itself. Succession planning must

not mean dividing the pie among the family members but it must mean finding a role

of each family member in the group without having to divide the group. If the

business is not split they have a chance to compete with the best in the world. If all

the cotton and jute mills of all the Birla group are put together they will be a very

formidable force in the world cotton and jute market but as they are fragmented they

are not even national leaders.

Family-owned businesses in India have lived in a protected business environment of

very long. They are a little slow when it comes to accepting change as compared to

their counterparts across the globe. Family-owned business are not used to spending

money on R&D and also ploughing back profits into technology development. The

family (which also holds the majority of the stock) has got used to fat dividends and is

not ready to give them up for the purpose of growth of the firm. The younger

members in the family understand the importance of change and they must try and

convince the elder members and non-participative members on the importance of

change and the increase in earning capacity after the change.

It’s imperative for the family to sit together and decide over there common goals.

They should be ready to trade-off family interest for business to keep developing and

growing. There should be a clear demarcation between the family and the business.

2.14 WAYS TO AVOID CONFLICT:

1. The best way of avoiding conflict is to prevent misunderstandings from

happening in the first place. Drawing up a family constitution can help you

achieve this.

2. Plan how you'll deal with conflict and disagreements and set this out in the

family business constitution.

3. Holding a meeting of the business' management may be appropriate for

addressing relatively minor disputes.

4. For more serious matters you may want to involve an independent third party -

many family businesses benefit from having a non-executive director or

business adviser - to act as an impartial mediator.

2.15 CONCLUSION

This gives us the understanding and description about the importance of a family

business so that it can be managed in a professional way and will grow up

continuously in the future. It also will open many opportunities for the economic

development like providing job opportunities to the society; increasing governments

tax revenue and multiple effects to the country’s economy as a whole.

But we have to realize, family business will continuously grow up only if it has

competent human resources who have an entrepreneurial spirit and can create some

innovative and creative business ideas. A person who has an innovative and creative

business idea can start to apply his/her ideas independently or in a team with friends

or members of the family. Sometimes it is easier to start a business with family

members because they have a similar background, more time to meet and more trust

in each other. When the family business grows bigger, it will get many opportunities

and will also face more threat and as a consequence the family business needs more

resources including human resources.

Though it is easy to give family-owned firms advise no how they can overcome their

challenges and be global players it may not be very smooth. Family ties and traditions

are very deep rooted in family firm. Some families tried to separate ownership and

management but it did not work for the long and unfortunately in many of the cases

the movement of the family outside the management resulted in fall in the business

fortunes and the family was forced to get actively back into business. This has

resulted in old-timer giving this example to all that the family keep the interest of the

business paramount and an outsider never thing that it is his baby. The dialogue

continues as to what is best for family-owned firms in India.

A famous saying about family owned business in Mexico is “Father, founder of the

company, son rich, and grandson poor” (Padre noble, hijo rico, nieto pobre). The

founder works and builds a business, the son takes it over and is poorly prepared to

manage and make it grow but enjoys the wealth, and the grandson inherits a dead

business and empty bank account. The issue is sustainability of trans-generational

wealth.

3.1 EXISTENCE OF A BUSINESS PLAN

YES NO

83% 17%

YES NO0%

20%

40%

60%

80%

100%

Existence of a plan

A business pan is a foundation of any successful business. It states the purpose, goals

and objectives and how these goals will be achieved financially and strategically.

The above graph clearly indicates that 87% of the respondents have a well-defined

business plan when the business started. This may imply that they had a vision to

where they would like to see their business in the coming years.

The balance 17% of the respondents did not have any particular plan.

This clearly indicates that entrepreneurs give a serious thought and prepare a clear

business plan having the future vision in mind to ensure growth and success of their

business.

3.2 CHALLENGES FACED BY THE BUSINESS

COMPETI

TION

CHANGES

IN THE

BUSINESS

CONDITIO

NS

DECLI

NE OF

PROFI

TS

ACCES

S TO

FUNDI

NG

LIMIT

ED

SALES

OPTIO

N

LACK OF

MANAGER

IAL

SKILLS

LACK OF

FAMILY

ASSISTA

NCE

45% 25% 15% 7% 5% 3% -

COMPETIT

ON

BUSINESS

CONDITIO

NS

DECLINE O

F PROFITS

ACCESS T

O FUNDING

LIMIT

ED SALES O

PTION

LACK MANAGERIA

L SKIL

LS

LACK OF FAM

ILY A

SSIST

ANCE

0%5%

10%15%20%25%30%35%40%45%

CHALLENGES FACED BY THE BUSINESS

Entrepreneurship is challenging and majority of the entrepreneurs have faced a lot of

initial challenges but the benefits reaped out were much more higher. Almost all

entrepreneurs expressed their grief on the challenge of the dynamic market conditions

in the form of excessive completion, change in customer’s tastes and preferences etc.

From the above graph, we can see that 45% of the entrepreneurs expressed that the

biggest challenge is to adapt to the new competitive environment. This was followed

by 25% who responded that the changes in the business conditions were more

challenging. As a result of the competition and other factors, there was a decrease in

the profits, 15% of the entrepreneurs found this decline of profits to be more

challenging. Due to the lack of finance from the family and banks, 7% of the

respondents did not have a good opportunity to see their products in the market. The

remaining 3% of the respondents lacked managerial skills and abilities to run the

business.

This analysis clearly shows that the biggest challenges faced by family businesses are

adapting to new competitive environment and changes in the business conditions. The

other factors are of lesser significance.

3.3 FUTURE GROWTH OF THE BUSINESS:

YES NO

75% 25%

Sales

YESNO

Operating a business is not enough; entrepreneurs need to constantly plan for future

expansions and growth. Knowing that the business is being built for future

generations encourages the long term thinking needed for such growth. As such, it is

necessary for the entrepreneurs to have a plan on how to grow the business and to

succeed in it.

The study revealed that 75% of the entrepreneurs have a detailed plan for the growth

of the business. The remaining 25% of the entrepreneurs do not have a clear-cut plan

on how they want their plans to grow.

3.4 DIVERSIFICATION AND EXPANSION OF THE BUSINESS:

DIVERSIFICATION EXPANSION BOTH

15% 80% 5%

DIVERSIFICATION EXPANSION BOTH0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

With the growth of marketing opportunities, increase in demand and buying power of

the people, entrepreneurs are optimistic about expansion of business. It is a positive

sign that 80% of the entrepreneurs were confident and wanted to expand their

business with the profits generated and reserves that they have rather than diversifying

the business.

Family businesses generally prefer only to expand their existing business line rather

than diversifying the business. They prefer to stick to a portfolio of the businesses that

they can viably manage, are experienced with it and are confident about running it

well. The study revealed that only 15% of the entrepreneurs are interested in

diversifying their business.

A negligible 5% of the ambitious entrepreneurs are interested in taking the risk of

expanding but also diversifying their business.

3.5 PROBLEM WITH EMPLOYING OUTSIDERS:

YES NO

60% 40%

YESNO

The respondents expressed a mixed feeling on the issue of hiring outside

professionals. 40% of the respondents have no problem with hiring outsiders in the

business, but they felt that the scope and workload of the outsiders would be limited

due to the small sizes of their businesses and eventually lead to job dissatisfaction.

Majority of the respondents, i.e. 60%, do not want outsiders to interfere with the

business that belong to their families.

As a general policy, family businesses prefer to retain the family members in critical

positions to operate the business and also to avoid the family as well as business

secrets from being leaked out to others. This also ensures that family members are

actively involved and all profits are retained within the family.

3.6 PROCESS OF SELECTING SUCCESSORS:

YES NO

40% 60%

YES

NO

0% 10% 20% 30% 40% 50% 60% 70%

Chart Title

Succession from one to next generation is a major cause of concern for family firms.

Large and organized businesses plan succession and train successors from the time

they enter the business. The above graph clearly highlights that only 40% of the

entrepreneurs have a formal process of selecting their successors.

Generally Indians are emotional in nature and it is not surprising to note the truth that

most of the Indian entrepreneurs want their legal heirs to succeed them in their

business. As such, 60% of the entrepreneurs do not have a particular process in

selecting their successors.

3.7 SEPARATION OF OWNERSHIP AND MANAGEMENT:

YES NO

15% 85%

YES

NO

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Chart Title

A family business is generally operated and run by family members. In view of this

the ownership and management are generally one and the same. The survey analysis

made also confirms the same. However in view of very large family business the

family members may think of recruiting professional managers who have expertise in

the specific field to manage the company.

The graph depicts that only 15% of the entrepreneurs are successful in delinking

ownership from management. 85% of the entrepreneurs have not separated ownership

and management.

3.8 FACTORS MAXIMIZING BUSINESS VALUE:

SALES

GROWTH

PROFIT

IMPROVEMEN

T

BEST

PRACTICE

GOODWILL CUSTOMER

RETENTION

25% 13% 10% 22% 30%

SALES GROWTHPROFIT IMPROVEMENTBEST PRACTICEGOODWILLCUSTOMER RETENTION

The study also peeped into some of the factors that would maximize the value of the

business. It can be observed from the pie chart that 30% of the entrepreneurs consider

customer retention to be an important factor. This was followed by 25% who feel that

the growth in sales carries more importance. 22% of them feel that maintaining the

goodwill of the business will help them maximize the company’s value. Another 13%

of the entrepreneurs consider increasing profits to be an important factor. Only the

rest 10% feel that their best practice would help maximizing the business value.

The analysis being individualistic is almost spread evenly on two or three bases.

However the highest percentage opinion was towards retention of existing customers.

It is a generalized management perception that it is 5 times more time consuming and

costly to get a new customer into the business than keeping an existing customer

happy. In view of this business personnel try their level best to ensure that they are

able to retain their customer base to ensure customer satisfaction and goodwill.

3.9 ABILITY TO SUPPORT THE NEXT GENERATION:

STRONGLY

AGREE

AGREE STRONGLY

DISAGREE

DISAGREE NO

OPINION

42% 53% 5% - -

STRONGLY AGREE

AGREE STRONGLY DISAGREE

DISAGREE NO OPINION0%

10%

20%

30%

40%

50%

60%

Chart Title

A business formed either by a family or a corporate is started with a vision to grow in

the years to come and continue operations sustainable for many years/decades to

come.

A family business is started by family members with an idea that it would grow and

ensure prosperity for the coming generations of the family as well as the improvement

of society. Being family members the prosperity of the business means the prosperity

of the family members as the profits are shared among them. Bing directly connected

to policy making as well as operating the business the family members would take

necessary actions in time to ensure success of the business. And this would ensure

that the business has the capacity to grow as will as sustain and support the coming

generation of the family.

The analysis also clearly indicates that almost 95% of the people analyzed are of the

same opinion.

3.10 AGREEING WITH THE BUSINESS GOALS AND POLICIES:

STRONGLY

AGREE

AGREE STRONGLY

DISAGREE

DISAGREE NO

OPINION

40% 60% - - -

STRONGLY AGREE

AGREE

0%

10%

20%

30%

40%

50%

60%

Chart Title

For any business to be successful irrespective of its size it is very important for the

business to have a vision and prepare a vision statement. Based on the vision the

management core team (family members) formulates goals to ensure that the business

is able to grow and prosper in line with the vision. On agreement of the business

goals, necessary business plans and policies such that the core team members can

concentrate on critical issues and operational team members will be able to run the

business. In absence of policies and plans there would be no continuity and each

person would take decisions as per his liking and this may hamper the business.

When all members agree with the goals and plans of the business, it also motivates

them to work towards achieving the common goal. From the graph it can be said that

40% of the entrepreneurs strongly agreed with the goals and policies of the

organization and the remaining 60% agreed with it. None of the entrepreneurs

disagreed with the business policies and plans.

3.11 CONNECTION OF THE SENIOR GENERATION WITH THE

BUSINESS:

STRONGLY

AGREE

AGREE STRONGLY

DISAGREE

DISAGREE NO

OPINION

40% 55% - - 5%

STRONGLY AGREEAGREENO OPINION

In the present day, with liberalization in place and where most of the people are very

educated, families are usually caught between generation where either an older

generation or a younger generation is more or less in charge. Sometimes the younger

generation of the entrepreneurs may not agree with the ideas of the older members.

This may in turn lead to conflicts between them. Many a times, the younger

generation being more qualified and exposed to modern business policies may not be

very keen when the older generation play an active part in the affairs of the business

as they may be practicing out dated beliefs and may not be too keen to expand or take

any major business risk.

The pie chart above shows that 40% of the respondents strongly agree to the fact that

they would want the senior generation to take part in the business. 55% of the

respondents agree to this prospect. None of the respondents disagreed with this idea.

The balance 5% had no opinion about the connection with the senior generation.

3.12 SUPPORT OF THE CREDITORS AND CUSTOMERS:

STRONGLY

AGREE

AGREE STRONGLY

DISAGREE

DISAGREE NO

OPINION

20% 65% - 5% 10%

STRONGLY AGREE

AGREE

STRONGLY DISAGREE

DISAGREE

NO OPINION

0% 10% 20% 30% 40% 50% 60% 70%

Chart Title

It takes decades to master the fundamentals of an industry through painstaking

attention to detail in building suppliers, in creating distribution networks, in

understanding customer needs. There were some instances where the younger

generation realized that they were unable to negotiate attractive terms from banks and

customers, as they used to, when the senior generation were involved in the business.

This may cause a lot of problems during business activity.

In the above graph it can be seen that, 20% of the respondents are confident that the

creditor and customers would be loyal to them even if the senior members were not

connected to the business. A majority of 65% also agreed with this fact. A minority of

5% of the respondents felt that they might not receive the support from the creditors

and customers. 10% of the respondents have not given any thought on this aspect and

as such could not give their opinion.

3.13 DECISIONS TAKEN BY THE FAMILY MEMBERS:

STRONGLY

AGREE

AGREE STRONGLY

DISAGREE

DISAGREE NO

OPINION

30% 20% 25% 5% 20%

STRONGLY AGREE

AGREE

STRONGLY DISAGREE

NO OPINION

0% 5% 10% 15% 20% 25% 30% 35%

Chart Title

Decision-making is a very important task in the business. Usually, the head of the

family takes decisions when it comes to a family managed business. Sometimes it is

seen that selected members of the family take decisions. In this study it was revealed

that 30% of the respondents strongly agreed to the fact that every member was

involved in the decision making process. 20% of the respondents also agreed with this

proposition. There were some respondents, i.e.. 25% who also disagreed that all the

members are not involved in taking decisions. 20% of the respondents did not express

their opinions.

CONCLUSION:

Many of the Indian businesses are owned and managed by families. This is however

not necessarily a disadvantage as long as the family firms are able to overcome their

historic weakness. Family businesses whether it is run by nuclear family or a joint

family, whether the business is micro or small or medium or big, the problems faced

are more or less the same. There are chances that a joint family may become a nuclear

family at some stage and a nuclear family may develop into a joint family at some

stage or even split into singe families based on trends with the present generation.

This study brings us to a conclusion that for almost everybody in the world, the three

most important aspects in their lives are their work, their families and their future.

There is something special about business organizations since it combines the

business and the family. That is why, in India, business and family were and are

absolutely inseparable.

The most frequent question asked nowadays is what can be done to sustain or ensure

prosperity of a family business. From this study we can conclude that in order to

sustain a family business, the business resources should be used to gain competitive

advantage, as well as the entrepreneurial spirit should be kept alive. Resources do not

refer only to wealth but also social networks, emotional support from family

members, human capital and financial management capabilities. These resources and

competencies are non-compensatory, meaning and low accumulation of one negates

the benefits of others. For example, a family’s social network is very important. The

stronger and wider the social networks, the further family businesses can reach.

Emotional support in a family cannot be discounted too. Family relationships,

whether conflicting or amicable, will have an impact on business success. In most

families where emotional support is high, the business performs better, the younger

generation of today being well educated both within the country as well as abroad are

able to guide the business in a far better way than the older generation.

To conclude we can say that family business not only ensures prosperity of the

concerned family but also provides employment opportunities to others and resources

to the government by means of taxes and growth in economy. Even if the family

businesses are small several such business put together can ensure growth of the area

as a whole.

SUGGESTIONS:

Family-owned businesses in India need to see business and family as two separate

“entities” and re-engineer their operations in order to grow as big trees in today’s

competitive environment. Family firms have to strive hard to be well managed as

compared to other forms of business. The need for a professional business approach is

arguably even greater in a family than in a non-family firm as any misunderstanding

from business point of view may also affect the family members or personal front. So,

all members of the family need to understand the part they are expected to play in the

continued success of the firm. As it is difficult to separate family relationships from

business relationships, clarity of roles is particularly crucial in family firms. Some of

the actions which family firms can take to ensure their survival success are:

1. Clarity of roles: Family executives and family owners have to think through

the present and future relationship between their families and their enterprises.

This should lead to clear structure, which separates the governance of the firm

from the affairs of the family. Further, members of the family should take the

trouble to understand the part, which they play in the continued success of the

firm. Owners/managers need to appreciate that they wear two hats and have to

be sure that they are wearing the appropriate one when making decisions.

2. Effective board: The continuing success of a family firm is best assured if it is

added by an effective board or leadership one with competent directors/

leaders on it, who bring with them outside knowledge and experience also.

Family firms need to be able to draw on the best independent advice that they

can find in order to complement the strengths, which come from the family’s

expertise and commitment. To succeed, family owned business should focus

on rightful governance

3. Logical organizational structure: the structure of the firm should be aligned in

such a manner that the chain of command and the decision making process is

clear. Jobs need to be clearly defined and responsibilities allocated. The

assignment of tasks and designation and position of personnel with their roles,

responsibilities and powers should be within and outside the firm. All of this

helps to avoid arguments within the family about the way in which the firm is

being run and responsibilities shared.

4. Equity of opportunity: The firm’s policies on recruitment and promotion need

to be written down and respected. The importance of these policies to

members of the family is self evident, but it is equally important to non-

members of the family considering whether to enter the firm.

5. Changes in the society: there is considerable impact on the family due to the

changing society, changes in the culture and the generations .The third

generation remembers own thoughts full freedom in applying their own

thoughts to start new business ventures or to expand, or diversify by doing

away with some of the existing less profitable businesses . Indian values and

culture should be protected in educating, enlightening, empowering family

members in fulfilling the dream of the nation.

6. Encourage Family businesses: Renowned institutions like Indian School of

Business, universities and government bodies should have to focus their

attention on the management and the sustainability of family business

ventures. Separate management courses on family business management

should be offered for the benefit of second/ third generation entrepreneurs to

develop the business as per the changing needs of the society. The government

can also provide some additional incentives for managing and expanding

family business ventures.

7. Communication: Building a sense of family pride would greatly help to

sustain family businesses. Moreover it should be ensured that there is a

smooth communication between various generations of family members.

Family members need to communicate openly and honestly with one another.

The elders in the family must encourage and create an environment conductive

to open communication. In the absence of such an environment, family

members can feel repressed and suppressed that can lead to discontentment.

Non-judgmental listening and demonstrating mutual trust are necessary to help

family members open up to one another.

8. Professionalization: Also a professional approach to management is crucial.

The sons and daughters of most big business men are getting themselves

professionally and technically trained these days. When professionalism is

lacking in managing the business, the head of the family has to search for a

suitable person with professional expertise to manage the business

successfully with sustainability and competitiveness to meet the expectations

of the global customers.

Some of the other suggestions are:

Educate, train and motivate the children into business and take them along as the

business grows.

Irrespective of the number of the children born to a person in the family, all the

children get equal share and same treatment.

For expansion, identify the strengths of the individual and support the person or the

product.

Expose the head of the family and the others to the outside world by attending

conferences, industry expos, etc… they develop progressive thinking and accept the

opinions of the younger generation to make the business and the life better for the

family.

The most important requirement is ensuring that there is perfect harmony between the

three parts – family, management and ownership. The business and the family must

not be dependent on other for survival. It should be able to remain unified even in the

absence of a common business interest. Likewise, the business should be able to

outlast the family, if necessary. Only then could the family business really thrive.