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 Profits, revenues,

of family members efficiency, growth

Relations Deeply personal Semi personal/impersonal

Rules Informal Written and formal

Evaluation Members rewarded No systematic evaluation

Succession Caused by death, divorce, Caused by retirement

voluntary willingness

Authority Based on family position Based on formal position

or seniority.

Commitment Lifetime, based on identity Short term, based on

with family 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  Unclear

 Entrepreneurial  Confusing
 Innovative  Lack of
organizational chart

Roles  Flexible  Role conflict

 Multiple  Nepotism
 Quick decisions  Dual roles

Leadership  Creative  Autocratic

 Ambitious
 Entrepreneurial

Family involvement  High commitment  Can’t keep family

 Loyal issues out of
 Shared values business

 Family Dream  Inability to

differentiate between
family and business
needs
 Rivalry

Succession  Training can begin  Inability to choose

early successor

Governance / Ownership  Family owned high  No outsiders on

degree of control boards
 High premium on
 privacy

Culture  Can have creative  Emotional

culture
 Inefficient
 Rich integrity of
goals  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%

Existence of a plan
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
YES NO

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 CHANGES DECLI ACCES LIMIT LACK OF LACK OF

 TION IN THE NE OF S TO ED MANAGER FAMILY
BUSINESS PROFI FUNDI SALES IAL ASSISTA
CONDITIO TS NG OPTIO SKILLS NCE
NS N
45% 25% 15% 7% 5% 3% -

CHALLENGES FACED BY THE BUSINESS

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
N S
ITO ON S
T I IT G
PE DI
T OF IN N
M N PR ND T IO LS E
CO P IL NC
CO OF FU O SK A
SS E O ES L ST
INE LIN SST SAL RIA
SSI
S C CE E A
BU DE AC T ED AG LY
I AN I
M M
LI K
M FA
C OF
LA
ACK
L

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

YES
NO

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%
 90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
DIVERSIFICATION EXPANSION BOTH

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%
 YES
NO

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%
 Chart Title

NO

YES

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

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%
 Chart Title

NO

YES

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

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 PROFIT BEST GOODWILL CUSTOMER

GROWTH IMPROVEMEN PRACTICE RETENTION
T
25% 13% 10% 22% 30%
 SALES GROWTH
PROFIT IMPROVEMENT
BEST PRACTICE
GOODWILL
CUSTOMER 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:

STRONGL AGREE STRONGLY DISAGREE NO

Y AGREE DISAGREE OPINION
42% 53% 5% - -
 Chart Title
60%

50%

40%

30%

20%

10%

0%
STRONGLY AGREE AGREE STRONGLY DISAGREE DISAGREE NO OPINION

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:

STRONGL AGREE STRONGLY DISAGREE NO

Y AGREE DISAGREE OPINION
40% 60% - - -
 Chart Title

60%

50%

40%

30%

20%

10%

0%

STRONGLY AGREE
AGREE

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:

STRONGL AGREE STRONGLY DISAGREE NO

Y AGREE DISAGREE OPINION
 40% 55% - - 5%

STRONGLY AGREE
AGREE
NO 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:

STRONGL AGREE STRONGLY DISAGREE NO

Y AGREE DISAGREE OPINION
20% 65% - 5% 10%
 Chart Title
NO OPINION

DISAGREE

STRONGLY DISAGREE

AGREE

STRONGLY AGREE

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

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:

STRONGL AGREE STRONGLY DISAGREE NO

Y AGREE DISAGREE OPINION
30% 20% 25% 5% 20%
 Chart Title

NO OPINION

STRONGLY DISAGREE

AGREE

STRONGLY AGREE

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

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.