The times they are a-changing

Parimal Merchant | Updated on January 20, 2018

Family tree How to keep it growing and healthy justaa/shutterstock.com

And if family businesses do not keep step, they will fall by the wayside. Learning and adapting are key elements

Family businesses can disregard change only at their own peril. Given that most family businesses are small-scale, and operate within a limited environment, change often passes them by.

Chequered history

The history of business in modern India is chequered. During the days of Licence Raj, only a handful of business groups had the knack of getting licences and permissions. They controlled most of private enterprise in India; other ancillary industries, generally small family businesses, were subcontractors to these large groups.

It was only in the late 70s and 80s that most modern businesses in India had a start.

How nascent the business scenario was can be gauged from the fact that the BSE Sensex, which is around 25,000 now, was at that time around 100! It was only from the 80s onward, when the Foreign Exchange Regulation Act was diluted to some extent, that the capital market in India started to gain momentum. Until 1995, businesses moved ahead and consolidated.

Because businesses were so restricted, most of them were small, and since the owners micromanaged everything, they neither had the resources nor the inclination to hire capable people.

Employees were there only for manual labour, to collect or deliver supplies, or to keep accounts. They were paid little, and were not expected to take any initiative. Owners were paranoid that if employees got to know too much about the business, they would hold the owner to ransom, or ask for more money by threatening to leave.

As long as owners were the only ones to know every aspect of the business, no one could take them for a ride.

The employer saw himself as a benefactor, doing employees a favour by giving them a livelihood. This was no different from the  zamindar of yore, who was answerable to none. Employees had no say in anything, and no choice either, since the employer could fire them at any time without compunction, with a hundred others ready to take the job at the same or lesser pay.

Small-scale and limited prospects also meant that funding was difficult to obtain, and businessmen learnt to live with scarcity of capital. They operated within the limits set by their own resources. 

Big changes

That paradigm has changed. From the 2002 onwards, business has been booming in India. There are sophisticated and easily accessible methods of communication.

What took months to communicate can now be done instantaneously. There are no limitations, whether regulatory or in terms of locality, State or even international boundaries. But all this has brought its own set of challenges.

The growth of professional managers: With the growth of businesses, complexities also grew. These complexities were in terms of operations, management, finance and accounting.

With so much knowledge required in each of these areas, it was beyond the capability of owners to do it all by themselves. So, instead of merely hiring labourers, businessmen began hiring capable people who could perform better than themselves in particular areas of operation. This meant letting go of control, but to build an organisation, it was necessary.

We see that some family businesses are fully professionally managed, but this is still rare. Most old-school businessmen lack the sensitivity and commitment to build organisations that take care of the interests of employees as well as owners. This is still an evolving process. 

From owner-oriented to employee-oriented: Owners used to behave like kings or  annadaatas with their employees, but the balance has shifted. Today, good talent has multiple choices. From a time when employers used to have hundreds of applicants for the same job, today, a qualified applicant has dozens of options to choose from. Typically, at the interview, employers evaluated candidates by asking them why they should be hired.

Now, a talented candidate needs to be given reasons why he should work at a particular company.

From a situation where the success of a family business was measured by how closely the owner oversaw everything, today a critical success factor in any business is the ability to hire and retain capable people who can do a better job than the owner. It is time for more traditional family businesses to recognise and adopt this model.

Effective systems and processes: When the business was small, and the owner was involved in every aspect of it, his mind worked like a computer, with all details — big and small — at the tips of his fingers. Businessmen made a virtue out of their compulsion, and counted on their ability, agility and flexibility to be able to respond to any situation.

But as size, complexities and geographical locations grew and spread, controlling things the old way was no longer possible.

These shifting goalposts now call for effective systems and processes to be set in place, power delegated and responsibility assigned to others, something that traditional family businesses still have to come to grips with. But the choice is clear: either stay small and eventually disappear, or lose some control and grow.

Abundance of capital: From having to depend on their own resources or those of small local moneylenders, businessmen today have capital available from a variety of sources, and in various formats. No longer do you have to cut the suit according to the cloth, there’s cloth enough whatever the size of the suit.

Slow and steady no longer

With the market being local, capital being limited, and opportunities few, slow and steady was the way most businesses used to be, and it was right for them, then. Not any longer. With an over-abundance of resources and opportunities, the new motto of family businesses needs to be, ‘Fast and focused wins the race.’ 

Peter Drucker, way back in 1964, had mentioned in his book, Managing for Results, that the main job of businessmen was to double profits every year. This is very much a possibility for family businesses in India today, as long as they recognise the changes that have taken place, and adapt their business practices.

You just have to start with changing your mindset and, like many family businesses have been doing already, doubling or tripling profits will not only be possible, but will happen as a matter of course.

The writer is professor and principal advisor at the Asian Institute of Family Managed Business

Published on May 03, 2016

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