This article was first published in the Economic Times on April 05, 2023, Co-authors: Navneet Bhatnagar, Sougata Ray; https://economictimes.indiatimes.com/news/company/corporate-trends/what-family-and-non-family-businesses-can-learn-from-each-other/articleshow/99276293.cms
Indian economy comprises
business organisations belonging to diverse ownership categories. On one hand,
these include the traditional family-owned firms, such as those owned by the
Tatas, Godrejs, or Birlas. While on the other hand, there are non-family businesses
that are owned by the state (ONGC or SAIL), or multi-national corporations (HUL
or BATA), or have diversified set of owners (L&T or Infosys). Both the
family and non-family businesses have had a track record of successes and
failures. There are significant learnings that each of these categories of
businesses can share with each other and benefit from.
Family-owned business is the
dominant form of business organisation in India. Ranging from large industrial
houses to medium and small enterprises, family businesses form the backbone of
the Indian economy. Over 90% of all listed firms in India are family-owned
businesses. There are several lessons that non-family businesses can learn from
their family-owned peers:
1. Long-Term
Orientation and Patient Capitalism: Known for their resilience, many Indian
family businesses such as, the Tatas, Birlas, Burmans, and Murugappas, have
survived for five generations or beyond. Their long-term orientation and
patient capitalism helps them assign greater significance to long-term
gains compared to short-term returns. Long-term orientation of family business
facilitates radical innovations which require longer time horizons to fructify
and earn profits. Globally, this phenomenon is observed in some of the most
innovative family firms in the pharmaceutical industry like, Merck of Germany
or the Swiss, Roche group. Patient capital investment provides for longer
gestation periods and enables a family business to outperform competition in
the long run, thereby helping it sustain longer. Businesses operating with a short-term
perspective react to the emerging trends to earn a fast buck, often at the cost
of long-term gains. On the other hand, research has shown that a family
business with long-term orientation in its vision and strategy conducts extensive
environmental scanning to anticipate long-term trends and prepares itself to
take quick actions when opportunities emerge.
2. Strong Stakeholder
Relationships: A set of strong stakeholder relationships is another
characteristic that sets family businesses apart from their non-family peers. On
account of personal engagement of family owners, family firms often have
long-standing relationships with their suppliers, distributors, customers, and
employees. Family businesses are also known for their community embeddedness
and family identity. There is mutual trust and dependence on each of their
stakeholder communities, which helps family businesses overcome challenges
caused due to uncertainties in business environment. This strong stakeholder
cooperation was amply visible during the pandemic times when many family
businesses witnessed a quicker rebound to business operations and profits.
3. Family Values in
Practice: Most important lesson that family businesses offer to their
non-family peers is their strong roots in family values of
custodianship. Being firmly rooted in family values helps family businesses
develop shared vision and goals, define clear and cohesive purpose for being in
the business, and values drive the policies and practices in the family
business. Values provide a moral compass, inspire exceptional performance, and
help family businesses achieve stability and maintain consistent behaviour. It helps
them overcome adversities and guides them through ethical dilemmas in a
constantly evolving business environment. For instance, in our qualitative
research on ‘family values in practice,’ the house of Tatas and the
Godrej group were found to command respect and committed stakeholders mainly
due to their conduct rooted in a strong value system, which was passed on from
one generation to another.
Family businesses can also
learn several things from effectively managed non-family businesses:
1. Professionalism: Professionalism
has two dimensions: organisational professionalism and occupational
professionalism. Effectively managed and organised non-family businesses
exhibit high levels of organisational professionalism, which entails
clear hierarchy of authority and decision-making, standardised procedures,
clear roles and responsibilities and assessment of executive performance. Occupational
professionalism entails managerial conduct that adheres to principles,
values, and ethics. While practicing occupational professionalism, managers of
non-family firms exhibit self-discipline and gain collegial authority. Professionalism
is intricately attached to an organisational culture of excellence and merit.
Thus, family firms can enhance routines, managerial outcomes, control, and
productivity if they imbibe professionalism.
2. Capability and Resource
Orchestration: Another aspect that family businesses can learn from
non-family peers is ‘capability orchestration for scalability.’ A firm's
ability to orchestrate appropriate capabilities and resources required to
achieve certain strategic objectives is critical to its success. Non-family
firms are known to have effective capability orchestration because of a diverse
and qualified workforce comprising professionals that come from different
backgrounds. They can quickly garner resources and tap capabilities to create
value for the customers and owners. Owing to their capabilities and resource
orchestration skills, non-family firms can also quickly scale-up their
operations. Family businesses that aim for growth can learn these from their
non-family peers.
3. Decisiveness and
Accountability: Well structured decision-making process, high quality of
professional employees, clear evaluation rubric for key business problems and
professional approach to dealing with management situations enhance the decisiveness
of non-family businesses. They also have high levels of accountability
for the targeted outcomes of executive decisions. If the desired outcomes are
not achieved, they immediately adopt corrective measures. This ensures that
they stay on course to achieve their strategic objectives. Family firms are
often blamed for being indecisive and for poor accountability norms and
practice. They can considerably benefit from adopting the decisiveness and
accountability norms followed by non-family businesses.
Thus, both the family and
non-family businesses can enhance their performance outcomes through their
constant effort towards mutual learning.
