Here are stages and perspectives behind running family businesses in India

Multiple fold growth over the last few decades has spurred the aspirations of businesses owned and run by families in India. The next generation is being inducted into the business as a natural succession. But, on one hand when older generations tend to focus on core functions that can improve efficiency and reduce cost, the next gen likes to focus on strategy and brand building.

The growth has brought business to a different stage where what worked earlier may not work anymore. Perspectives have changed, customers have evolved, competition has taken a new shape and fresh talent is in demand. How important are these stages? How do we come to terms with realities and take realistic and relevant decisions?

Family Business Evolution Stages

The stages of growth in a family business are reasonably well understood. However, taking a generic view of growth may become misleading for an organization.

To move from the Setup and Inception stage to a stage of functioning
Survival, organizations require investment with a sole focus on breaking even in the business. It is an owner dependent stage.

The first challenge is to move from a few-people organization to a company with a larger employee and customer base. It is a people and relationships dependent stage.

The Success stage is a transformational stage when organizations make a choice to move with bold bets or steady growth. The most dramatic shift in a business run by families takes place at this stage. External professionals at senior levels are sought to drive expertise, processes and productivity. Invariably, due to lack of systems and processes, attracting talent becomes a challenge. Those who do join are viewed with skepticism and are expected to produce quick results increasing the chances of failure. The next gen entry into the business at this stage has its own challenges. Their need to establish themselves is very high and they prefer taking the business to the next level quickly. The next gen’s ability to prevail with a wider worldview and capability drives the organization to become more process and expertise-driven.

The Take-off stage is an expansion stage. With systems, processes, capabilities and financial sustainability, diversification and investment into newer adjacent businesses seem the logical next step. This is the stage of a professional, dependent organization.

After the take-off stage, the scale and size of operations demand streamlining and synergy. This is the Resource Maturity stage where the ownership and management may even become independent making the top leadership responsible for the capability and expertise in managing the complexities of the business.

At the “Global Corporation” stage, the scale and challenges of operations evolve organizations into transnational corporations governed by shareholders and a board managed by a global talent pool. This effectively means that a professional board where the management may or may not have any family members involved runs the business.

Perspectives and Mindsets at Different Organization Evolution Stages

The mindsets are critical pointers to the perspectives and decision-making in various growth stages of an organization.

Personal investment de-risking mindset: This is a personal investment stage so the mindset is geared towards de-risking the personal investments.

Commercial mindset: This is a relationship-driven stage with a significant dependence on individual relationships where the owner is at the center of these relationships.

Transformational mindset: Success stage of growth is focused on high productivity and efficiency. Focus is to create a virtuous cycle of satisfied customers, interested investors and employees keen to work with the organization.

Expansion mindset: While the local markets have opened up, Indian companies have geared up to take on global markets, acquiring companies in developed economies. There are examples where sound financial and business synergy logic have led to acquisitions, but there was not enough management bandwidth to ensure integration. M&M, Apollo Tyres, Wipro, HCL, Avantha Group, etc. have succeeded in expanding through acquisitions.

Empowering mindset: Mature and successful companies are able to provide empowerment to customers, suppliers and employees. The owner leads the organization, which is governed more by principles, strategies, processes and policies.

Global mindset: Sustainability of the business, society and planet becomes pronounced in this stage of an organization.

Understanding and Assimilating the Differences

The above mindsets exist in some form in all organizations and even though there is always a predominant mindset that drives decision-making, it does not mean that these mindsets are mutually exclusive. Knowing the mindsets and actively allowing the next stage mindset to germinate either through next generation family or external professionals is what may be required. A deeper understanding of the organizational stage and related cultural realities can help family businesses to take the right decisions. This may also help the different generations of family businesses appreciate the perspectives of older or newer generation in the context of prevailing mindset!

(The article is authored by Anurag Aman, Director, Aon Hewitt)

(Image: Thinkstock)