Family-managed businesses constitute 70% of the total Indian industries and contribute to 79% of the national GDP. India has 108 public-listed family-managed businesses, making it the third highest in the world. Global research demonstrates that most businesses start with an entrepreneur who is passionate about a sector. The person takes a lot of risk and works very hard to make it grow.
We are all aware of the contribution of Jamshedji Tata, G D Birla and others who started many companies. Internationally, Ford Motors, Honda, Yamaha, Toyota and many others also started as family- managed businesses, but they professionalised the management to make it a sustainable company. Research also shows that family-managed businesses contribute to 87% of the world’s economy. If they do not professionalise the management by the third generation, the company inevitably withers away.
Many family-managed companies such as the Tata group, Mahindra group, etc., have professionalised and become sustainable companies. However, companies that did not professionalise withered away. We all remember the Modi group, Dalmia group, Kilachand Industries and Mafatlal group, which at one time were great conglomerates. Today, the Tata group has a Group Chairman who is an executive not from the Tata family. Yet, many family owners refuse to professionalise.
The question therefore arises about how to professionalise the company. I have been actively involved in professionalising different companies and based on my research and experience, I am listing down the steps in professionalisation of the management. The first step is to do a diagnostic study using a SWOT analysis to identify the strengths, weaknesses, opportunities for growth and threats that can derail the company. This has to be done in terms of business strategy, shared values, style of leadership, systems and policies, staffing (both numbers and quality) and skill sets available.
Based on this diagnostic study, an action plan is made to further build on the strengths and remove the weaknesses found in the above areas to make the company grow with clear milestones and evaluation parameters. While embarking on a scientific journey to professionalise the management for future sustainability, we also need to be sensitive to the complex growth-oriented issues faced by the entrepreneurs. For example, when an entrepreneur starts a company, it is very difficult for them to hire the highest quality people.
The entrepreneur looks for hard work, great implementation capacity and loyalty. In most cases, when the company reaches Rs 600-Rs 1,000 crore turnover, the entrepreneur realises that those who have contributed to the growth of the company may not have the capacity to take it to the next orbit and double or triple the turnover. It is a very painful realisation and equally painful for him/her to replace them with better talent. The entrepreneur realises that if they are not replaced, the company will not grow, but at the same time, he/she is also acutely aware of the fact that these very people have been loyal and made the firm grow, and are dependent on them.
At many times, the promoter may have treated the employees who joined during the start-up phase as part of his/her family. I remember a promoter of a pharmaceutical company telling me that the four vice presidents who had contributed to the growth of the company were now not allowing new talent to grow as they were scared the new entrant may replace them.
He said, “Every time I have got very bright talent under the VPs, they have seen to it that these professionals were made to fail. What do I do?” He was frustrated and agonised. Yet, it was difficult for him to tell them to exit. Secondly, many entrepreneurs may painfully realise that the strategy that made them grow is not yielding results anymore, as the market forces have changed. They need to build a new strategy, but that also means a lot of investment on technology, people, etc.
Research demonstrates that almost all companies that have grown have made significant investments in technology, processes and people. Hence, an important step is to acknowledge the reality and create a vision, business strategy and make investment plans to induct technology to put the company on a growth trajectory. The third step is to create human resource policies, SOPs and systems so that the company can work as per policies like multinational companies do and not based on the whims and fancies of the owner or top management.
The fourth step is to benchmark the salaries in the market and peg the compensation to the 75th percentile so that the best talents stay with the company. The fifth step is to create a culture of meritocracy by having a very effective performance evaluation system to measure the contribution scientifically and accurately and then give rewards and recognition based on that. The sixth step is build capability in the existing people through protracted training. Training should be seen as an investment and not expenditure. There are many more steps, but these six steps are the curtain raisers towards professionalisation and will herald a great future.
Ashoke K Maitra (ashoke.maitra@gmail.com)
Senior HR Adviser to Industries