K R Sekar, Partner, Deloitte India explains the legacy of such businesses and why they are an important driver of economic growth. Excerpts:
The Economic Times Digital (ET): What is the nature of family run businesses in India? What are the key characteristics?
K R Sekar (KRS): From an Indian traditional and historical perspective, Indian businesses are predominantly family run businesses because in India, every state and region has certain communities which are family business owned communities. And when the economy opened up, these businesses grew significantly.
Take any family run business in India – if you look at the history of that particular business, it goes back to the 1920s and 30s. So, all of them have been here for more than a century. Even if you go back to the earlier days of an agrarian economy, the rural chieftain always had pride in employing so many people creating employment and economic opportunities for others. So, it is a part and parcel of Indian tradition and culture. Statistics indicate that almost 85% of India Inc companies were family businesses.
Family businesses are the core of the Indian economy. Without family businesses, Indian businesses will fail because it not only contributes to the GDP, it is also the biggest creator of employment generation. Hence more success of such businesses in India will translate to more success for the Indian economy.
ET: What are some of the key areas where family firms continue to face unique challenges?
KRS: Firstly, there has been the challenge of succession planning in such businesses but the positive aspect is that now a lot of family entrepreneurs and businesses, chieftains of the family seek professional advice on this aspect.
Without family businesses, Indian businesses will fail: Deloitte India’s K R Sekar
Family owned businesses in India are a major employment generator and contribute significantly to the economy. But were they able to hold fort in the midst of the deadly pandemic? ET Rise fills you in on how such businesses rose to the challenges. Watch this video for more.
Watch- K R Sekar, Partner, Deloitte India talk about the importance of family businesses in India.
Second, is the aspect of family governance versus corporate governance. Another important area which some of the family businesses face is about creating the right kind of leaders and identifying leaders for the organisation. Lastly, another significant aspect that comes up for such businesses is how to elect a person who is going to run the family business. However, a lot of families are in the process of drawing up a proper succession plan so that the choice of a leader does not impact the business in any way.
ET: What are some of the management differences between family businesses versus non-family-owned businesses?
KRS: When it comes to family businesses, a couple of important additional characteristics exist. Firstly, family values also get ingrained in organisation values. In an organisation, the values are decided by a group of people running a firm over a period of time but in a family business, the family value also gets transferred to the organisation.
The second important difference is that family businesses always look at the next generation as they aim to be successful in subsequent generations as well. Therefore, the mission and vision are more from a long-term perspective compared to other organisations. Another important difference is the risk-taking ability. Some family businesses and promoters have got a higher appetite for it because they don’t mind having a long gestation period.
ET: How did such businesses fare during Covid 19 – were they resilient enough? What strategies were employed to survive the Covid outbreak?
KRS: Family businesses were able to adapt to the change very fast. They went a step beyond and took care of the employees and the employee families. Some of the companies went to the extent of launching a scholarship scheme for the employees’ children as well. So, to that extent, the companies have gone one step ahead and protected their employees.
When it comes to the business, the way family businesses and promoter companies adopted technology during this time was significant. They were conscious of the fact that the pandemic created a downturn and challenge in their businesses. Some companies rehashed the supply chain and made other compelling changes to the business model. There was no lack of effort and the steps taken were proactive to adapt to the change that came in amid the Covid outbreak.
ET: Could you tell us more about the diversification of the business model undertaken by such family firms during Covid?
KRS: They introduced more digital and technology driven aspects in their business. Besides this, such firms also explored direct to consumer channels through digital delivery. And more importantly, creating a sense of commitment towards the employees that they cared enough. When you create that sort of commitment, it is highly valued by the employees.
ET: Which are some of the global economies which have done extremely well in family businesses? What can India draw from their experiences?
KRS: There are two large economies where family businesses are very successful. Have you come across anyone who is going to study MBA in Germany and Japan? But a lot of people study MBA in Western countries. Or have you come across any of the top 10 management institutes in Germany and Japan? However, these countries have been extremely successful in family businesses. So, the way a family business is managed is very relevant from a country perspective and is based on that respective country’s DNA. India has got a solid footing in family businesses and if such businesses run on Indian traditions and practices, I am sure our economy will go a long way in the days to come.
ET: Tell us more about Deloitte’s Best Managed Companies programme.
KRS: Best Managed Companies has been a global programme which was initially launched in Canada in 1993 and focuses on building deeper connects with the private segment. In India, we launched last year. Despite the pandemic, we got a very enthusiastic response. The most important aspect of the Best Managed Companies is that it is not an award for an individual performance, but for an organisation. It is a recognition of an organisation on multiple levels.
Also, it is not decided by Deloitte, but by an independent jury which evaluates the company on the basis of five key parameters of strategy, capability and culture, commitment, governance and financials and communication.
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor.