How a family business management program can help transform a business into a modern, sustainable business
Family businesses make up 85% of Indian businesses and contribute a significant share of the country’s employment and national production. However, the survival rate of these companies to the third generation is around 13% and falls further to 4% beyond. Interestingly, this is not unique to India. A Cornell University study almost shows the exact rates for family businesses in the United States.
Family business management programs were born out of the realization that, while in urgent need of succession planning and modernization, any potential solution had to be tailored to their unique structure and requirements. As a training ground for future owners, this program differs from a traditional MBA. Instead of focusing on the development of professionals, they are managed from the perspective of a stakeholder in the business. The aim is to convey a holistic transformation so that they can help in the transition of their family businesses to modern and sustainable ones.
When it comes to family businesses, the two main challenges are governance and succession planning. Based on a multigenerational property, they are characterized by the absolute control of the family over the decision-making process. Many of the older and established family businesses can often have a complex management system influenced by the dynamics of the family owner. While the foundation of the story, long-term commitment, and family relationships have the potential to create extremely resilient businesses, in reality these factors can cause their downfall as well.
Family disputes, refusal to adopt modern practices, lack of estate planning and accelerating competition are just some of the factors that threaten their long-term survival. In India, they are often ruled by a powerful Patriarch and have an ingrained self-structured framework that can be difficult to break. But, with the advent of globalization, more and more of these companies are expanding across borders, while facing intense competition in their own national markets. This has created an urgent need for new leaders who can transform these companies into modern ones.
A family business management program uses unique methods to educate students about the importance of the family business, their role as future entrepreneurs, and the challenges they may face. This can be implemented through several measures, such as using the alumni network, to provide valuable information. Interactions with other people who have faced challenges during the transition provide invaluable insight into the role of family members, the challenges of introducing change, and balancing relationships and life. business.
Students are also trained in various aspects of business etiquette and social norms to help them understand cultural nuances when dealing with international clients and overseas opportunities.
In a globalized world where new start-ups and international companies have emerged to threaten the long-standing position of historical players, family concerns must transform and renew their ecosystem. This requires a restructuring of organizational structures rooted in innovation, market expansion beyond international borders and the urgent inclusion of modern management practices.
The author is Director, Pravin Dalal School for Entrepreneurship & Family Business Management, NMIMS Deemed-to-be-University