Recent research by management consulting firm Hay Group suggests that over two-thirds of family businesses in India don’t have succession plans in place. The study also points out that globally, more than 72% of family-owned businesses do not survive beyond the third generation. The firm notes: ‘The first generation builds, the second expands and the third destroys. It is a universally acknowledged phenomenon that few family-owned businesses survive beyond the third generation’.
According to Kavil Ramachandran, Thomas Schmidheiny chair professor of family business and wealth management at the Indian School of Business (ISB): “Though family businesses account for more than 85% of businesses in India, there is paucity of knowledge about their ways of organizing and managing in these rapidly changing times”.
Business schools in India are looking to fill this gap. ISB, for instance, recently launched the Management Program for Family Business (MFAB), a 15-month, part-time course. Later this year, New Delhi-based International Management Institute (IMI) will commence an 18-month Global Post-Graduate Diploma in Management (PGDM-MBA) in family business. Among the Indian Institutes of Management, IIM Bangalore runs a 40-day (spread over one year) course called Management Program for Entrepreneurs & Family Businesses, which it started a few years ago. IIM Ahmedabad teaches family business as one of the several subjects in its Post-Graduate Program in Management (PGP).
A recent report in business daily Business Standard notes that the ‘demand for management programs in family-owned business has seen a rise by 30% to 40% in the past two years’. Pointing out that family-owned businesses are vital to the Indian economy, Ashutosh Khanna, associate professor of strategy, innovation & entrepreneurship and coordinator, global PGDM (MBA) – family business at IMI says: “They contributed 41% of total corporate tax revenues in 2007 and accounted for half of the corporate hiring in 2010. The dynamic economic environment they are operating in requires that the next-generation of leaders be groomed accordingly. We need to build capacities at the family business level”.
According to John Ward, clinical professor of family enterprise at Kellogg School of Management, business families in India are becoming more aware of the special challenges they face and are realizing that “there are some fundamental lessons to [be] learned”. Ward lists the challenges facing family businesses in India: Attracting and retaining non-family management talent, preparing the next generation for leadership, balancing individual freedom with family loyalty, assuring sibling unity, and not over expanding and growing the business despite strong economic conditions. He adds, “While academic courses in family business [in India] are still rare, they are becoming more recognized”.
Aakash Chaudhary, who joined his father’s enterprise Aakash Educational Services in 2006, is a strong advocate of classroom training. After acquiring a MBA degree from ISB, Chaudhary went to Harvard Business School for an owner/president management program certification. “In a family business, the issues usually revolve around building consensus around key decisions, delegating responsibilities, profit-sharing, etc. A course rich with case studies of family businesses definitely helps a lot. Moreover, there is a lot of peer learning because they are in the same boat as you”, he says.
Meanwhile, a study co-authored by ISB’s Ramachandran in April 2012 titled, ‘Challenges Faced by Family Businesses in India’, suggests that Indian family firms are going through a transition mode. Ramachandran adds, “Though gradually, they are progressing towards professionalization. We are also witnessing a separation of ownership and management…. There is a realization among the family business leaders that their businesses must alter the traditional ways to make space for modernity if they (want to sustain themselves)”. Ramachandran believes that this transition bodes well for India and “is a reflection of a nation that is changing for the better”.