FAMILY BUSINESS SPECIAL...Professionals Give An Edge to Family Businesses

FAMILY BUSINESS

Professionals Give An Edge to Family Businesses

Professional managers are specialists & can manage growth better. So, the dilemma before family businesses is not whether to professionalise. It is about when to do so

    I joined my family business in 1971. My family, a large joint one, owned diverse businesses collectively managed by family members. The businesses ranged from trading to manufacturing, but none leveraged any significant brands. In this backdrop, I strived over the subsequent two decades to create a distinct identity for a successful brand-based FMCG business.

Still, in 1990, when we carved out the FMCG business into a new company called Marico, it was a leap of faith for me personally and a quantum jump for the business, which then had a turnover of Rs 80 crore.

The separate corporate existence did impart a sharper focus and enhanced the growth potential. But it also held out a challenge — how would a new, unknown company attract talent? We inherited about 200 employees of our parent, Bombay Oil.

But we needed fresh talent to build profitable brands. We could not afford mass advertising. So we adopted an innovative approach. We came out with two news-styled recruitment ads. The first dramatically announced: ‘200 Employees Walk Out of Bombay Oil’. The second screamed: ‘Mass Killer Nabbed’. The campaign was fresh and unique, and fetched us the desired attention. The transition towards professionalisation is crucial for a family business. In such an enterprise, typically, members of the family handle virtually all key aspects. They take most decisions with or without professional qualifications or business exposure.

However, a mix-up between ownership and management could lead to conflicts in decision-making. I have seen organisations where relationships among owner-manager siblings get too complex. Finally, the business wilts under emotional strain and lack of business focus. Interestingly, the seeds of such a decline are sown during growth itself.

The evolution phase is exhilarating. Owner-managers carry limitless energy and are eager to do well. But that is against the backdrop of potential conflicts on how to deal with the growth, and the dreams and thoughts that underlie growth ideas. There could be more sparring and deadlocks on the arrival of the next generation, armed with better education, more sophisticated exposure and new ideas. Families could differ over the pace of growth and the investments required or eventual aspirations. This eventful phase in the scaling up of an enterprise is crucial and needs careful handling.

A key institutional decision that needs to be taken is about the role of professional managers. My experience with professionalisation has been excellent. Since I stressed on professionalism, Marico’s business has grown 50 times — from Rs 80 crore in 1990 to Rs 4,000 crore in 2012. Let me share with you what I learned from my own growth journey. Professional managers bring in specialisation — in general management or expert functions. They are qualified and experienced to deal with growth. They can take decisions and run the business on sheer merit, not yielding to undue influence. The merits are many. Therefore, the dilemma before owners is not whether to professionalise. It is about when to do so. Scaling up business requires scaling up the organisational apparatus and management. Usually, there comes a point beyond which the owner family cannot meaningfully organise and manage the business.

If a family business does not professionalise in time, it could end up restricting its growth orbit. I do, however, reckon it is natural for family businesses to be and stay confused about the need, suitability and timing of inducting professionals.

I recommend that a family take time to get concurrence. It is also important to send out a unified and sustainable signal to build a good brand in the talent market, to attract the best possible hands.

This strategic clarity on recruiting professionals enables the owner family to tap head hunters with a clear brief, precise needs and realistic targets. A family business may have to struggle to overcome the initial challenges of the professionalisation process. My experience is that it pays to be resourceful in this struggle. For instance, it could take time before one starts attracting quality talent. In the mean time, growth could reveal talent gaps. I filled up such gaps resourcefully, using individual consultants.

Another challenge is presentability. The growth story may be attractive, but the physical presentability to prospective talent could be suspect. I faced a unique challenge. Our office was in the crowded commodity markets of Masjid Bunder, hardly a place a bright MBA would visit, forget join! I dealt with this creatively. I would fix the first meeting in the top-class environs of Willingdon Sports Club. That provided a fitting ambience to “sell the Marico dream”. I would, of course, take the newcomer to Masjid Bunder. But that would be later, when the talent was sold on the Marico story!

The nature of a business drives the need and extent of professionalisation. For instance, family enterprises seem to excel in low-margin businesses such as trading, maybe because owners can drive crucial decisions (commodity positions, forex transactions) with far more firmness than overcautious, indecisive or recklessly risk-taking professionals.

Professionals may do better in high-margin businesses, that need higher sophistication in business management, e.g. IT, manufacturing, branded products/FMCG. Professionals can add tremendous value in brand-building, where the owner family may not possess the necessary skills, bandwidth and refinement needed for sustained success.

Family businesses need not give up the entrepreneurial flair while professionalising. In fact, the best situation is one where professionals imbibe the goodness of entrepreneurship. There could be a dilemma as to which level to professionalise first. It is not necessary to straightaway get a professional CEO.

One could start with middle-level specialists staffing critical domains such as marketing and manufacturing. A lot depends on the aspirations of the owner family. It has to reach a consensus on many important points — specific aspirations, the extent of leeway to be given to professionals, how much to delegate, up to what level, who should give up what responsibility, who is retiring and who is succeeding him/ her, and who should contribute the most or the least. It helps if the owner family sits together and arrives at a concrete thought process starting with the basic issue of whether and when to professionalise. This would be driven by family aspirations, needs of domain expertise and availability within the family. The family must ensure there is a mechanism for conflict resolution besides a well-known code of conduct for members. Cohesion in the family fabric through a family council or trust sends the right signals to professionals. Another critical factor is the readiness to let go.

Entrusting crucial functions and handing over charge to professionals demand adjustments and sacrifice. There would be, like everywhere else in life, an element of risk. Occasionally, the owners may make mistakes by choosing ‘wrong’ professionals. But that should not lead the family to lose faith. To end, I quote Ernest Hemingway, “It is good to have an end to journey toward; but it is the journey that matters, in the end”. The process of professionalisation is as critical as the end — of staffing the business with professionals. And the process highlights the importance of building an enduring and effective culture in an organisation.

Harsh C Mariwala
CHAIRMAN & MD, MARICO LTD in ET120714