COMPARISON BETWEEN THE TRADITIONAL

AND MODERN MARKETING MANAGEMENT

PRACTICES OF FAMILY OWNED BUSINESSES

Abstract:

The article concentrates on how the traditional family

business is getting transformed to meet the current dynamics

by undoing its rigid traditional practices and adapting the latest

trends of management practices. Indian family business is taken as an

example to compare and contrast the traditional and modern

management practices.

1.1.Introduction

A Family Business is a business that is owned, controlled, and

operated by the members of one or more families. More often it is seen

that the Family Businesses are conducted generation after generation.

Many of the public limited companies around the world were started their

operations as the Family Businesses. Usually the Family Business has

family members in the top management of the businesses, and they employ

people from outside to work for their organization.

Family businesses constitute most businesses in India, as anywhere

else. Economic liberalization and rapid expansion in the industrial base in

recent years have not only created growth opportunities for many but

also have tested their resource capabilities to respond to them; some

have chosen to follow the role of a custodian of their existing wealth and

followed the preservation route, while some others have followed more of

an entrepreneurial route of exploiting opportunities with or without

relevant resources, with mixed results. One of the key resources for all of

them is their family, and their prime concern is wealth and welfare of

their family.

India has seen some very influential families in business ( large

scale, medium and small scale business). These families have made a lot

of difference in the business and industrial culture of the country. These

families have existed for over hundred years and have influenced the

economic and political situation of the country. Until the government

of India took a very socialist stand on investment the family- owned

businesses in India were very successful and Tata Airlines was among the

top 10 Airlines in the World. The economy of the country was gauged for

several years on the basis of the growth and development of the family

business. In the 1970s Private owned firms, 93% of which were family-

owned at that time, were put though very regressive policies to control

growth of private wealth. This huge period between 1970 and 1990

created a lot of problems for the private sector (most family-owned)

and rendered it quite unfit for global standards. With the opening

of the economy and the influx of multinationals the family-owned

businesses and the private sector was at a great loss and on a back foot. It

was felt that the family-owned business and family-owned business houses

would lose their place in the industrial map of the country. Time has

proved this to be wrong because the family-owned businesses have

proved to be very strong in their determination to carry the business

on. This article concentrates on how these traditional family

business transforming from their traditional business style to latest

management practices to sustain in this competitive business world and

in the midst of several MNCs.

1.2 Comparison between the Traditional and Modern Marketing

Management Practices of Family Owned Businesses

Selected Parameter

Traditional Practice / Way / Approach

Modern Practice / Way /Approach

1. Organizational Structure

No proper organizational structure

Proper organizational structure with proper pre decided roles of each member

2.Accounting system

No standardized structure Professional and standard structure.

3.Decision making style

Centralized decision system De-centralized decision system

4.Financial Planning

Was not so important Became very important

5.Human Resource

Only family members used to manage

Outside professionals are being hired to manage

6.Leadership style

Autocratic / Dictatorship Democratic style

7.Family Emotions

Emotional relations are moving around accumulated wealth.

Emotions are making Entrepreneurial turn.

8.Change management

Valued only traditional and rigid practices.

Identifying the speed and changing according to that pace

1.2.1 Organizational structure

Traditional approach of family business was like one man show, for

example, the owner used to sign the receipt, cheque, processes the orders

and make everything goes under his eyes. But this mechanism has changed

and a proper organization structure is formed. Family business is now

managing through a systematic governing system. This governing system

includes written constitution, governing board with family and non family

members, etc.

1.2.2 Family Emotions Quotient

Emotion is a big dimension in family-owned firms. As has happened in the

rest of the world, Indian businesses in the future will not run for

perpetuity, and are likely to be sold, merged or acquired at an

opportune t ime to create value for stakeholders. Owners would

need to reduce their emotional quotient (EQ) of investment in the

business, and like any other investment, would need to realise optimum

value for all stakeholders. It is very difficult to keep the bickering from

interfering with work and the company becomes divided into warring

camps, this has changed, now to expand business these family

emotions are creating more strong bond and so each family member

is heading separate business units / function. As you also have family

emotions, and so you need professional management. It ’s all about these

professional-emotional families – combining family passion with

professional management

1.2.3 Family and Business as a separate

India as a country has a very high family values and orientation. It is

therefore seen that family members are trusted with all important jobs. In

traditional approach all the family and business matters were combined

and addressed in one common way, this used to create differences in both

business and in family relations, but now all the family businesses houses

are looking family and business as a separate and not bringing

relationship and relationship status in business. This helps to kill the ego,

superiority and inferiority complexes and the wavelength of thinking

matches. For example: In a serious business decision, in modern family

business younger may suggest elder i .e., they are not combining the

relationship status.

1.2.4 Authority

From a traditional approach of man show, modern family businesses are

shifting this thinking changes to “approach to all” thinking.

1.2.5 Managing through Outsiders

"Family Business has to be efficiently managed in a liberalised

environment and Efficient managers are more likely to be outside the

family rather than within. You have no choice but to bring them in to run

the family businesses." - Rahul Bajaj, Bajaj Autos. Almost all family

business are managed everything by a family member only. This is mainly

because recruitment is done from their close associates, but to

bring change and professionalism in the business now modern family

business are bringing outsiders to manage their businesses.

1.2.6 Change Management and managing the challenges

Change is something that happens in every business from time

to time, but traditional family business doesn’t accept change. This

approach changed in present modern family business, present family

business houses are changing according to time and business

environment.

1.2.7 Speed

Intense internal politics aside, family firms tend to move more

quickly than bureaucratic traditional firms. They often offer a crystal-

clear hierarchy (father as chairman, sons as VPs), or a small set of

decision-makers (the family council), so decisions can be made swiftly,

with little debate. In fact, according to a recent survey of more than 1,000

family firms, 25 per cent cite no board involvement at all , and only half

have boards that meet more than twice a year.

1.3 Case studies:

1.3.1. Gita Group, Nagpur, Maharastra - Valued Vision

Founder and pioneer of the group, Late Bhagwandas Tapadiya, took

Gita Group from traditional Dal Mills to Concrete industry,

Infrastructure, Iron and steel, Retail and Prestressing Technology. With

the great higher vision, Late Bhagwandas Tapadiya started his group

with Dall Mill at Seram, Karnataka. With high family values, great

bondage with entrepreneurial drive and with high vision, this group

started spreading across Maharastra, Karnataka and diversified into

many business units. This group identified the changes in the business

environment and had changed their business style from traditional

approach to modern approach. This group has good succession

plan with future business planning. Each member of family is spread

across the country and is heading their regional business functions. As

other corporate, this group also have merger and acquisition plans. By a

tactful combination of traditional family values and professionalism this

group is leading in its own way.

1.3.2. Kirloskar Group - Succession Planning

It was in the mid-1920s that Laxmanrao Kirloskar started

manufacturing world class diesel engines for the first t ime in India.

Sticking largely to engineering related products, i t has grown over

the next three generations. A majority of its revenue comes from its

core businesses of castings and forgings, pumps, engines, electric motors,

power equipment, and compressors. During 1956-80, the group was led by

SL Kirloskar. While the family is unified, and the six members of the

fourth generation in the age group of 41-49 are actively involved in

business, they have not embarked on any aggressive growth options. The

group is led by the last member of the third generation, who is now 54

years old. He has worked towards synergizing relationships among

family members and making them think as a group. Although all the

male members of the fourth generation are actively involved in managing

group companies, they have developed mechanisms for mutual

consultation regularly. Their exposure and experience with the latest

management practices and TQM methods from collaboration with Toyota,

Japan provided all of them with a common platform to compare and

exchange notes. Their long association with the companies and

their non-family manages have helped the group work as a single

entity. While this has helped build smooth internal synergies, it is found

to be inadequate to build long term business competitiveness.

1.4 Conclusion:

With the combination of traditional family values and bringing

professionalism in the business, traditional family business houses are

shifting to corporate styles. Though the toughest challenge of family

business is succession, the family bondage, the trust, human

resources available inside the family, the inherit entrepreneurial spirit

making the family business to sustain in the midst of MNCs and

corporates.

References:

1. Barney, J. (1991). Firm Resources and Sustained Competitive

Advantage. Journal of Management, 1 (17), 99-120.

2. The Practices of Effective Family Firm Leaders by James Hunt &

Wendy Handler journal of developmental entrepreneurship (JDE)

Volume 4, Number 2, Fall/Winter 1999:

3. Ritu Bhattacharyya - Succession process in family-owned business

in India – Pune University- PhD.2001

4. Keep the Family Baggage Out of the Family Business: Avoiding the

Seven Deadly Sins That Destroy Family Businesses - by Quentin J

Fleming –Fireside -ISBN-10: 0684856042