ORGNISA

TIONAL
STRUCT
URE IN
FAMILY
BUSINES
S
REPORT
SHESHRAJ SALVI
FSB201300278

My family business started around 18 years back by my father

and my elder uncle (fathers elder brother) joined it after 7-8
months. The business is distribution of surgical and
pharmaceutical items to the hospital all over the eastern INDIA.
1. The Seed :- Stage 1
Finance Head

Owners/
Managers

Sales Head

Production Head

Employees

This is where I see my family business. In this level the firm has
simple strategy i.e. the goal of the organization is very limited.
This is the initial step of the family business existence. The
business is entirely owned and managed by the founder(s).
Most founders might seek advice from a small number of
outside advisors and/or business associates but they will make
the majority of the key decisions themselves. This stage is
usually characterized by a strong commitment of the founder(s)
to the success of their company and a relatively simple
governance structure. Overall, this stage contains limited
corporate governance issues compared to the next two stages
since both the control and ownership of the company are still in
the hands of the same person(s): the founder(s). Perhaps the
most important issue that will need to be addressed during the
life of the founder(s) is succession planning. For the family
business to survive into its next stage, the founder(s) should
make the necessary efforts to plan for their succession and
start grooming the next leader(s) of the company.
The first stage of growth is known as The Founder Stage. A
family firm generally begins by being owned and managed by

its founders. While these individuals might seek some advice

from specialists in certain fields (e.g. banking or product
development), they will make most of the decisions
themselves.
Stage 2:- This stage is often characterised by high levels of
commitment and passion by the owners who are involved at
every level of the business, and are driven by a need to
succeed. This can be essential to getting a business off the
ground in a competitive economy.
This also means a fairly simple governance structure as all
decisions will go through one key individual or a very small
group who are in constant contact. Perhaps the most important
issue to be considered at this stage of a business is succession
planning.
Owners
Entrepreneurship

Partners

Family

Friends

Stage 3 :- In this stage the group of people plays a very

important part. While the business might be in its infancy, if
its to succeed, its never too early to start planning for the
future. This means putting in place a succession plan and
grooming future leaders within the business to one day take
charge. This will ease a necessary transition in leadership at
a later stage as the business grows and the founders needs
and aims change. The entrepreneur has come to the
realization that there is indeed a need for what he or she can
provide. He is making a name for himself and, while the road
is rocky, he can see the light at the end of the tunnel. The
entrepreneur still works hard, but now there are others to
help share the load. And these are the group of unseen layer
within the organization between the owner and the
employees. They are part of the employees level only but

due to better communication or relation an unseen layer is

formed.

Admin

group of people

Tech, Sales

Employees

Stage 4:- The Value stage:- Establishing a proper and

culture for the organization is the key aspect. The business
is maturing and has created a serious niche for itself.
People and systems are humming along and this business
has become a cash cow for the entrepreneur-owner. Life is
good and the rewards are flowing from the pump priming
OWNER/MANAGER
which took place in stages one and two. If life could only
continue in this stage the entrepreneur and everyone
around him would be happy.
Every organization has its unique style of working which
often contributes to its culture. The beliefs, ideologies,
principles and values of an organization form its culture.
The culture of the workplace controls the way employees
behave amongst themselves as well as with people
outside the organization.

The culture decides the way employees interact at their

workplace. A healthy culture encourages the employees to
stay motivated and loyal towards the management.
The culture of the workplace also goes a long way in
promoting healthy competition at the workplace.
Employees try their level best to perform better than their
fellow workers and earn recognition and appreciation of
the superiors. It is the culture of the workplace which
actually motivates the employees to perform.

 Every organization must have set guidelines for the

employees to work accordingly. The culture of an
organization represents certain predefined policies which
guide the employees and give them a sense of direction at
the workplace. Every individual is clear about his roles and
responsibilities in the organization and know how to
accomplish the tasks ahead of the deadlines.
No two organizations can have the same work culture. It is
the culture of an organization which makes it distinct from
others.The work culture goes a long way in creating the
brand image of the organization. The work culture gives
an identity to the organization. In other words, an
organization is known by its culture.
The organization culture brings all the employees on a
common platform. The employees must be treated equally
and no one should feel neglected or left out at the
workplace. It is essential for the employees to adjust well
in the organization culture for them to deliver their level
best.
The work culture unites the employees who are otherwise
from different back grounds, families and have varied
attitudes and mentalities. The culture gives the employees
a sense of unity at the workplace.
Certain organizations follow a culture where all the
employees irrespective of their designations have to step
into the office on time. Such a culture encourages the
employees to be punctual which eventually benefits them
in the long run. It is the culture of the organization which
makes the individuals a successful professional.
Every employee is clear with his roles and responsibilities
and strives hard to accomplish the tasks within the desired
time frame as per the set guidelines. Implementation of
policies is never a problem in organizations where people
follow a set culture. The new employees also try their level
best to understand the work culture and make the
organization a better place to work.

 The work culture promotes healthy relationship amongst

the employees. No one treats work as a burden and
moulds himself according to the culture.
It is the culture of the organization which extracts the best
out of each team member. In a culture where
management is very particular about the reporting
system, the employees however busy they are would send
their reports by end of the day. No one has to force anyone
to work. The culture develops a habit in the individuals
which makes them successful at the workplace.

Organization
Culture

Stage 5:- The next generation

The second stage is known as the Sibling Partnership. This
refers to the transfer of the ownership and management of the
business to the founders children (rather than their own
brothers or sisters). This form of succession is quite common in
family-owned businesses where there is an expectation that the
business will stay in family hands.
This stage allows the business to expand its market share, the
introduction of new ideas and products, and expansion into new
fields. Fresh leadership can usher in an exciting time of growth,
led by individuals with a personal stake in the business
success.
At the same time, governance issues tend to become more
complex than they were at Founder Stage. There are more
people in charge now and, if the business is doing well,
business activities tend to be more varied. Therefore, its
natural that there will be greater scope for conflict and
disagreement amongst leaders within the business.
Favouritism and familiarity can also lead to discord and
businesses run the risk of operating in a causal manner,
without formal business processes that are necessary for long-

term business survival. Implementing these processes,

developing an effective communications strategy, and looking
to expand succession plans for management positions beyond
the family base are all key considerations during this growth
stage.
This is the stage where management and ownership have been
transferred to the children of the founder(s). As more family
members are now involved in the company, governance issues
tend to become relatively more complex than those observed
during the initial stage of the business existence. Some of the
common challenges of the sibling partnership stage are:
maintaining siblings harmony, formalizing business processes
and procedures, establishing efficient communication channels
between family members, and ensuring succession planning for
key management positions.

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Stage 6:- Structure:- Family dynamics can play a large role
in governance. Public firms may face agency costs if the
interests of owners and managers are not properly aligned
but the costs can be avoided in family firms where the
owner-manager has more at stake.

However that doesnt mean family businesses are immune

to governance issues. They might result from things like
favoritism towards other family members or failure to deal
with discipline, but the company should have mechanisms
in place to deal with such possibilities.
Succession is the final hurdle in the family business life
cycle and it is when family relationships can be a problem.
It is particularly challenging in the transition from first to
second generations, when sibling disputes can override
good sense.
Unfortunately succession planning is often overlooked. A
TD Waterhouse Business Succession poll found that 76%
of our small business owners dont have succession plans.
They are just too busy running their companies, with 45%
still trying to determine what the plan would be. The other
31% just havent got to it.45% still trying to determine
what the plan would be. The other 31% just havent got to
it.
Organizational structure is particularly important for
decision making. Most companies either have a tall or flat
organizational structure. Small companies usually use a
flat organizational structure. For example, a manager can
report directly to the president instead of a director, and
her assistants are only two levels below the president. Flat
structures enable small companies to make quicker
decisions, as they are often growing rapidly with new
products and need this flexibility. The Business Plan, an
online reference website, says small companies should not
even worry about organizational structure, unless they
have at least 15 employees. The reason is that employees
in extremely small organizations have numerous
responsibilities, some of which can include multiple
functions. For example, a product manager also might be
responsible for marketing research and advertising.
Large organizations often have many tiers or echelons of
management. As a smaller organization grows, it can
decide to add more management levels. Roles become

more defined. Therefore, it is important to know which

people oversee certain functions.

Organization
STRUCTURE