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 Traditional Practice / Modern Practice / Way /Approach
Parameter Way / Approach
11. No proper organizational Proper organizational structure with
Organizational structure proper pre decided roles of each
Structure member
2.Accounting No standardized structure Professional and standard structure.
system
3.Decision Centralized decision system De-centralized decision system
making style
4.Financial Was not so important Became very important
Planning
5.Human Only family members used Outside professionals are being hired
Resource to manage to manage
6.Leadership Autocratic / Dictatorship Democratic style
style
7.Family Emotional relations are Emotions are making Entrepreneurial
Emotions moving around accumulated turn.
wealth.
8.Change Valued only traditional and Identifying the speed and changing
management rigid practices. 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 time 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 time in India.
Sticking largely to engineering related products, it 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