Research Paper – CONTEXTUAL MANAGEMENT: DEVEOPING INDIGENIOUS MANAGEMENT THEORIES & PRACTICES
I shall be discussing the Indigenous business model practices by small & medium enterprises vis-à-vis Family Business models & Practice in India considering their overlapping nature.
THE INDIAN SCENARIO
India doesn’t disappoint when it comes to family businesses – around 95% of all companies in the country are family-run. Besides a large number of mid-size companies, India is also home to a number of giant conglomerates, including the €100 billion Tata Group and Reliance Industries.
According to Business Today, family-run businesses account for 25% of India Inc’s sales, 32% of profits after tax, almost 18% of assets and over 37% of reserves.
The most gossiped about topics in vogue constitute that of the big houses and industries that are flourishing and excelling in all dimensions, from sales to profit making, from customers relations to management practices trailed, from principles to strategies. Its time that the mind now hunts for and brings out the indigenous management policies for the very small, very young industries say a business of worth 10crores, 5crores, 1crore or even say 40-50 lakhs.
We need to change our thought process and magnify our goals, a paradigm shift is the call – the very thought of being small needs to submerge and then grow to a level of thinking big, thinking large. The very own traditional management frame should be transformed into a “3-R” management perspective i.e. Refine, Realign, and Redefine management policies and procedures to obtain best outcomes.
“Ideas are no one’s monopoly”, very rightly said by Late Mr. Dhirubhai Ambani.
Gone are the days, when India was an agri-economy only, today the manufacturing has acquired a good hold and lately the Service Sector is mounting at a brisk pace. One may not enter the service sector but every business can make good use of the services rendered by the professional in their management techniques.
The important discussion is about the small & medium sized enterprises (the MSME sector) mostly run by families in India. I agree, none of us are Tatas or the Ambanis but in some or the other way we are entrepreneurs, Entrepreneurs craving to be tagged as Tatas/Ambanis hitherto aiming the stars, accomplishing a zenith level of success, fame and popularity in both financial and non-financial segments. We need to highlight the management ways run by the small business, who can through applying various business models and principles can grow multilaterally and add to the India’s growth story – providing employment, revenue in every nook and corner of the country.
Lets’ discuss the business management parameter from a shop floor level to the private limited companies to their run for big corporate giants – The MSME – Micro Small and Medium Enterprises:
To start with, a small shop owner sells his goods / provides services etc. from the outlet, the proprietor sitting and giving all his time, age and space to it. His circle of work having a minimal radii, consists of all the activities that need to be attended to including but not limited to planning his business, safeguarding any pilferage or theft, looking after transactions both financial and non-financial, decision making, organizing, controlling, etc. Surprisingly, he is the appraiser for his own deeds and actions as there is no scope for a second opinion.
The main reason of lack of growth is Non – Delegation of task, lack of knowledge, lack of opportunity, old dogmatic approach, lack of professional skills and lack of specialization.
The Small & the Medium
The showroom owners are still stuck with one showroom. Why are they not growing and trying to get back with a large number of showrooms. The small service sector, they can always tie up with various other agencies and use the economies of scale.
Then comes our manufacturing sectors, a small manufacturer is stuck with the old machinery. He does not have the right human resource management ability. His thoughts do not float beyond a particular sphere and he fails to accumulate the benefits of increasing his capacity or managing the resources at his best or increasing the machinery and production.
The importance of studies, the methodology of work, paying the workers well, recruiting and retaining the right talent is the need of the day.
Then comes our private sector corporates giants.. the Aditya Birla Group// The Future Group – Pantaloons (Retail) // The Tata group// The Reliance Group and many more.
The question is whether the so called corporate giants were always huge. The answer is no, they weren’t, they have grown from a shop floor level ideas to the big players of today.
The Bigger picture – LARGER ISSUES AND MANAGEMENT
The best management techniques to be applied today are the use of technology at its best. The New Age E-Business Model – The Dot Com ERA – The Cloud computing.
During the last decade, Internet and multimedia technologies have advanced at an incredible pace. E-business was the hottest buzzword of the past decade. Newspapers published it, stock markets worshipped it, and TV presenters applauded it. Every business, no matter large or small, was talking about it.
Traditionally, everyone knows about the use of internet sales, management through websites, e-marketing etc. but the new age talks about the Application Service Provider (ASP) – An ASP is a company that offers individuals or enterprises access over the Internet to applications and related services that would otherwise have to be located in an individual’s own personal or enterprise computers. It is basically a virtual business as “a temporary network of independent companies, suppliers, customers, even erstwhile rivals, linked by information technology to share skills, costs, and access to one another’s markets”. It has neither a central office, nor an organization chart. It has no hierarchy and no vertical integration.
Today everyone is fascinated by the word cloud computing – but the fact is that we have been using the cloud since our births, a simple example is electronic mail. What’s new is the business model: Management; IT Infrastructure, cost involved, the security and trust. A company may now spend almost nothing on infrastructure i.e. the server, IT team can use the services of a Space provider in the Cloud. An Indian Company’s all database being maintained in United States.
Considering the above facts and use of technology, the small and the medium enterprises can follow the best Indigenous practices to increase their business manifold.
Recently, a survey was conducted by a Wharton School Centre of Human Resources, a comparison between Indian CEO’s and the US CEO’s, which resulted as follows:
- Indians are more concerned about their employees and the community as a whole than their American counterparts (Employee Satisfaction and Corporate Social Responsibility (CSR).
- The CEOs themselves believed that their approach was different from what they know about the management practices in the US (The Indigenous way)
- With a majority of the Indian businesses being family-controlled, the CEOs are more resilient in the face of change, more willing to take risks, and have better entrepreneurial skills (No Doubt, Indian are better entrepreneurs)
- Indian CEOs are more focused on organizational skill than financial issues (The Family / traditions teach us unity)
- The CEOs spend less time in board meetings in India, than in the US, where the CEOs give more importance to investors than employee (The care for the stakeholders)
- Even though the fact that most Indian businesses are family-owned substitutes for professionalism, as in other parts of the world too, Indian CEOs have a “sense of vision’.
Decision-making is very different when it’s your own money that’s at stake, and as a result family firms tend to have a long-term commitment to jobs and local communities, which gives a significant but often under-rated stability to national economies. Thus, the Indian management styles and the thought processes are different. There are some unique challenges, which needs to be addressed.
The Challenges for the MSME sector
The Challenge of Internationalization – Understanding the business culture overseas, competition, local regulations, exchange rate fluctuations, and local economic conditions are the main ones. The Indian businessmen need to address the above issues and think of expanding by going global generating revenues from the whole world and also adding to the country’s foreign exchange earnings.
Financing – Most family businesses have an instinctive aversion to leveraging their balance sheet, and manage their borrowings very tightly. Under these circumstances raising substantial growth capital will always be a problem, and the firm’s options necessarily limited. Also, very few of them are prepared to offer the equity stake external partners would require.
This problem becomes even more complex with each succeeding generation since many long-established family firms have large numbers of family shareholders, many of whom will be reliant on their dividends and very risk-averse, which means there are unlikely to be many family members who are willing or able to invest new funds of their own. At the same time, the mainstream capital markets are not open to family businesses that are wholly privately-owned, which means that often the only practical option is bank debt, though in the current market this is both restricted and expensive. Mortgaging either physical assets or the receivables book can help reduce the costs, but many family firms see this as ‘selling the silver’, and are wary of the message it sends to their customers.
Ultimately, going public and getting the funds required, having the approach from the very beginning. If the idea is correct with the right attitude and the right indigenous management techniques, the funds are available. India is the largest market the world is eyeing on, so why not exploit and get the best out it. If one can manage the leverage, it helps grow the business manifold, if otherwise, it has been rightly quoted in the movie Wall Street – The money never sleeps:
“We take a buck.. and we shoot a full steroids… and v call it leverage… I call it steroid banking..
The mother of all evil is speculation.. leveraged debt…”
Mind the gap – The lack of skills can lead to a lack of confidence, and hence to a more general unwillingness to try new approaches, or experiment with new ideas. The majority of family businesses recognize that skills shortages can be a problem, and address it by bringing in external managers to either supplement or replace family members in key positions. Hiring professional managers can solve many of the commercial issues a family business may face, and supplement any lack of home-grown skills.
Government Support – Regardless of their size, sector or market, family firms are proud of the economic contribution they make. Firms in generally agree that their government values their sector.
Family businesses – like all businesses – want to see a reduction in red tape, a more table
economic environment, low interest rates, a more flexible labour market, further incentives for employment and training, a more consistent tax and regulatory framework, and investment in infrastructure.
Why is the Tax rate for all corporates, flat 30% in India – does it mean that an Indian Multi National Giant listed in stock exchanges in India or overseas is equivalent to a small private limited company working in a particular sector or in a small area having a limited market. Thus, it throws this open question to everyone. Just like the government gives incentives in form or tax holidays / exemptions to various sectors likes infrastructure, IT sector, R& D Activities, Hospitals etc. The closely held private companies can also be given certain tax breaks – two benefits – it shall give an impetus to growth and more small businessman running proprietorship concerns or partnership firms would be willing to create private companies and operate, thereby curbing tax evasions due to better control by the Registrar of Companies as well adding to the nations growth story.
One window helpline for the exporters can be opened – to help them not be wary about the fear of exports. And finally, is the support the Government offers is adequately publicized? The fact is, the general people, the expected entrepreneurs lack the knowledge of the schemes and the incentives provided by the government.
The GenNext appreciates the need to change from ‘promoter driven’ to becoming ‘professionally driven’
The use of the service Sector – Focus on Internal Auditing from an external agency “chartered accountants / consultancy firms etc.”– a must for all enterprises. – This gives a different perspective having the experience of various different client sectors – bring in new ideas, innovation and process improvement.
One last important point on Indigenous management is the Indianization of the management policies. To share a practical self-witnessed example:
An export house in Punjab applies all international best management theories like Kaizen (Continuous Improvement) & Quality Circles theory etc. but was a failure, the primary reason being, the failure in lack of customization and indigenous policy. The Firm had reward plans for employees whoever helped in process improvements but the same had to be justified in monetary terms only. This had an impact on the brains of employees when their improvement ideas were not rewarded for quality improvements which could not be always converted into monetary terms. Thus, a change was required in the company policy of rewarding the Organisation people for their contributions. On consultation, our team helped them in thought and process re-engineering and customized the structure based on a survey with the employees including the floor level managers and employees.
To conclude, family firms are a vibrant and vital part of the global economy and can make an even more substantial contribution to growth and recovery if they’re given the right support, at the right time.