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Family business by-laws: Rules to stick to for success

By Dr. Diwan Rahul Nanda

Family businesses in India have long since been a way of life, with some of the most highly successful businesses, like the Tata Group, Aditya Birla Group, and Reliance having started out in a similar manner. However, what makes these industry giants stand out from other family businesses is the way they are run. In any family business, there are several guidelines for success with respect to operations, finances, strategy, and marketing. There are also various by-laws for company and HR policies, business development, and the legal aspects of the organisation. This practice of implementing a robust operational system in the company is what makes it successful in the long run.

Thus, one of the defining characteristics of these successful businesses is strong internal communication within themselves, their teams and their Board of Directors. Hierarchy is essential in ensuring adherence to protocols, which, in turn, help the business run like a well-oiled machine. Additionally, two-way communication between the employees and the owners is also crucial to its seamless functioning. It is only when the culture and values defining a company are accepted, understood, and adapted to, that company policies will be followed diligently, instead of being seen as an imposition.

It is not just hierarchy, however, which demarcates several aspects of the company from each other. Funds invested in a company are utilised in various verticals, including operations, marketing and strategy, and are not attached to a person or a unit in the family. Therefore, a clear distinction needs to exist between family money and company funds, as the latter is supposed to be utilised for the business alone. The profit made from the business, in turn, needs to be allocated for future expansion and other miscellaneous costs, including risk management, as and when necessary. In light of this, every form of transaction needs to be recorded via precise documentation, which all concerned verticals or HODs refer to, as and when required.

As a vertical, Marketing is yet another crucial aspect of a business, with two primary approaches to it. One involves the long-term goals of brand building, while the other is concerned with direct sales support. Out of the two, sales support, however, is of prime importance for all businesses. In spite of that, marketing plays an extremely crucial role in creating a unique brand identity for an organisation, and the process involved must be understood precisely for a business to succeed. Family-owned businesses, in most industries today, face severe competition from international as well as multi-national brands which already have an established legacy. As such, the only way for family-owned businesses to be able to compete with and surpass them is by creating their own.

Lastly, one of the biggest advantages of a successful family business is that it does not get entangled in autocracy at any level. Maintaining democracy is not only essential in day to day operations, but also in long term strategizing with the family, as well as with employees across various departments. There should be a buy-in from all relevant departments, and strategies should be planned in a way that they involve more than just the owners. There is a definitive reason why a variety of professionals is hired by an organisation, and as such, they shouldn’t simply be restricted to the execution phase, but involved in every aspect of strategizing as well. These aspects, for instance, might include tapping into prospective investors, expanding into newer markets, or simply the creation of an updated HR policy. Needless to say, it is always crucial for the right resources to be hired, so that a company can confidently deliver on its business expectations, which are in reality, shaped by its competition.

When it comes to it, every family business has a set of traditions and values which become ingrained in it over time. However, it is also necessary to imbibe the same among every employee across its many levels. Thus, family businesses clearly have an enormous potential to create a winning brand, but only if they are able to efficiently organise and streamline their performance, and earn the trust of their customers and employees.

The writer is Group Chairman & Founder, CHEEP

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