Family-managed businesses need to professionalise to sustain

Among the well-established Bangladeshi industries, 70 percent is owned by family-run businesses and it can be assumed that they contribute to a significant share of the national GDP. Bangladesh already has a good number of publicly-listed, family-managed businesses, while others like the Walton group and Best Electronics are among the newly listed, proving that Bangladeshi industries are mostly run by families. Most businesses are usually initiated by an individual entrepreneur who is passionate about a certain sector, who takes a lot of risks and works very hard to make it grow.

We are all aware of the stories of Partex Group, Bashundhara Group, Meghna Group and others, who started many companies. Many global companies such as Ford Motors, Honda, Yamaha and Toyota started as family-managed businesses, but in the course of time, they need to professionalise to become a sustainable company. Research shows that 87% of the world's economy is contributed by family-run organisations, and generally, if family-run organisations do not professionalise the management by the third generation, the company inevitably vanishes.

Many family-managed companies in Bangladesh such as the Rangs group, Navana group etc, have professionalised and become sustainable companies. However, companies that did not professionalise withered away. Traditionally, family-run businesses tend to appoint the CEO or the leading position from among a family member, but today, many choose to give that position to a hired individual who is more capable than the family members.

The question, therefore, arises about how to professionalise the company. Researchers who have been actively involved in professionalising family-managed companies have listed down the steps in the professionalisation of management. 

The first step is to do an analytical study using a SWOT examination to identify the strengths, weaknesses, opportunities for growth and threats that can derail the company. Such study needs to be done aligning the business strategy, shared values, style of leadership, systems and policies, staffing and skill sets available.

Based on this analytical study, an action plan is made to further build on the strengths and remove the weaknesses found in the above areas, to make the company grow with clear milestones and evaluation parameters. While embarking on a scientific journey to professionalise the management for future sustainability, one also needs to be sensitive to the complex growth-oriented issues faced by entrepreneurs. For example, when an entrepreneur starts a company, hiring the highest quality people may not be possible and it is very expensive.

An entrepreneur always looks for hard work, execution capacity and loyalty in recruiting his team. In most cases, when the company reaches 100 to 1000 crore takas turnover, the entrepreneur realises that those who have contributed to the growth of the company may not have the ability to take it to the next level and multiply the turnover. 

It is a very uncomfortable realisation and equally painful for him/her to replace these employees with better talent. The entrepreneur realises that if they are not replaced, the company will not grow, but at the same time, he/she is also acutely aware of the fact that these very people have been loyal and made the firm grow, and are dependent on them.

On many occasions, the founder may have treated the employees who joined during the start-up phase as part of his/her family. And while working on professionalising, these very family members are scared that the new entrants may replace them. So, to incorporate the new talents with the old folks, a company needs to rethink their strategy and invest in technology, as the market forces are also changing.

Studies suggest that most of the successful companies have made significant investments in technology, processes and people. Hence, an important step is to acknowledge the reality and create a vision, business strategy and make investment plans to induct technology, to put the company on a growth curve. The third step is to create human resource policies so that the company can work as per policies, like multinational companies do, and not based on the whims and fancies of the owner or top management.

The fourth step is to benchmark the salaries within the market and pin the benefit to the 75th percentile so that the best talents stick to the organisation. The fifth step is to create a scientific performance evaluation system and give rewards based on that, thus creating a culture of meritocracy. 

The sixth step is to build capability in the existing human resource pool through protracted training. Local family-run businesses must consider training as an investment rather than an expenditure. The steps which have been discussed may vary based on the nature of businesses, but these six can be curtain raisers towards professionalisation and good growth.

The author is the Managing Partner of Miyako Appliances Bangladesh and the first Doctor of Business Administration (DBA) from IBA, University of Dhaka. He has a master's degree in electronic business management from IUJ, Japan and BBA from IIUM, Malaysia. He can be reached at naveed@miyakomarketing.com