The flaws that plague family-run businesses

Lack of departmentalisation, succession planning hurting entities

GUJRANWALA: Family businesses are spread throughout Pakistan, compassing a part of the country’s economy. In family-owned businesses, alignment of interests within as well as outside the business is a common conflict.

The dynamics become less effective when they are situated in socially domineering, inconsiderate and ethically-manipulative societies. These businesses are divided into two major categories — small to medium enterprises (SMEs) and large scale enterprises, both with their own share of family-business problems.

The extent can be seen by looking at the history of family businesses in Pakistan, where only 30% make a successful transition from the first generation to the next and the remaining 70% vanish straight away. The security and safety challenges these businesses face are countless but there is a bigger struggle, which is the inefficient organisation of the business structure and how that affects the businesses.

The terrain

In order to understand the problem that adversely affects businesses, it is important to pay attention to the culture they evolve in. In Pakistan, after the business is established, it is run by the head of the family and he or she becomes the sole decision-maker. The head tries to keep the power within the family and involves his kin on basis of favouritism rather than qualifications.

In modern terms, this is known as poor succession planning and is one of the major causes of business collapse. The kin involved in the business are often unwilling to be there in the first place but the power overshadows their desires, dragging them in.

Basic training, formal education, and professional experience given to the already unwilling kin are close to zero and it takes no genius to understand where this inadequate succession planning takes the business.

Poor succession planning is followed by ill conceived, unsatisfactory and inefficient organisation of the business structure which includes little to no departmentalisation. This structure also comes from our very vicious but beloved ‘Seth’ culture or commonly known as the one-man show. While running the business, preference is given to spending money on expansion in terms of capital expenditure rather than departmentalisation and recruitment of quality human resources, who can contribute a lot more in containing damages.

An interesting pattern can be seen here, as businesses in Pakistan start and grow exponentially but, after a while, losses are recorded ultimately making the business bank defaulters, ultimately being eradicated from the market.

This history keeps repeating itself and numerous examples can be seen like the Dewan Mushtaq Group (DMG) and the Chenab Group. The major mistake these businesses made is that they failed to understand and appreciate the growing need of high-quality succession planning and the right business structure with good departmentalisation and proper training and education of their successors, management and employees.

This is where the family dynamics come in and this is where they can be controlled. Since Pakistan is a developing nation and businesses contribute a fair amount to the GDP, it is vital that these issues are addressed wisely. Simple changes in the business structure, just a teaspoon of awareness with international trends and a sprinkle of tolerance by owners can take businesses to unimaginable heights.

Pakistan has a number of examples like Nishat Group, Ibrahim Group and Forward Sports who have grown from the conventional business structure and have flourished through the years. All these successful companies did was to reorganise their structure by incorporating departmentalisation and finance in particular to have an outlook on internal and external accounts.

This enables the owner to focus on larger issues. They meticulously looked into succession planning, trained and educated their successors and brought corporate governance and implementation of world’s new trends and IT systems to meet the challenges which their business can face.

On a larger scale, Smeda and different chambers of commerce should also take the initiative by making it compulsory for businesses to have Management Consultancy and its score to protect businesses from such damages and should take concrete steps to implement corporate governance. Alternative fundraising should be introduced to avoid getting stuck in the shackles of bank debts.

The future of businesses in Pakistan seems bright and with just a few changes in culture, the country can become a homeland to some of the world’s finest and greatest companies.

THE WRITER IS AN ENTREPRENEUR 

Published in The Express Tribune, March  16^th,  2015.

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