IMPACT OF CONTROL ORIENTATION ON FAMILY BUSINESS GROWTH AND CONTINUITY S Sundararajan and Smita Ramakrishna

Directors, Sutra Centre for Strategic Design

Abstract of paper to be presented on the above topic at the First Asian invitational conference on Family Business at ISB, Hyderabad
Though the family business model has been existing for ages, there is very little research in India on various facets of family business. Although there is a lot of research done outside India on family business we have found these researches have focused mainly on aspects like entrepreneurship, succession, governance, impact of family, ownership & management and so on. Our involvement as consultants closely associated with many family businesses in India reveals a strong influence of culture, inheritance and belief systems that have been prevailing for centuries giving rise to a mindset of Control orientation among family businesses in India. We relate Control orientation to the degree of propensity to retain the power to influence operating and financial decisions within one or more members of the family. The research done so far has very little to contribute to understanding of this subject. Its pervasiveness makes it crucial to understanding the way family businesses perform. Hence we decided to research and explore this aspect. Our study found that Control Orientation impacts Family Businesses professionalization, growth, succession and continuity enormously enough to warrant research at greater depth. Though our study is spread over family businesses engaged in property development, healthcare, trading, distributorship, office interior decoration and manufacturing, the main focus for the purposes of this paper is restricted to family businesses in healthcare and property development sectors for the reason that control orientation has a significant impact on growth in these two sectors, which are witnessing substantial activity in India currently. Our study covers family businesses, which had at the time of the study at least two generations or two siblings involved in the management of the business. This study used delegation, external financing, building a second management layer, expansion, professionalisation and succession planning as parameters indicating degree of control orientation. Family businesses under study were ranked on a scale on the above parameters in a two-step process. In the first step, the rank for each parameter was determined by breaking each parameter down into various factors influencing that parameter and assigning a score for each of these factors. In the next step a score across all parameters was

determined. This score was used as the indicator of control orientation for each family business. For each family business a five-year average actual growth rate under each of the three performance indicators of sales, profit and gross asset value was arrived at. Our preliminary conclusions indicate an inverse relationship between control orientation and the growth rate and continuity in each of the two industry groups. We are also trying to identify relationships between various factors within a parameter as well as individual parameters and the growth rate and continuity. This research finding should provide insights into the inhibiting role played by control orientation against the growth and continuity of family businesses and the steps that can be taken to mitigate if not eliminate the impact. In order to widen the application of this research finding we intend to carry it forward by conducting this exercise among family businesses in small, medium and large sectors, expanding the scope of work to more industries and removing the industry influence in determining the relationship.