LEARNING: HOW TO...
The AMIT GARG
DIRECTOR, MXV CONSULTING,
A STRATEGY AND MANAGEMENT CONSULTING FIRM
Professionalisation
Minefield
Entrepreneurs who want to professionalise
their businesses, watch out! There are
hidden risks all over. In this new, six-article
series, management consultant Amit Garg will
guide you through the treacherous path to
professionalisation.
T
HERE WAS A TIME WHEN
businesses were tightly-controlled, fam-
ily-run entities. Licences, trade secrets
and relationships were critical success
factors and kept within a select group of insiders. Many
businesses provided stable cash flows for generations.
Costs were closely watched. People were hired on refer-
ences; loyalty was preferred over competence. Children
were groomed for succession from an early age. The
entry of the next generation was akin to a rite of passage.
That era is coming to an end. Liberalisation has led to a tremendous increase
in the possibilities and challenges in the business environment. Growth op-
portunities abound, but so does competition. A factory or a contract is no
longer a guarantee of long-term success. The complexity of doing business has
increased manifold. No longer can you keep a business in “steady” mode—
you either grow or perish. Even investors are keen to ascertain a company’s
managerial depth before providing them with growth capital.
Businesspersons, too, understand that they need to broaden their organi-
sation’s capabilities. But how should one go about it? Hiring and retaining
good managers have become very difficult, and people management has
become a major challenge for corporate India. The paternalistic model of
employment practised by many entrepreneurs is no longer an effective tool
100 OutlookBusiness > November 13, 2010
for talent management.
The problem is compounded by the fact that fewer
family members enter the business. Children, hav-
ing seen their parents struggle for long periods,
no longer view the family business as their only
career option. They seek out other, more attrac-
tive job avenues.
Faced with such problems, some owners sell
off—to other companies or to private equity funds.
Thums Up was sold to Coca Cola, MphasiS to EDS,
and Gokaldas Exports was acquired by the Black-
stone Group, to name a few. This is in line with
the global experience. Private Equity (PE) funds
in the West have targeted family-run businesses
for a long time. KKR, in fact, was built around
this strategy.
But this isn’t a realistic option for all family busi-
nesses. Some, especially the Old Economy ones, lack
the ‘business attractiveness’ to interest a PE player.
Others are viewed as too risky from an investment
standpoint, the owner considered indispensable to
the business. Only a few families, therefore, man-
age a successful exit from their businesses.
Realising this, entrepreneurs and family businesses
across the country are trying to professionalise
themselves. Their idea is to gradually separate the
ownership and management of business, thereby
taking their company to the next level. Unfortu-
nately, this sounds a lot simpler than it is.
Here’s why. Many entrepreneurs think hiring a
few managers from larger companies puts them on
the path of professionalisation. Alas, it is rarely so.
For every Wipro and Bharti, there is a long list of
companies that fail to complete the journey. They
fail for many reasons. Often it is do with the selec-
tion of people—the wrong hires. At other times, it
is the organisation’s inability to effectively use the
professionals who come in.
Challenges Abound
The obvious reason is that many entrepreneurial
and family-run entities have underdeveloped re-
cruitment systems. They are reasonably effective
at hiring junior and middle-level executives, but
 themselves into the pre-
vailing organisation cul-
ture, often defeating the
purpose for which they
were hired. Unless the
situation is rectified, the
organisation can start
floundering, forcing the
owner to step back in.
Few of these companies
ever attempt the jour-
ney again. And the fate
of these organisations
then gets intrinsically
linked to the desire,
motivations and fate
YOU KNOW A of the owner.
COMPANY HAS
HIT A MINE The Toolkit
WHEN... Few organisations seem
to plan their evolution
Ó Employees or think about the chal-
by-pass managers lenges of this journey.
and discuss issues This is strange, given
directly with the the complexity of the

AP
owner. task and the frequency

Ó There’s increased
not senior management hires.
Some companies lack the network required to Recruitment of failure. If profession-
alisation can be equated
group-ism and
heightened politics.
source senior level managers. Others lack the ability
to assess candidates. The environment within an
systems to a minefield, this atti-
tude is akin to a casual
entrepreneurial organisation can be very unique. of family- stroll in a minefield.
Ó Senior managers The availability of resources, the support systems One has to be extremely
just play operational and the culture are all different from a profession- run entities lucky to emerge on the
roles, barely
focusing on strategic
ally-run company. What helped a candidate succeed
in an MNC may be of little use in his new role. In
are not other side unscathed.
What, then, are the
issues. order to succeed, professionals must be able to bal-
ance the interests of the business and the concerns
effective at tools for survival and
prosperity? Unfortu-
Ó The externally- of the owners. But very few companies are able to hiring senior nately, there isn’t much
hired CEO isn’t part test this skill and so, hire the wrong people. guidance available on
of a crucial strategy We often find professionals talking wistfully about management the subject. Manage-
discussion. how easy things were in their previous companies,
and how different (and difficult) they are now.
personnel. ment literature is great
at showing us an ideal
Ó The owner can’t The other, more basic issue is that an organisa- organisation or best
retain professionals, tion itself can be very effective at resisting profes- practices in different areas. But there is little by
but is happy when sionalism. Existing employees may feel threatened the way of a guiding path for entrepreneurs. Where
they leave. by the entry of outsiders, or feel envious of their should the owner start in the quest to build a pro-
(rumoured) salary structure. Often, there is a lack fessional organisation? Is there a sequence that
Ó The owner of clarity about the roles of the new people vis-à- should be followed? How may a person measure
believes the firm’s vis the existing ones. Some employees tend to be progress on this journey?
suppliers, customers sceptical of the value of a professional, and keep This column will focus on these issues and ques-
and competition looking for flaws in them. tions over the next five issues. Our objective is to
have better people. A professional can find himself isolated in such an help entrepreneurs plan and think about the journey
organisation, struggling with even the most mun- ahead, to anticipate the challenges that will come
Ó The HR team dane of activities. There are few people inside the up and prepare themselves for the same. <
believes that salary organisation with whom he can discuss this issue. Next issue: Initiating the change process by
is the only way to Many such managers start losing their long-term re-articulating the company’s vision.
attract professionals. orientation and start focusing on short-term op- Email us at business@outlookindia.com
erational issues. They consciously try to assimilate or SMS OLB <feedback> at 575758.

102 OutlookBusiness > November 13, 2010