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Transgenerational succession of family business in an indian culture.- an investigation

 

CHAPTER III

RESEARCH METHODOLOGY

3.1. Introduction

In this chapter, the research methodology for the present study is discussed. There are   six sections for this chapter. In the next section, the choice of methodology for the study is discussed. In the third section, the data collection methods are discussed. The fourth section discusses the sampling techniques and the data sources. The fifth section discusses the ethical issues involved in the research. The sixth section concludes the chapter.

3.2. Choice of Methodology

The two most popular and accepted research methodologies are positivism and interpretivism. For positivism, the reality is assumed independent of the researcher and hence the results are based on the observed facts and reasoning (Weber, 2004). There is no role for the ideological positions of the researcher here and hence the results are objective here (Ryan, 2006).The results obtained under positivism can be replicated under alternative situations. Empirical or quantitative methods are used for the analysis here and hence are deductive in nature. The main advantage of this method is the chances of verifying the reliability and validity of the results obtained using alternative methods (Walsham, 2006).The main limitation of this method is the possibility of replication of the results and the ignorance of alternative methods like the qualitative research methods.

The second methodology is interpretivism, which considers researchers and the reality as interdependent (Weber, 2004).Here, the ideological positions of the individuals forms the basis for the results and is subjective in nature. The results obtained under interpretivism cannot be replicated under alternative situations and are analyzed using qualitative methods. The main advantage of this methodology is the flexibility to use it under alternative situations .The main limitation of this methodology is the possibility of distortion of the results according to the judgement of the researcher due to its subjectivity (Walsham, 2006).

In this study, a combination of positivism and interpretivism is used for the analysis purposes. This is because, the differences in the ideological positions of the individuals need to be captured in this study and at the same time, the results need to be verified using quantitative methods. Both secondary and primary data is used for the analysis. Case studies based on interviews are used as the research tools for the collection of primary data. Case studies facilitate in depth  study of the topic of interest  and the understanding of the complexities involved in a topic , which is not possible with many other research tools like experimental design(Zaidah, 2003). Moreover, case studies can be analyzed both qualitatively and quantitatively. The main limitation, with this method is that generalization problems can emerge when applied under alternative situations (Eisenhardt, 1989). Multiple case studies, can overcome this limitation to some extent.

The two types of data analysis methods are the quantitative and the qualitative methods. The quantitative methods are based on the testing of hypotheses in relation to the objectives and are objective (Hiat,1986). These methods are replicable and can be generalized under different situations (Bryan and Bell, 2011).Qualitative methods, on the other hand are based on the experiences and thought processes of the individuals and are objective ( Denzen and Lincoln, 2005). The results are not replicable and there is generalization problems associated with these methods (Lincoln and Guba, 1985). A combination of quantitative and qualitative methods is used for the data analysis in this study. This method called triangulation involves studying the same phenomenon from multiple perspectives (Denzin, 1978). This is to ensure greater accuracy in the results. For checking the internal validity of results, within method triangulation is used while for cross checking the external validity of the results, between triangulation method is used (Glaser and Strauss, 1965).

3.3. Data Collection Methods

   Primary data is collected by semistructured  interviews with the managers of seven different Indian family businesses in the construction field. The questionnaire for the interview is given in appendix 1. Questions on various issues related to the transgenerational succession and the methods for overcoming these are asked in the interview.  Construction field is selected here since there is widespread family ownership in this sector and there are significant differences in productivity across firms in this sector (La Porta et al, 1999). The seven family businesses in the construction field in this regard are the following. Ansal Properties and Infrastructure Limited, Lancogroup, Murugappa group,   Jindal group, Hindustan Construction Company, Comfort Living Private India Limited and  the Wadia group. The list of managers to be interviewed is obtained from the company directories and the websites The interview responses are analyzed qualitatively. Secondary data is collected from the existing studies and reports on the transgenenerational issues in the Indian family businesses. The data sources for these are Google Scholar, JSTOR, Science Direct, Euro monitor International, REPEC, IDEA and NRB. The secondary data collected is analyzed using descriptive statistics and charts.

The next section discusses the sampling techniques used in the study.

3.4.Sampling Techniques

Two categories of sampling namely probability and non probability sampling are distinguished in the literature (Thompson, 2002). In the case of probability sampling, each unit in the population has  guaranteed  chance of being selected with a probability not equal to zero. In the case of non probability sampling, there is no guarantee that each unit of the population will be selected .This means the probability here for each unit of being selected is unknown (Thompson, 2002). There are different types of probability sampling techniques namely simple random sampling, stratified sampling, systematic sampling, cluster sampling and multistage sampling (Cochran, 2012).

 There are equal chances for each unit in the population for being selected in simple random sampling. In the case of stratified sampling, population is divided into various stratums and simple random subsamples are selected from each stratum. Thus, it is simple random sampling from each stratum. The initial point is selected with random method in systematic sampling and then every nth number in the list is selected. There will be a random selection of clusters in cluster sampling. Different stages are involved in the multistage sampling and there is a combination of different sampling techniques in each stage.

There are various    non-probability sampling namely purposive or judgement sampling, convenience sampling, quota sampling and snowball sampling (Deville, 1991). In the first case, n conveniently available units are sampled. The judgement of the researcher forms the basis for the sampling in purposive sampling. The selection of the sample unit is based on the purposes of the researcher though full representation is not there (Cochran, 2012). In the quota sampling, the representation of different population subgroups is done based on characteristics, which are pertinent. The initial selection of sample is based on probability methods in the snowball sampling, while in the later stages, the first respondent provides the information for the sample to be selected (Deville, 1991).

In this study, the family firms and the managers of each family firm to be interviewed are selected using the judgement sampling or purposive sampling technique. This is used because the  samples are selected based on the judgement of researcher and for the definite purpose based on the criteria that these  firms are well established family firms in the construction field in India.

3.5. Ethical Issues

There are ethical issues involved in the research since the primary data is collected from the interviews with the managers of the selected family firms. This is because the questions on the issues involved in the transgenerational succession can have potential ethical implications. This  is overcome by getting consent from the owners of the family firms in advance regarding the interview. An agreement is signed with the respondents that the data collected from the research will be used only for educational purposes and not for any other purposes. Moreover, the confidentiality of the information collected is guaranteed to the respondents. All these are helpful in overcoming the ethical issues involved in the research

3.6. Limitations of the Research

The limitation of the research is that the case study is restricted to a particular sector due to time constrains and there can be generalization problems with that when applied to other sector family firms. Moreover, the sample size is only 7 for the interviews, which can create bias in the results. However, this is overcome to a significant extent by including the secondary data based research in the study.

3.7. Conclusion

In this chapter, the research methodology for the study is discussed based on the review of alternative methodologies. The choice of methodology for the study is justified in this chapter. The data collection methods, sampling techniques , analysis methods, ethical issues and  the limitations of the study are all discussed here. Combination of positivism and interpretivism is the selected method here. The research tool is case study based on interviews with triangulation as the data analysis method. Purposive sampling is the sampling technique used in the study.

CHAPTER IV

ANALYSIS AND FINDINGS

4.1. Introduction

In this chapter, the findings of the main analysis are discussed and interpreted. There arefour sections for this chapter. In the next section, the analysis of the data from existing studies is discussed. In the third section, the interview responses are discussed. The last section discusses the results and concludes the chapter.

4.2. Analysis of Transgenerational Succession Issues

  According to various surveys of the family businesses in India, the family businesses show great confidence in achieving their predicted growth (PWC, 2012, 2013).The following chart shows the expected challenges by the family businesses until 2017 according to the responses from Indian family firms and global firms.

Figure 1: Expected Challenges for Indian and Global Family Firms Until 2017

Source: PWC (2013)

The above  chart shows that one main challenge, which the family firms in India and the global family firms expect until 2017 is the succession planning and the  conflict between family members. Based on various studies, the main issues associated with the transgenerational succession issues in the family firms in Indian culture are the following

(1)  High Respect towards elders and the deference to their wishes: The extreme reverence of the Indian families to elders and the deference to their wishes, which emerged out of the requirements made by the Indian culture (Rivers, 2010). The studies show the younger generation in the family businesses wanting to become independent and simultaneously wishing to maintain their bonds with the family due to their high reverence to the elders. Thus, in case of the younger members becoming the CEO, they find it very difficult to ask the elders to change their functioning styles due to this reveration towards elders. This makes it very difficult to rise as young leaders by this generation. Moreover, there are chances of ignoring the decisions made by younger CEOs in family firms by the elders, which will affect the growth performance of these family firms. This shows the heavy requirements out by the cultural contexts in India putt upon the younger generation CEOs, which, in turn could affect the business performance.

(2)Role of Women: Based on the Indian culture, the inheritance issues favour the elder sons in the family businesses even though there will be skilled and ambitious daughters in the family. The women are forced to take the supporting role for the brothers in many family firms, as shown by studies (Rivers, 2010).

(3)Retaining professionals outside the family: Sometimes some family firms have to rely on professionals outside the family members for the management activities of the company. I n these cases, retaining them is very difficult since after some extent, promotion opportunities are not open to them. This is because even if the family members are not competent, they will be pushed into higher posts by avoiding promotions to non-family members. This makes it difficult to maintain non-family members. Moreover, there are chances of interferences in the jobs of the non-family members by the family members, which will affect the performance of the business (Sapovadia, 2012). This gives the chance of leaving them left out and alienated in the family businesses.  However, studies show that not all business aspects can be managed by family members alone and hence taking non-family members and management of the non family members   is very essential for the growth of a business (Bhattacharya, 2002).

(4) Management of boundaries between the family and the business: Making objective decisions recognizing the family emotions is a very challenging task in the Indian context. Due to the chances of emotional outbursts in family businesses, it becomes essential to keep non-family members in businesses to avoid possible internal conflicts. Otherwise, the family emotions interfere with the work in many family businesses (Sapovadia, 2012). Moreover, some tasks will be assigned to the family members in spite of the awareness that they are incompetent for those jobs due to the family orientation in the Indian culture. This can affect the job performance

(5)Lack of proper succession planning:  One main challenge faced by many family firms is the lack of a proper and clearly defined succession planning. One main example is the split of Reliance into two groups following the death of Dheerubhai Ambani due to the lack of proper succession planning. This example shows that even in such big family firms in India, proper succession planning is lacking(Bhattacharya, 2002).Studies showed about 52 percent of CEOs wanting to remain in power until death which is higher than even in USA with only 16 percent in this regard(Margaret,2014).

Given this issues in the transgenerational succession process in the Indian family firms, the next section discusses the responses of the interview done in the study.

4.3. Interview Response Analysis

Interview 1(Ansal Properties and Infrastructure Limited)

 This company was started in 1967 and had been in the construction field for over 47 years. It had been dominated by the family members with no very limited role for the external members. The respondent did not agree that external members are essential for the  efficiency enhancement, decision making process and in the avoidance of the internal conflicts in the family. Rather he felt the need for a clear succession plan and the  personal and administrative skills as essential for the successful succession and the growth of the family business. Moreover, there exists a clear need for the separation of family and business interests and a boundary needs to be between these. The company strongly agreed with going in public for the professionalization of the business and avoiding the personal conflicts. Though the responsibilities are handed over to the younger generation at present, the dominating role is still played by the founder .At the same time the successor also has influential role in the management activities of the company. The founder never overlooks the decisions of the younger CEO. All these had been helpful in making the business a successful one, according to the respondent.

   Interview 2(Lanco Group)

    Established in 1980, the group had been in the construction business for 34 years. This family business was dominated by family members with very little room for the external members in the top management. The respondent never felt the reliance on external members as essential for the efficiency enhancement, decision-making process and the avoidance of the internal conflict in the company. Though the responsibilities of the company is handed over to the younger generation, the founder has still a dominating role. However, the younger CEO has key role for the company activity management. The personal and administrative skills of the founder and the successor are essential for a successful succession, according to the respondent. The company strongly supported going in public for professionalization of business and avoiding internal  conflicts in the family. There was a clear strategic plan for succession in the company, which had a positive effect on succession. There were clear boundaries between family and business interests. The main challenges facing the company are the financial problems due to the economic recession and to overcome these, the company is diversifying its activities, according to the respondent.

Interview 3(Murugappa Group)

Murugappa group established in 1942 had been one of the most successful family firms in the construction field. Though the top management mainly consisted of family members, they depended on external members also in the top management. They felt it essential for taking external members to enhance the efficiency of the firm, decision-making process and conflict avoidance and have a positive effect on the succession process. However, the dominance of family members is essential to build continuity in the process, according to the respondent. The founder has still a dominating role in the business .The founder always made the next generation members prepared for taking the charge of the company .There exists a clear strategic plan for succession in the company. The respondent felt both the founder's and the successor's personal and administrative skills as essential for a successful succession. The younger generation CEO has a key role in the company management activity and there was clear separation between personal and family interests. The respondent strongly agreed with going in public for avoiding internal conflicts and  is decided by both the founder and the younger generation. The key challenges facing the company are  enhanced competition and more chances for the younger generation members to  exit the business in search of new opportunities. To overcome these, the respondent felt the methods as diversification of businesses and reliance on external members in the top management.

Interview 4(Jindal group)

Jindal group established in 1952    had been in the business for 62   years. The top management was dominated by the family members with no role for external members. The respondent strongly agreed that external members are needed for enhancing the efficiency of the firm, decision-making process and the success of the succession. There was no clear strategic plan for the succession in the group. The successors were never made ready for taking over the charge of the group, according to the respondent, which he felt as essential. The founder has still a dominating role in the group with the successor having no key role in the activities of the company. The respondent strongly felt the personal and the administrative skills of both the founder and the successor essential for the successful succession. The decision of going in public was mainly taken by the founder and the respondent strongly felt it essential for the avoidance of internal conflict and successful succession. There was no clear separation of the personal and business interests, which resulted in the downfall of the business in the recent years. The main challenges facing the company are the allegations of corruption against the authorities and financial problems due to high competition. The respondent suggested the need for corporate restructuring with more space for external members in the management based on merit.

Interview 5(Hindustan Construction Company)

The company started in 1926 with the separation of the famous Walchand Hirang group had been in business for 88 years. The top management is dominated by the family members with little room for external members. The respondent  felt the need for relying on external members in top management for avoiding internal conflict, efficiency enhancement and decision making process enhancement. The founder has  dominant role in the company now while the younger CEO has main role in the company management activities. The successors were made ready by the founder .Respondent felt the need for a strategic succession plan and the personal and administrative skills of both the founder and successor as essential for the success of the succession process. The decision for going public was not made by the founder. The respondent strongly felt the need for separation of personal and business interests for successful succession. The main challenges facing the company are enhanced competition and family disputes. The respondent felt the need for leaving the management to professionals for settling disputes and diversification of activities as the possible solutions.

Interview 6(Comfort Living Private Limited)

This company registered on October 2000 had been in the family business for 14 years now. The family members were in the main position for the company with only little space for the external members in the top management. The chances for the professionalization of the business were very less, based on the respondent due to the chances of the control factor over family not being diluted. There were many governance issues, self interest and non compatibility of the goals between the owners and the managers. Though the dominance of family members was considered needed for ensuring continuity in the business, the respondent felt it necessary that the presence of external members is essential  for the decision making process, efficiency enhancement and avoiding internal conflicts, according to the respondent. Though the member  of the family had no role in the  business, due to the younger generations high reverence for him, he had influence in the decision making process and was unquestionable. Though at present the duties are in the hands of the younger generation, the founder is still the dominating person. The respondent finds its essential for both the founder and successor to have enough personal and administrative skills for successful succession. The company was never for going in public for professionalizing the business. Due to the challenges like  bad governance, self interest , inconsistency of goals  between owners and managers, the company is now in a liquidating stage, according to the respondent. There is no clear strategic plan for the succession of the company. The main methods to overcome the succession issues as felt by the respondent are clear succession plan, professionalization of the business, clear separation of the family and personal interests and recruitment of the top management people based on merit.

Interview 7(Wadia Group)

Wadia group was established in 1736 and its construction company Bombay realty was started in 2011 and had been in the business for 3 years now. The  top management is dominated by the family members with very  little room for external members. The respondent  felt the need for relying on external members in top management for avoiding internal conflict, efficiency enhancement and decision making process enhancement. The founder has  dominant role in the company now while the younger CEO has  no main role in the company management activities. The successors are not  made ready by the founder .Respondent felt the need for a strategic succession plan and the personal and administrative skills of both the founder and successor as essential for the success of the succession process. The decision for going public is made by the founder. The respondent strongly felt the need for separation of personal and business interests for successful succession. The main challenges facing the company are enhanced competition and family disputes. The respondent felt the need for leaving the management to professionals for settling disputes and diversification of activities as the possible solutions.

The following table summarizes the results of the seven interviews.

Table 4.1: Main Points from the Interview

 

1

2

3

4

5

6

7

Top Management

Domination of family members

Limited role for externals

Domination of family members

Limited role for externals

Domination of family members

Relied on   externals also

Domination of family members

Limited role for externals

Domination of family members

Limited role for externals

Domination of family members

Limited role for externals

Domination of family members

Limited role for externals

Influence of founder

Dominant role for founder

Dominant role for founder

Dominant role for founder

Dominant role for founder

Dominant role for founder

Dominant role for founder

Dominant role for founder

Influence of Successor

Key role for successor

Key role for successor

Key role for successor

Nokey  role for successor

Key role for successor

No Key role for successor

Key role for successor

Going in Public

Yes, Decision by founder

Yes ,Decision by founder

Yes, Decision by founder

Yes,Decision by founder

Yes, Decision not by founder

No , Decision by founder

Yes, Decision by founder

Strategic plan

Yes

Yes

Yes

No strategic plan

Yes

No strategic plan

No strategic plan

Challenges

Competition

Financial problems, enhanced competition

High competition, younger generation exiting business

Allegations, competition

Competition,family disputes

Governance issues, self interests, succession issues financial problems

Competition, family disputes

Solutions

Activity diversification

Activity diversification

Diversification, relying on externals

restructuring

Leaving to professonals,diversification

Clear succession plan, going in public,separation of business and family interests

Diversification, leaving to professionals

4.4. Discussion and Conclusion

In this chapter, the various issues in the transgenerational succession in the Indian family firms are discussed based on interviews and the analysis of existing studies. The discussion shows that in most Indian family firms, there is clear domination of the family members with very little room for the external members and the dominat role played by the founder. The younger generation clearly follows the traditional management styles of the founder due to the dominant role by the founder and the high reverence of the younger generation to the elders. This is mainly based on the cultural context in India consistent with the Hall(1989) low and high context culture differentiation. The discussion shows the need for clear succession plan in the family firms for the successful succession process. The main factors preventing the successful succession in the Indian family firms can be explained based on the framework by Masis et al (2008) as follows. individual factors which include both incumbent and successor factors,  relational factors, financial factors, environmental  factors  and process factors. The individual factors are low competence of the successors, lack of motivation of the successors and the very high dominating role of the incumbent. The relational factors are the conflicts among the family members, very high reverence of younger CEOs towards the elders and lack of trust in the potential successors. The financial factors are lack of financial resources to find the heir exits and lack of adequate resources for cost absorption in hiring professionals from outside. The environmental factors include enhanced competition and the associated changes in the performance of the business. The process factors include lack of separation of family and business interests, lack of training and preparation for the successors, lack of a clear succession plan and no clearly defined role for the incumbents and the successors.

The next chapter concludes the study and provides recommendations.

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