THE MURUGAPPA GROUP

• This Group has a successful family business empire over the four generations.• Started in the early 1900’s by Dewan Bahadur Murugappa Chettiar as money lender and trader.• Murugappa group is one of the largest business group in India with total net worth of over 35bn. In sales and over 23,000 employees as of 2004.

Headquartered in Chennai(Madras),the group has a diversified portfolio with strong presence in Sanitaryware, fertilizer (Phosphatic), abrasives, automatic chains, Cycles, steel tubes, car door frames and Neemazal (Bio-products).

Apart from this portfolio consist of IT enabled services, financial services including insurance and plantations.

It has 38 manufacturing locations spread over 12 indian states.

It has overseas technology collaborations.

CONT..

The group was headed by family member as CEO, no formal interaction but only information consultation among family members.

Male family members start their carrier as junior executives, depending upon their performance move up in the organization.

In this group senior family members are mentors who guide the juniors to run the family business, this means that there was some controlled in the hands of senior family members.

CONT..

In 1991,with the opening of Indian economy the family felt it advantageous to be group in a more formal way and constituted a Murugappa corporate board(MCB).

The new competitive environment required speedier and more flexible group business portfolio decisions, this can only be happen if all individual family members try to indulge in day to day management.

CONT..

In sept. 1999, ownership and operational management of the companies were separated for the first time.

Decision on the restructuring was not so easy task ,under the CEO leadership of the seven individual companies switched from family members to professionally non family managers, all promoted from within the group.

The chairman of the restructured MCB was MV Subbiah. after this process of transformation and stabilisation of the new governing structure was completed.

RESTRUCTURING

The Murugappa group had unrelated diversification into industries covering confectioneries,ceramics,agri-chemicals and bicycles.

After 1991 Period, Other issue was that Murugappa had concentrated more on internal restructuring and reengineering rather than the inorganic growth like M&A. This mainly due to control in the hands of senior family members. they donot allow the fourth generation to experiment too much that possibly risk the family wealth.

PROBLEM’S

Dabur was started in 1884 by Dr Burman to manufacture and sell traditional :indian medicines called ayurveda.

In 1986, it became a public limited company. In 1999, the group has turnover of around

Rs.11bn which stood at Rs.16bn in 2004. Dabur owns several well known brands in

ayurvedic medicines and healthcare space. New generation believe that introduction of

business restructuring and introduction of new system definitely improved turnover and profits.

DABUR GROUP

The group CEO is a non-family members, and five out of nine members on the board are non-family professionals.

Dabur group gave more priority to corporate governance and transparency in the business.

Dabur group beleives that the family has a trusteeship role to follow both in terms of perpetuating the family business and in preserving and growing the business.

After 1991 period they focus more on internal restructuring and reengineering than on scouting for acquiring businesses .

CONT..

Dabur group has a very strong control and coordination in the group with strong independent board in place.

Dabur group has CEO as an outsider non family professional.

Dabur group had very well qualified groomed professional family members at the top level of the organization.

CONT..

The major issue was that the fourth generation want to grow in diversified portfolio and seem to be looking for grater freedom to express themselves as an entrepreneurs.

However ,dabur group had centaralization sort of structure having strong control and coordination in one hand which donot allow the fourth generation to experiment too much that possibly risk the family wealth.

CONT.

Started business in 1879 as textile company by Nowrosjee wadia, this group has registered a turnover of Rs.26.31bn in 2004.

In 1954, they entered inorganic chemical business and in mid 1980’s further diversified into engineering products.

They known as for famous bombay dying in textile business.

The business activities of the group cover plantations, trading, foods, laminates, healthcare and real estate too.

WADIA GROUP

In 1993,wadia group acquired Britannia a business manufactures that push up growth for the group and became a star in the industry.

At that time period in 1993-94 the group had turnover of Rs.20bn up from Rs. 12bn in 1992.

In 2005, they announced family funded low cost airline .

Wadia group have a small family business with one son in each generations except the current generation of NUSLI WADIA.

CONT..

NUSLI WADIA continue to be the chairman of the two flagship companies i.e Bombay dyeing and Britannia industry.

Wadia credit the family has remained a major investor in the company.

Wadia group have gone for the unrelated diversification that will cause poor communication structure, regulatory constraints and inefficent judiciary.

CONT..

Wrong decision taken by the company in 2005 to enter into airline business due to absence of succession planning in the family, lack of stakeholders.

Jeh wadia elder son of nusli wadia entry into airlines business is a reflection of the entrepreneurial bug bitting the young generation.

Group has limited resources and capablities, having more risk in airline business .This will tend to negative networth growth for the business.

PROBLEM’S

The Godrej group is over a century old. It started by Ardeshir Godrej to make locks. The three generations that built the group

added several products to the portfolio. From locks in 1887, to soaps in 1918 and

refrigerators in 1958, the group has steadily grown over the years.

The group turnover grew from Rs 28 billion in 1999 to Rs.33 billion in 2004.

Godrej Group

The Godrej was awarded the Citizen of the Year in 2003 by the Economic Times for its contribution to social development.

The group has acquired brands such as Fiskars, Jet and Banish and has forged alliances with several transnationals such as GE, P&G, Pillsbury, and Sara Lee.

The family strongly believes in the trusteeship role of each member in perpetuating the family and the business.

All the group’s businesses are managed by the third generation.

The fourth generation has just commenced entry into the business.

The young generation has to join at the lowest executive rings and be trained and found good before climbing up the hierarchy.

Group companies are chaired by family members, but as Adi Godrej as the Group chairman.

It is mainly on paper. Each company CEO has maximum freedom

to decide the strategy of the company. There is consultation in both at the family

and business levels. It is to note that the group has recorded

steady growth in the past five years on sales, PAT and networth front.

It was started by Laxmanrao Kirloskar in mid 1920s.

It started world class diesel engine for the 1st time in India.

A majority of its revenue comes from its core businesses of castings and forgings, pumps, engines, electric motors, power equipment, and compressors.

During 1956-80, the group was led by SL Kirloskar.

Kirloskar Group

The group has been conservative in growth and has closely held ownership within the family.

The group turnover has come down from Rs.9.50 billion in 1999 to Rs.7.45 billion in 2004, with the networth also depleting simultaneously.

The group is led by the last member of the third generation, who is now 54 years old.

He has worked towards synergizing relationships among family members and making them think as a group.

The male members of the fourth generation are actively involved in managing group companies.

they have developed mechanisms for mutual consultation regularly.

Their exposure and experience with TQM methods from collaboration with

Toyota, Japan provided all of them with a common platform to compare and exchange notes.

It is found to be inadequate to build long term business competitiveness.

Growth Strategies The performance track record of the five

groups vary considerably. Dabur and Murugappa groups stand out

with their steady, but impressive record on all dimensions, sales, profit after tax (PAT) and networth.

The performance of Godrej group is also good, though its size and networth is not comparable to that of the Murugappa group.

Discussion

The overall decline in the Kirloskar group underlines the need for balancing the competitive and compassion orientation in family businesses.

the Wadia group’s growth in turnover is not reflected in its networth.

We suggesting that it has not done enough to professionally address issues of business competitiveness.

All the five family businesses studied here have diversified into unrelated areas over the generations.

H1. Family businesses with greater level of professionalisation practiced both in business and family are likely to perform and perpetuate better over a long period of time.

H2. Large business families are likely to approve new investments in diversified areas in small amounts to test the idea first before considering significant investments.

H3. ‘Shirt sleeve to shirt sleeve in three generations’ is a myth in growing economies.

Based on the above discussion, the following hypotheses are suggested.

Structured and systematic programmes exist in all the families studied for young generation to join business.

In all these families, the young generation is to fulfill certain qualities and qualifications before they are allowed to join business.

The Murugappa grooming process is unique as it

involves a structured grooming process for children completing studies.

Professionals from family and outside

There is shortage of new entrepreneurship initiatives in such families (like Murugappa, Kirloskar, Godrej) since the families’ attention is more on maintenance and less on new creations.

In the process, the younger generation may not get many opportunities to cultivate fresh business ideas.

The relationship between non-family professionals and family members involved in business is found to be smooth when the family members earn professional respect from outsiders.

the performance of top management depends on its relationship with its principals, the shareholders.