The concept of family-owned businesses in India has been a long-standing tradition. In the past, industrial sectors were divided amongst the businessmen on the basis of family names. For instance, the surname ‘soonawala’ was associated with goldsmiths, ‘lakdawala’ with timber shops, and ‘rassiwala’ with traders of ropes. However, the term “family business” has gained a broader meaning to it now.
It refers to a business association which is passed from one generation to another. The key to the survival and growth of any business lies within its ability to innovate. Many Indian family businesses like Haldirams and Dabur owe their success to continuous innovative practices. According to a survey by PwC in 2019, 66% of the family businesses in India believe that continuous innovation is necessary for business sustainability, and categorize it as a challenge in the coming time.
Innovation is a process in itself, which in businesses is catalysed by management actions. The subject of the study at hand is ‘Effect of Innovation on the Entrepreneurial Performance of Family Business’; however, it must be acknowledged that entrepreneurship in family businesses has led to innovation. The Tata business group is one of the top Indian family run businesses which has capitalized on innovative practices to become a market leader.
About the Tata Business Group
The Tata Group was founded in 1868 by Jamshedji Tata in the form of an association which is now called a start-up. The company’s operations gained momentum and recognition with its international acquisitions, investments and people orientation. It is owned by Tata Sons (66% of which is owned by trusts). It has ten verticals including but not limited to steel, consumer and retail, automotive and financial services. Ratan Tata was the last family member chairman of the company. He has now handed the reins to Natrajan Chandrsekaran, a non-family member.
‘Family businesses go through three stages over the first three generations — entrepreneurship, sibling partnership and cousins confederation…’ As can be seen with the Tata group, entrepreneurial ventures of Jamshedji Tata and Sir Dorab Tata led the company to gain an intial standing. Later, it was jointly run by the family members and outside professionals during the management led by Nowroji Saklatwala and JRD Tata.
After Ratan Tata took over control of the company, the joint ownership and leadership by family members and outsiders continued. However, recently, the family has restricted its position to ownership and management has been vested to professionals who are non-family members. This also re-emphasizes the shirtsleeves concept prevalent in family businesses. Nevertheless, innovation remains a strong foundation for the activities of the company.
Tata and Innovation
The spirit of entrepreneurship in family businesses can be accrued to several reasons. Firstly, the gap between the decision makers and the Leaders is very small. In many cases, family members comprise of the company’s board members, and act simultaneously as leaders and the decision-making management. Further, the patience of family run businesses to allow an idea to grow leads them to making better investments. This patience comes from the fact that the business is going to continue from generation to generation. Thirdly, family members are more efficient with the utilization of their capital since they invest their own money into business expansion.
Family businesses are often accused of limiting their spending on R&D. A study found that family businesses spend far less amount on innovation than non-family businesses; however, they are more efficient and productive in their innovative processes and activities.
Therefore, it can be inferred that family-run businesses are more likely to earn a higher return on R&D than other non-family businesses. The Tata Group has a dedicated group forum to innovation. It has understood the underlying concept of innovation and how technology is mainly a supporting tool to it, and not the entire basis for its existence. Tata is claimed to have been innovating in four stages since 1868; unconsciously innovating, consciously improving, unconsciously improving, and consciously innovating.
Jamshedji Tata was responsible for the funding of IISc (Bangalore) and JRD Tata undertook steps to set-up the ‘National Centre for the Performing Arts (NCPA)’. Tata is known for its efforts in social, HR and technological innovations. It has many awards in place to promote innovation, like the ‘Dare to Try Award’ which is awarded to the best failure. Examples of the winners of this award include ‘Replacing copper wires with graphene coated steel (2019)’ and ‘Titan Kitchen (2016). Some of its activities and steps that accelerate entrepreneurial innovation include:
Tata Chemicals Innovation Centre
This centre at Tata Chemicals is concerned mainly with product innovation. While it initially began as a step towards product innovation in the chemical industry, it has expanded to innovation for sustainable and eco-friendly product solutions. The Rallis Innovation Chemistry Hub (RICH), Bengaluru works on new molecular formations for commercialisation and green technology. The Metahelix Life Sciences, Bengaluru focuses on genetic modification and crop protection to increase productivity and yield. The Tata Chemicals Innovation Centre, Pune is a research and development centre which works on bringing in new and improved products and processes in the energy, food, and fuel sectors.
Recently, the transfer of the consumer products branch of Tata Chemicals to Tata Consumer Products Ltd. led to huge profits and a spike in the market capitalisation of the company value. The continuous research of the innovation centres at Tata Chemicals were largely responsible for the consumer products segment of Tata Chemicals, whose operations were originally concentrated in industrial chemicals.
Tata Steel Europe Research, Development & Technology
This business avenue of Tata Steel believes in the use of technology to catalyse innovation. It operates from multiple locations in the countries of the United Kingdom, Netherlands and India. It launched 40 new products in the time period ranging from July 2016 to December 2016. The company launched its Technology Challenges gallery in 2014 and its Innovation Portal in 2015. They both encourage community and external (partner) participation to explore new process and product ideas.
Tata Steel has integrated innovation into its production process. Through heavy spending in research and development it has made sure that all such activities relate to different stages in the production process; which includes integrated steelmaking, metal applications, raw steel production and refractory and ceramic production.
TCS Innovation Labs
A group of innovation labs working in the areas of technology, academic alliance and domain labs, the TCS innovation Labs offer innovative solutions to customers of the TATA group. It has a start-up incubation centre which gives its employees and partners opportunities to venture new business ideas. It organises a TCS Entrepreneurship Program as well. It is currently focused on IoT, drone technology and artificial intelligence and cognitive transformation.
Furthermore, the TCS Co-innovation Network is a body comprising of individuals from various domains including professionals, academicians, employees and entrepreneurs to identify innovative opportunities. TCS research is another branch of TCS which believes in the motto ‘innovate to impact’. They conduct research in many domains ranging from ‘Deep Learning and AI’ to ‘Life Sciences’.
Tata Motors European Technical Centre
This is a wholly-owned UK based subsidiary of Tata Motors Ltd. which focuses on advanced engineering, design and product engineering. Its research and development efforts contribute mainly to Tata Motors Ltd., however, it does provide services to certain other companies in the automotive industry.
Innovation can be categorized into knowledge innovation, radical innovation and product innovation. TATA has capitalised each aspect of innovation over the years to support its on-going entrepreneurial spirit. The knowledge innovation stems in the company from the involvement of family members in the business. The family members who led the management of the company were highly educated and understood the importance of applying knowledge to innovation. The same continues through TCS COIN (TCS Co-innovation Network). Product innovation initially stemmed from investments provided by family members-owners-managers (in alignment with the resource dependence theory). Radical innovation took place not only through disruptive technology innovations, but through social and HR innovation.