Real Estate Industry needs a Revamp, from Owner Driven to a Corporate

Introduction:

Before we delve deep into this topic to understand why there is a need for the Real Estate Sector to transform from a Family Managed Business (FMB) or Owner Managed Business (OMB) to a Corporate Governed Business (CGB), it is important to understand, what is a Family Managed Business. To put this in a very common parlance, FMB is a business house or a business organization wherein the ownership & the control of the activities of the business rest solely with the promoter or the members of the promoter’s family. Herein, family managed business houses, largely run the Indian Real Estate Sector.

There are scores of companies in India – right from proprietorship, small-scale industries to mammoth size hugely successful companies. The essence of the family businesses can be understood by acknowledging the fact that almost 60% of the GDP accrues from these very business houses. Family businesses are indispensable or crucial for the domestic as well as the world economy. So, it is interesting to know what the main features of any family business are, including how family, business and ownership interrelate and work alongside each other to reach a common goal.

Salient Features:

•Hierarchy

The authority-responsibility structure of the company remains a little ambiguous. There could be a scenario wherein a well qualified & experienced person might be asked to report to someone with lesser capabilities. Just by the virtues of his being a member of the family, he will be super imposed in the existing structure. There are instances wherein too much interference has caused havoc with the essentials of day-to-day functionality. Conversely at times, this situation has helped in getting matters resolved quickly, but as the volume & the geographical presence of the business expands, the formal hierarchy becomes critical.

In a cross-functional or multifunctional working culture, there will be multiple points of authority, multiple points of instruction & multiple points of accountability for the professionals working in the organization.

•Comprehensively defined organizational goals

These companies have very clearly defined organizational goals to begin with, and it does help them to promptly take advantage of the favorable opportunities available in the market. But these companies also suffer from the ever-changing dynamics of the relationship of the family members and their differing viewpoints.

•Ambiguous & Ever Changing Individual KRA

The employees are the backbone of any business when it comes to the execution of whatever Business Goals are set at the leadership level. The responsibilities or the Key Result Areas of the employees in FMB remains very dynamic. There is a tendency of the work flow going towards the relatively efficient employees who are completing assigned tasks in a time bound manner. It does help in quick recognition of the performance, but at the same time, somewhere it starts breeding the ground for early burnouts among the performers.This practice of ever evolving KRAs gives rise to overlapping & duplicity of roles & responsibilities.

•Centralized Decision Making

These organizations tend to keep a large say in the decision making process, not only at the strategic level but also in the matters of routine operational activities. This definitely gives them an advantage of keeping everything well aligned to the goals of the business, but it delays the decision making process and hence increases the time cost of the business, which could mean sometimes a higher cost or a lost opportunity.

This limitation can be overcome by having a hybrid model of decision making authority wherein certain decision making can be left to the functional heads by empowering them & delegating the authority for effective execution. This practice can enhance the motivation level and sense of ownership amongst the employees.

•Disparity in staff compensation structure

The benchmarking of the Compensation is not much prevalent in the FMB organizations. There are instances where the salary structures may not be in accordance with competencies, the skill sets & experience of an employee. The duration of the service, the loyalty and proximities to the promoters & the other family members does impact the setting of staff compensation level.

•Cultural Diversity in The Work Force

These organizations do have a peculiar characteristic of normally hiring employees based on self-belief, rather than an objective competency mapping based model. There is a likelihood of hiring people from a certain sect or region. This limits the cultural diversity amongst employees, which is very important for establishing a cohesive & a high performance team.

•Low Expenditure on Employee Development

The management normally is reluctant to spend any significant amount on the training & development of the workforce. Instead of sparing budget for employee development, the tendency is more towards hiring someone instantly and getting the work done, without looking at the other parameters of Talent Acquisition. This is bound to create cultural misfits, salary disparities, and hit & trial decision-making. When it comes to the hiring of junior employees, such organizations overly rely on, On Job Training, keeping aside the basic entry-level qualifications and other attitudinal, skills & knowledge based requirement.

•Performance Management

There is requirement of a very clearly laid out performance management system to keep the work force focused on their respective responsibilities, and work consistently towards the accomplishment of the business goals. There is lot of adhocism in the way the performances are measured & awarded in FMB establishments. It is heavily dependent on the feedback received from the core management members. The 360 Degree Appraisal, Self-Appraisal or a Participative Performance Appraisal & its Management is found to be missing in most of the FMB Establishments.

•Resistance to change and adaptation to latest technology or management practices

An attitude geared towards resistance to change can be a big hindrance. Attempts to alter established practices may be perceived as threats by the old timers in the organization. They generally tend to resist introduction of most of the changes, which disrupt their comfort level. This resistance proves to be a big deterrent for the promoters to go ahead & adapt to the latest practices even at the cost of losing an opportunity.

•Fund Raising Capabilities of the Business

Financial institutes & Institutional Investors prefer to invest in organizations, which have a structural way of working, and are free from any adhocism in decision making. The conflict or differences amongst the family members can adversely affect the prospects of business & the safety & security of the invested amount.

The Way Forward for a Family Managed Real Estate Company:

With so much of structural changes in the economy, it has become imperative for businesses to become as formalized as possible. This is specifically pertinent in the context of one of the most important and very critical sectors of the economy i.e. Real Estate.

Due to various new enactments like RERA, Demonetization, Introduction of GST, & the Business Potential created by huge push to Housing For All, the Real Estate Sector is going to witness the next round of consolidation shortly.

Also, with the increasing number of family members getting involved in businesses, more complex issues within the family may arise, which can harm the business in the long run. In this case corporate governance can bring the much-required ‘structure’ within the business and the family.

The sector in the current ecosystem will remain sustainable only if it introduces benchmarked HR Practices, overcoming the above stated limitations of the various existing practices followed in a family driven business set-up. This will enable the sector to attract the best of the talent from the market. The HR can play a very critical role; not only in attracting good talent but also in aligning and re-aligning the work force in tune with market dynamics, retaining them, and rewarding them in a very sustainable manner.

The introduction & implementation of the best HR policies can bring in enhanced transparency in the expectation level, setting out clearly defined KRAs, roles and responsibilities, the formal channels of hierarchy, regular evaluation of performance and rewards and so on. All of this can completely turn around the work environment and bring in great additional value to all the stakeholders of the business: Owners, Employees, Vendors & The Customers.Thus, the need for the Real Estate Sector is to enforce the much-needed transformational change and effectuate a shift from a ‘Family/Owner Driven to a Corporate Governed Organization.’