The Virgin Group in 2012

The Virgin Group in 2012

Contemporary Strategy Analysis- Robert M. Grant[pic 1][pic 2]

        Index

1. What common resources and capabilities link the separate Virgin companies?

1. Which businesses, if any, should Branson consider divesting?

1. What criteria should Branson apply in deciding what new diversification to pursue?

1. What changes in the financial structure, organizational structure, and management systems of the Virgin group would you recommend?

1. What are the advantages and disadvantages of having an umbrella name for all companies of the Virgin group?

I. What common resources and capabilities link the separate Virgin companies?

The Virgin group, defined as being “a structure of loosely linked, autonomous units run by self-managed teams that use a common brand name”, includes in its portfolio diverse businesses from airlines, health clubs to music stores. They really believe in entering into “industries they know nothing about”. Their expansion strategy is developed through joints ventures, where they actually contribute with their brand image and awareness, having the partners the role to provide the majority of capital and, moreover, the knowledge to be successful in the industry.

The name Virgin became so important worldwide that the number of companies willing to have the group as a partner is increasing, even if what they only have to offer is the importance of the group’s name. During 2011, royalties from licensing the Virgin brand were close to £35 million. The Virgin brand is the group’s greatest single resource common to all group companies. The presence of this huge brand transmits to the consumers: good quality, brilliant costumer service, innovative, fun and competitively challenging. These attributes were conveyed to costumers through Virgin’s approach to differentiating its offerings, like, for example, Virgin Atlantic was the pioneered to company to provide a range of innovative costumer services, in particular to Business class passenger, like in flight massages, hair stylist and more.

The Virgin brand allowed Virgin companies to position themselves as distinctive alternatives to market leaders. Therefore, the difference was not mainly about products was about the company’s identity and how they are related to their costumers.

Although the group counts on many companies , many of them within common industries, there are only two features in common to all companies . The brand and consumer loyalty towards the same . While the capabilities that are patent throughout the case, are the high level of Market Sensing and

Costumer insights beyond the level of  network of partners around the world that allow Virgin get into hitherto totally unknown markets.  It would be normal in a group with the size of the Virgin , that there was financial dependence between group companies , however it is not the case as Brandson said” each Virgin company was financed on a standalone basis” 

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1. Which businesses, if any, should Branson consider divesting?

At the beginning of 2012, there were 228 Virgin companies registered at Britain´s Companies House. 68 of these companies were either considered as “removed” or “recently dismissed”. And other 25 companies were registered in other countries.

        Their separate companies covered a wide range of businesses from Travel, to Lifestyle, Media & Mobile, People &Planet, Money, Music, and many more.

        In an era of corporate refocusing, when the majority of diversified companies had either divested some businesses or broken up altogether, Virgin Group was an exception due to their range of businesses.

        Their major concern is to maintain coordination, accountability and strategic control of their empire. But Virgin´s brand represented a major vulnerability. With such broad business coverage it risked becoming overextended and its integrity damaged.

        Virgin started with Virgin Records, this company consisted in mail-order records. It had no fixed investment and little working capital. In 1971 they opened their first retail store in Oxford Street. And during the 1980s Virgin Records grew rapidly.

        This first adventure was followed by a completely new brand, Virgin Atlantic Airways. In association with Randolph Fields, Richard Branson founded a transatlantic and cut-price airline. The inaugural flight was in 1984 in a second-handed plane from an Argentine Airline. This business required a huge capital investment, was heavily regulated and required a new set of business skills.

Between 1998 and 2011 Virgin launched continuously new businesses, and the diversification process was on. Some examples were:

• Launching of other airlines (following the low-cost carriers business model)(But with Virgin´s distinctive approach to differentiating its in-flight experiences);
• Investments in hotels (linked with Virgin Airlines interests);
• Retailing (Record stores were the first step towards Virgin Retail interests) (Opened the Our Price Chain in a joint venture with WHSmith as well as Virgin Bride retail stores);
• Information and communication technology (online retailing of several distinct products as automobiles, wine and music downloads)(as well as the launching of Virgin Mobile a joint venture with Deutsche Telekom)

Along Virgin history several ventures were divested either wholly or partially. There are mainly two different reasons for these divestments. Some were to tap sources of investment funding (for example the sale of 49% of Virgin Atlantic to Singapore Airlines). And other cases were because Branson wished to release equity to invest in new attracting businesses (for instance the sale of Virgin Records, Virgin Megastores and Virgin Mobile UK).