Strategic Innovation at Virgin Group: Analysis & Recommendations

This case study provides an analysis of the Virgin Group, focusing on its strategic innovation, diversification, and potential divestment options. It identifies the common resources and capabilities that link the separate Virgin companies, highlighting the role of Richard Branson's leadership and the Virgin brand. The analysis uses the BCG matrix to evaluate Virgin's business units, recommending divestment from underperforming areas like Virgin Money, Virgin Airline, and Virgin Cola. The report proposes using Porter's essential tests (attractive test, cost of entry test, and better off test) to guide future diversification strategies. Furthermore, the study suggests changes in the organizational structure and management systems to enhance efficiency and adaptability. The conclusion emphasizes the importance of strategic alignment and continuous innovation for Virgin Group's sustained success in a competitive global market.

Strategic and Innovation
Virgin Group
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Table of Contents
Introduction................................................................................................................................2
Resources and Capabilities....................................................................................................3
BCG Matrix............................................................................................................................4
Stars....................................................................................................................................5
Cash Cows..........................................................................................................................5
Question Marks..................................................................................................................5
Dogs...................................................................................................................................5
Divestment.............................................................................................................................6
Criteria for deciding new Diversification Strategy............................................................7
Recommendations for the Changes in Management System and Organizational Structure..9
Conclusion................................................................................................................................10
References................................................................................................................................12

STRATEGY AND INNOVATION 2
Introduction
This report is being presented in order to analyse the case study of Virgin Group and identify
its resources and capability, in which business area Virgin should divest its operations and its
criteria. Besides this, the report will also recommend some of the changes in the
organizational structure and management systems company should make.
Source [(Seek Logo, 2018)]
Virgin Company was launched by Richard Branson in 1970 as a company of mail order for
the sake of selling records. The name of the company was recommended by Mr Branson’s
associate and was accepted as announcing their commercial virtue, while owning some
innovative and modest shock value (CWTEMP, 2016). The company has developed rapidly
over the years and converted into a top branded venture which expanded into various
businesses. Currently, Virgin is broadly known and is one of the most appreciated brands
owing to effectively developed business in regions like telecom, music, the airline industry,
financial services, etc. (Murphy, 2008) Till date, the company has around 200 individual
firms that are controlled by 20 holding businesses which operate under one roof i.e. Virgin
(Virgin 2018).

STRATEGY AND INNOVATION 3
Resources and Capabilities
Resources and capabilities are defined as productive assets possessed by a company or firm
and what it can do with them (MBA Skool, 2017). Resources do not get productive
themselves; they have to be transformed into capabilities by co-ordination and management.
For an organization to attain competitive advantage, the company needs to be focused
towards its main strengths in capabilities and resources and confirm that both should operate
together in place of operating in isolation. In the Virgin Group’s case study, one key resource
is its creator or founder i.e. Branson, who started the company in 1970. His effective
leadership is vital for emerging new Virgin capabilities (Grant, 2018). As noted, his power as
a businessman was in considering and executing new ideas of business. Richard Branson is
not just the founder; he is also called as an initiator and main financier in the company. His
eagerness and dedication for business resulted in launching a range or series of various Virgin
companies like Virgin Rail, Virgin Records, Virgin Cola, Virgin Airlines, etc.
Another link is the Brand Virgin. Trademarks and names of the Brand are a form of
prestigious or reputational asset, its value is reflected through the confidence they build in the
customers. The appreciated Virgin’s asset is its brand. It has been noted that the
characteristics and values that the brand of the Virgin transferred are inseparable from
Branson. The brand of Virgin was recognised with progressive strategies and innovation and
advertising that characterised maximum of the Virgin start-ups. With the help of the brand
the group is able to make its other companies representing the service quality and worth of
money. It allowed them to make a series of services and products in other markets. However
the name of the brand is said to an intangible asset but sometimes the organizational growth
value and competitive advantage can be immeasurable.
The company’s success to create an effective consumer brands has an influential incentive to
expand in which the Virgin group has gained success (Kislaya, 2017). The Virgin brand

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permitted the whole group to differentiate to dissimilar areas of business in the nations across
the world such as the Japan, Australia, Hong Kong, US, Singapore etc. (Springer, 2018).
The virgin’s success can be outlined in its organizational culture and structure. The culture of
the organization is a company’s resources and capabilities which are of great strategic
significance that is possibly very treasured and associated with its social norms, traditions,
and values. The ability of the Virgin to function efficiently with little official structure or
management systems is just due to its culture as determined by the management style and
value of Branson (Sadq, 2016). He is the one who draws motivations from the thoughts of
others people and encouraged proposal of new ideas of business. Employees in the
organization are motivated to grow ideas of business for fresh businesses. Personnel have
stakes in the organization and try to make the company thrive, permitting them to handle and
control the company and enjoy the profits of their achievement.
BCG Matrix
Boston Consulting Group (BCG) Matrix is a four-celled matrix (2*2 matrix) established by
BCG, USA. It offers a graphic depiction for an organization to inspect diverse business in its
collection or portfolio depending on their associated market share and growth rate of the
industry (Management Study Guide, 2018). Along with this, it is also said as a comparative
examination of the potential of the business and the environmental evaluation. According to
this matrix, a business can be categorized as high or low depending on their relative market
share and industry growth rate.
In the BCG Matrix, there are four cells, along with vertical axis which represents a growth
rate of the market and horizontal axis reflects relative market share. The resources are
assigned to the units of business as per their position or situation on the grid (Jurevicius,
2013).

STRATEGY AND INNOVATION 5
Source [(Management Study Guide, 2018)]
Stars- Stars reflects those units of the business that possesses a huge market share in the
growing industry. They might help in generating cash but due to quick-growing market, stars
need high investments in order to uphold their leading position (Martin, 2017). Business units
of Virgin Group that will lie under this cell are profit-making as they are placed in a strong
industry and these types of units are very competitive.
Cash Cows- Cash cows reflect those business units that have a huge market share in a slow-
growing and mature industry. Cash cows need slight investment and produce cash that can be
utilized for investment in different business units. These types of business general use
stability strategies. At the time when cash cows drop their attractiveness and move in the
direction of declining stage, then the policy of retrenchment can be followed by the Virgin
Group.
Question Marks- Question mark reflects those units of business that possess low relative
market share and placed in an industry with high growth. These types of business units of
Virgin Group will require high investment in order to gain and maintain market share.
Dogs- Dogs reflects those business units that possess a feeble market share in the markets
with low-growth (Hanlon, 2017). They neither make cash nor need investment. Because of

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less market share, these type of business unit deals with cost disadvantages. Normally
divestment strategy adopted because these types of firms can gain market share only on the
competitor’s expense.
Virgin Group involve various business units, some of them are working properly but some of
them are facing losses and will not be able to survive in the market considering the future
aspects due to huge competition and changing the environment. These business units' lies
under Dog cell which suggests that company should divest those units. Some of them are
Virgin money, Virgin airline, and Virgin Cola.
Divestment
Virgin Group has performed effectively in the management and establishment of new
business since many years; however few of its business units are not performing the way they
use to considering the present economic downturn in the world. Virgin should see inward
and look few of its business ventures that presently are economically feasible and need to
think about divestment. Some of them must be noticed such as Virgin Money, Virgin airline,
Virgin cola etc. The airline industry was dominated by Virgin because of its style of
management and serving consumers their money's value, however, this came at a price. The
industry of airline is capital concentrated. The statistics reflect that Branson sold his most
successful and profitable business in 1992 i.e. Virgin Music for £ 560 million to fund
Virgin Atlantic. However, the Virgin airlines still make revenue but not as it used to. People
do not travel much and competition in the whole industry is extensive. Currently, airlines are
often attempting to attract customers by providing unique packages and low prices,
compounded with alternatives to air travel etc. There are various factors influencing the air
travel profitability like high jet fuel price, government deregulations, and regulations, taxes
etc. (Leigh Fisher, 2011). Considering this, it will be effective for Virgin group and Branson
to divest its Airline business.

STRATEGY AND INNOVATION 7
All the time Branson is called as attempting to ‘stick it the big boys’, but his participation in
the financial activities look to be a trade that must be left to the big boys by depriving and
focusing on other business areas. Consumers will select services and products from those
institutions that have a good and long history such as financial institutions and banks. With
extra recognized companies in the market, his participation is a little complicated. Virgin is
not called as a bank and does not possess complete infrastructure in order to confirm
complete activities of banking, and as an outcome its hard work to tender for the 318
branches of RBS in Wales and England got unsuccessful, and has taken over by Santander a
Spanish banking giant (Treanor, 2010). This is a strong signal for founder of Virgin to divest
its Virgin money business unit.
Another effort of Richard Branson is Virgin Cola to ‘stick it to the big boys’ must also look
towards divestment (Morschett, Klein and Zentes, 2011). It is known that brands get
unsuccessful when they transfer into unfamiliar territories. Although the Virgin cola can be
inexpensive as compared to Pepsi and Coca-Cola, these are two giant coke makers that are
famous worldwide. It will be very difficult, maybe not possible for Virgin Cola to create an
influence competitively in the global market. Pepsi and Coke consider rivalry seriously and
do not bend arms though Virgin Cola attempt to remove them (Smith, 2017). It is assumed
that tough brand exploits player’s flaws. Virgin is a tough brand; however, its Virgin Cola
brand is not so strong in front of Pepsi and Coca-Cola.
Criteria for deciding new Diversification Strategy
As an outcome of Modification or diversification, a company can enlarge its series or range
of services and products and vend to existing consumers or make new marketplaces in a
diverse area of the world thus growing worth and development (Markgraf, 2018). Besides
this, diversification is a strategy of risk reduction that allows shareholders spread risks. It has
been noted that the emphasis of diversification examination is on recognizing the situations in

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which various activities of a business can make value (Riddix, 2011). In order to define
whether diversification will make shareholder value or not, Porter’s essential test must be
applied by the Virgin Group. This test involves three tests i.e. the attractive test, the cost of
entry test, and the better off test.
The attractive test- The industry needs to be operationally and structurally attractive and
appealing or should have the probability or potential to get converted into the attractive
industry. Virgin Group can adopt this test in order to identify the new market or product that
is more attractive and profitable.
The cost of entry test- The entry cost should not consume total future profits. This test will
help Virgin to identify the entry cost in different market or product.
The better of test- Either the novel unit of business or the company must attain competitive
advantage from the connection (Martin, 2018). This test will help Virgin Group to identify
that new business unit that may achieve competitive advantage in the future.
Deprived of diversification, companies are almost prisoners in their industry. Branson
effectively constructed companies from ground-up however strategic alliance with companies
The Attractive Test
The Cost of Entry Test
The Better of Test

STRATEGY AND INNOVATION 9
having capabilities and resources can be valuable. Branson knows well about Alliance. In
2007, he discussed an alliance with one of the Indian Company i.e. Tata in order to launch
Indian Virgin mobile. Branson must follow the same strategy i.e. by diversifying into the
constructions of the road in a country such as Nigeria. An alliance with existing Nigeria
Company with the capabilities and resources like China's Shanghai Shibang Machinery
business (SBM) will be perfect. SBM offers a huge amount of stone crushers, machines of
sand making, and machines of grinding to the construction companies. Virgin has economies
of scope as an outcome of intangible and tangible resource because of its brand; this can be
used to enhance value by franchising and licensing.
Branson has designed the operating styles of Virgin. Today everything is different therefore
Virgin must modify its financial structure. Branson must focus inside of its business and
combine or divest business units that are not able to provide expected results. It has been
noted that to get some relief in tax from the loss-making firms of Virgin it is important to
consolidate. Branson says that companies of Virgin function on an individual basis, however,
an alliance of some in similar companies like Virgin Express, Virgin Atlantic, Virgin Retail,
Virgin Blue and Victory Corporation will make more financial strength. Along with this, it
will help in cutting down the overhead of directing multi trades and provide customers more
varied service range.
Recommendations for the Changes in Management System and Organizational
Structure
Virgin is a prosperous brand of small firms that operated self-sufficiently, and the
organizational structure is designed by Branson. The structure of the company has performed
to some extent however Virgin must permit its name of the brand to be utilized by small
worthy company franchise and gather royalties. It is known that the brand of Virgin is very
precious. The advantage of franchising that the brand i.e. Virgin might decrease risk, offer

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cash which is needed to operate other moneymaking businesses, observe growing business
with little participation, easily expand in other trades and move into the new markets and in
new countries. Franchising is a significant source of new products concept and source of the
new market. Various firms have performed well with a franchise like Trump Hotels,
McDonald's etc.
The Virgin's management structure has been based on one single man. Branson functioned
with slight management systems or official structure; this will not remain for a longer period.
A large organization like Virgin must have a system of top-bottom management in spite of
that system in which decisions are being taken by Branson. It is very vital to have a wide and
thorough management structure in place of no headquarters, and no-building kind of
management he runs. The structure might have operated under Branson well does not reflect
that it will perform effectively after him. Virgin should not be considered as a one-man
company, it is a big multi-national company. If Branson become less lively or active as
director of public relations, chief entrepreneur, and strategy architect, deprived of a distinct
management structure in operation, who will take his position and responsibilities. A
centralized and organized method of handling the future without Mr. Branson is what Virgin
needs to be like Apple Inc.
Conclusion
From the above analysis, it can be concluded that Virgin is a well-known company and
operate in various business segments however it has few of the business such as Virgin Cola,
Virgin Money, and Virgin Airlines which are not providing more profit to the company.
Therefore in the above report, BCG Matric has been explained which help in identifying the
market growth and market share of the company and according to that these all specified
business lie under Dog cell which suggests that all these business units need to be divested by

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Branson. Besides this Porter three essential tests have been explained that will help company
in selecting new business market. In the end, recommendations have been provided for the
changes in management system and organizational structure of Virgin.