Influencing Organisational Strategy: A Case Study of the Virgin Group

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INFLUENCING ORGANISATIONAL STRATEGY
CASE STUDY- THE VIRGIN GROUP

Table of Contents
INTRODUCTION............................................................................................................................. 2
1. What common resources and capabilities link the separate Virgin companies?.......................3
2. Which businesses, if any, should Branson consider divesting?..................................................6
3. What criteria should Branson apply in deciding what new diversification to pursue?..............7
4. What changes in the financial structure, organizational structure, and management systems
of the Virgin Group would you recommend?................................................................................9
5. How does Virgin add value as a corporate parent, what more could it do?............................11
6. What would be the challenges faced by a successor to Richard Branson, and what might he or
she do?........................................................................................................................................ 13
CONCLUSION............................................................................................................................... 15
REFERENCES.................................................................................................................................16
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INTRODUCTION
Virgin Group is a multinational venture capital conglomerate of the UK which was founded in
the year 1970 by Sir Richard Branson and Nik Powell. It is a family-owned growth capital
investor which is focused on core consumer sectors of travel and leisure, music and
entertainment and health and wellness, telecoms and media, and financial services. The Virgin
Group comprises more than 60 virgin businesses that serve over 53 million customers around
the world. It offers excellent customer services through their 69,000 employees in 35 countries
generating around £16.6 billion in annual revenue worldwide and still growing (Virgin Group,
2019).
This assignment takes into consideration the case study of Virgin Group with the aim to develop
a critical understanding of the strategy and its management. The factors that influence on the
strategy development of the organization Virgin Group are evaluated. Also, it also explores the
responses of the organization towards internal and external factors that affects intended
strategies and determines the same to make relevant decisions in the organization and attain
competitive advantage in a present high competitive global business environment.
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1. What common resources and capabilities link the separate Virgin
companies?
Virgin Group limited engages in different businesses such as mobile telephony, health and
wellness, financial services, travel and tourism, leisure and holidays and music in the UK and at
international level. The structure of the Virgin Group is complex. A total of 312 virgin companies
including 113 closed, converted ore recently dissolved companies were registered at the
Companies House of Britain in 2015 (Virgin Group, 2019). Additionally, virgin companies are
registered in around 28 countries.
One of the major links between virgin companies is a complex network of parent-subsidiary
relations in which many companies are recognized as holding companies. Virgin Group Holdings
Ltd registered in the British Virgin Island is the ultimate parent of some virgin companies while
some companies are wholly or partly owned and also holds minor stakes in others (Shah et al.,
2015). To begin with probing about the strategy as well as the business rationale of the Virgin
Group, Virgin brand and Richard Branson are the two critical and common resources to
different Virgin companies.
Strong leadership along with unique corporate culture and entrepreneurial spirit play a vital
role in developing new capabilities for the Virgin brand.
COMMON RESOURCES OF VIRGIN GROUP
Brand: brand acknowledgement is one of the important resources for the Virgin Group. The
brand is the intangible asset for the group that helped in creating other companies and
represents services quality alongside value for money.
Finances: it is difficult to locate the finances of the Virgin Group as the financial reports of the
Virgin companies are not united. The reason is that all virgin businesses are not based under
one umbrella. The financial position of the companies is not promptly available though it
represents its global annual revenue of around £16.6 billion. The companies under the Virgin
Group follow different financial years but the virgin name is used by only 60 of the companies
under the subsidiaries and also the business is grouped under 7 sectors (Harper and Endres,
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2018). The revenue of the entire group cannot be accurately acknowledged as the profit of one
company cannot be offset against the losses of another company resulting in difficult to acquire
a current financial position. It is vital to note that the revenue sources include profit from sales
and services and also from royalty and investment along with Branson himself.
Innovation: product innovation is of utmost importance. The Virgin Group strives for excellent
quality, therefore, focuses on improving product quality. This helps them in increasing the
range of products as well as usability; introduce new technology and style to become
competitive with current products (Harper and Endres, 2018). Distinctive style as well as
approach is adopted by Branson Virgin Group stays well-informed with the new emerging
trends and competition in the market.
Staff: competent managers and employees are hired by Branson who is a brilliant businessman.
He does not shadow the managers and treats employees well. Being an agile entrepreneur,
Branson learns from his strengths as well as failures during his business operations and
advances his knowledge to his managers (Muegge and Reid, 2018). He encourages and involves
all the employees for their active contribution making them feel valued and ensure good
working culture.
COMMON CAPABILITIES OF VIRGIN GROUP
Management and marketing: one core capability of the Virgin Group is its management style
which varies from one company to another. Management refers to both internal operations as
well as dealing with external stakeholders such as advertisers, investors, suppliers and
customers. The hierarchical structure is laid by Branson along with delegating authority in order
to allow autonomy for the companies for managing and marketing their products.
Increasing global presence: the companies under the Virgin Group constantly seek to increase
in their global presence. The Virgin companies have the ability to form as well as collaborate
within a joint venture with other companies (Bereznoi, 2015).
Customer relationships: good and effective customer service is the key to survival which is
understood by the Virgin Group as it continuously keeps up with the current needs as well as
demands. Virgin companies strive to ensure that the needs of the customers are met, in case if
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not, then it is resolved by adding the standard and affordability of its products and services
(Rosa et al., 2019).
Value: products and service values are vital for its success. Branson focuses on entering a
market on the basis of demands. For example, he looks for the market in which the customers
are either not satisfied with the current offerings or requires improvisation. Most of the
business utilises blue ocean strategy to gain competitive advantage through their distinctive
capabilities including value and innovation (Muegge and Reid, 2018). Branson recognises that it
is best to shut down a product that is redundant.
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2. Which businesses, if any, should Branson consider divesting?
The most general answer to this question is those businesses should be divested that are
performing badly however there are certain problems here. The first problem is since the
ventures of Branson are private companies, there is no clear information on financial
performance (Bruijl and Gerard, 2018). The second is current and potential performance does
not effectively guide future potential.
New businesses have been successfully established and managed by virgin over the years
however some of the businesses weakened due to the economic downturn. Several business
ventures were affected by the recession of 1979 to 1982. One of the Virgin businesses that
should be divested by Branson is Virgin Galactic whose purpose was to provide a halo effect to
the brand name Virgin. The failure of the Spaceship Two of the Galactic inversely affected and
also damaged the brand reputation of the virgin (Bamber, 2018). Branson should divest this
business owing to the brand name of a virgin.
Another business is Virgin Atlantic Airways to be considered for divesting, the reason being the
generation of negative profit. Cumulative losses of 233 million pounds between 2010 and 2013
were incurred by the Virgin Group (Virgin Group, 2019). The divestment of Virgin Atlantic
Airways is justified by the failure to bring positive profit for Branson. The airline industry was
dominated by the virgin express because of its management style as well as value for money
customer offering (Grant, 2016). The airline company suffered from a lot of issues due to
liberalisation and deregulation in Europe in the 90s. The entry into travel was the biggest and
potentially riskiest diversification of Virgin Group in the 90s. Also, virgin rail was suffered by the
privatization of Britain's rail network.
Virgin Trading Group Limited brand of the beverage of Branson failed to gain presence in the
market. The packaging of the Virgin vodka drink was done in “Pammy” bottle based upon
Pamela Anderson’s body in order to be a massive source of publicity which could not convert it
into sales (Gordon, 2014). Virgin entertainment was a new channel offered by virgin
foundations in media and the internet to reach its customers owing to the ‘technology, Media,
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Telecom' boom of 1998 and 2000. The channel was adversely impacted by the internet file
sharing and illegal recording of CDs.
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3. What criteria should Branson apply in deciding what new
diversification to pursue?
The industry attractiveness, the internal labour markets, the innovation, brand extension, core
resources plus capabilities are the key factors to be taken into consideration for diversification
and gain parenting advantage and attractiveness to partners of a virgin. There is a lack of focus
within the Virgin Group and so exit from the businesses that are declining (Gordon, 2014). The
brand name is the biggest competitive advantage of Virgin Group and should try to avoid
dissolution and diversification on those risky segments that may affect its brand name.
Porter’s Essential Tests can be used to evaluate and decide in order to pursue diversification
and also create shareholder value. The first test is the attractiveness test that answers the
question if the diversification is directed towards attractive industries or it has the potential to
become attractive (Dess et al., 2019). Diversification is not justified by fulfilling this criterion
only.
Figure 1 Porter's Essential Tests
Source: Author’s Work, 2019
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Porter's
Essential
Tests
The Attractiveness Test
The
Better-
off Test
The Cost
Of Entry
Test

In order to justify diversification, the attractiveness test must be combined with the cost of
entry test. The cost of entry test answers the question if all the future profits will be capitalised
by the cost of entry. Branson should not enter the market segment if the cost to enter into the
new market is expensive. Also, the Better-off test must be conducted to evaluate the decision
to diversify by asking a question either if the new unit has the capability to gain competitive
advantage or generate some form of synergies with other existing products or services (Dess et
al., 2019). Branson can think of diversifying in case if a new company is able to collaborate with
existing products. The Virgin’s Mobile is able to provide synergies with the virgin's phone.
Other than porter's essential tests, brand image is one of the factors that must be considered
by Branson. Many of the virgin subsidiaries are built on the basis of brand image, therefore
Branson must ensure that the new company does not the upset present brand image (Deprez
and Euwema, 2017). Branson must avoid the diversifying businesses into the market if the
virgin image is possibly damaged. It seems that the expansion of Virgin Group has trailed similar
life cycle as Branson generation that is pop music in 1970, foreign travel in 1980, pension plus
investment in 1990 (Virgin Group, 2019). The businesses having the structural characteristics
contributing to good profit margins must be focused by a virgin.
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4. What changes in the financial structure, organizational structure, and
management systems of the Virgin Group would you recommend?
It is essential to identify the current structure of the Virgin Group in order to recommend
changes in its structure. The structure of the Virgin companies is little formal as a number of
holding companies majority of which are off-shore registered companies links operating
companies but they have no management role and are entirely financial conveniences
(Hosseinian-Far and Chang, 2015). Branson is the founder, major shareholder and chairman of
the companies and forms the formal linkage between them. Apart from Branson, an informal
corporate structure includes the closest business associates of Branson within the Virgin Group.
The primary role of these individuals is to be as executive officers of the individual virgin
companies and offer advice as well as coordination in the inter-company issue management.
The recommendations for the changes within the Virgin Group are:
FINANCIAL STRUCTURE: the accounting system and financial structure of the Virgin Group are
fragmented. It is difficult to interpret the financial position of the business empire Virgin Group.
There are not combined accounts for the group and not for holding companies and its
subsidiaries. The most intimidating part of Branson's business empire is tracing the financial
results of the separate companies of the Virgin Group (Simmonds, 2015).
Branson constantly argued that the financing of all his business investment is on standalone
basis while analysts have pointed on the transfer of monies from viable companies to other
ailing companies to revive them for example about 49 per cent of the Virgin Atlantic Airways
was sold to Singapore airline to revive Music Retail business while in 1992 Virgin Records was
sold to protect virgin Atlantic (Simmonds, 2015). It is recommended to Branson to develop and
maintain more structured as well as centralised financial accounting system including
consolidation of financial reporting and franchising the brand virgin for the group. New sources
of financing should be identified related to financial structure.
ORGANIZATIONAL STRUCTURE: the Virgin Group must consolidate its investments to ensure its
businesses survival beyond the expectation and business values of Branson. It is recommended
to Branson to divest minor businesses and form a large conglomerate to focus on high
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profitable industries such as ICT. Its brand can be franchised to high profile businesses so as to
collect the royalties at limited risks to the group (Grant, 2016). Since the organization structure
of the Virgin Group has little hierarchy, lose companies' alliance, no board of executive and
limited communication lines and entrepreneurial spirit.
The organizational structure of the virgin is flat that is centred on an individual. Many of the
company's performance is questioned due to its inability to operate under the formal structure.
In its succession plan of Branson, he is expected to restructure the Virgin Group as formal with
centralised decision-making body. It recommends building a centralised and systematic
management structure and has overall company consolidation (Grant, 2016). It is also
suggested to continue with network of interlinked small companies. However, the risk of
consolidating the companies into a large single corporation is losing its entrepreneurial culture.
It is also recommended to have a corporate headquarters to centralise the policy and financial
decision of the group.
MANAGEMENT SYSTEMS: the current structure makes it difficult to distinct virgin and Branson.
The values and beliefs of Branson are depicted in the style, culture and working principle in the
Virgin Group. It has seemed that the companies of the Virgin Group are a personal venture of
Branson. This type of business positioning is critical for the future survival of the virgin as there
is no centralised policy as well as decision-making body (Bruijl and Gerard, 2018). Branson and
few chief executives of the companies make strategic decision in addition to policy direction. It
is suggested to the decision-making process should be based on universally acceptable business
conventions rather than personal values and beliefs of Branson.
Additionally, the ownership of the Virgin trademark and also the terms and condition of using
the brand is unclear in the present business situation. Therefore the virgin brand needs to be
sheltered through control over the presentation of the brand. It helps in ensuring stability in
projecting the brand image of the virgin across diverse companies.
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