Virgin Group

The Virgin Group

At the age of 16, Richard Branson set up the student magazine. From the beginning his strategy was to identify the subjects that were neglected and not touched by well established companies and this gave him the competitive advantage (Pryce, 2009). In 1970, a mail order record was his new venture from where Virgin was founded. From that time on, he expanded virgin group into travel and tourism, mobile, leisure, mobile, finance etc and created a great empire – Virgin Empire consisting of more than 200 companies in more than 30 countries (Virgin, n.d. e). Branson has invested on companies with long term capital growth or which achieves long term value creation and feels this as the best approach for private companies (Pryce, 2009).

Even when there were barriers in the virgin group journey, such as 1972-82 recessions, 1990-91 Persian Gulf War, Branson did not fall back. He continually expended the group into areas which were dominated by the big companies while selecting some divestment (Pryce, 2009). The following are the models to determine the factors that have influenced the company and the strategies employed.

McKinsey’s 7 S Model contains factors/variables that are either hard element or the soft element. Branson intuitive decision making style, his new way of looking at the old problem and his flexibility has helped him make virgin where it stands today. In the beginning, he relied on his instinct while going into the music industry. Virgin Direct broke the orthodox belief and sold products that could be easily understood by everyone. The group is a family rather than a hierarchy offering short lines of communication and flexible response capability. Even though the companies run their own affairs they help each other in the process (Virgin, n.d. a). Virgin group has little formal structure or management. Branson and a small core of long term associates form the senior management team of the Virgin Group. They held the key executive positions within the individual operating companies (Pryce, 2009). Virgin Management Ltd (VML) provides advisory and managerial support to all of the different Virgin companies (Virgin, n.d. a). Shared values are one of the important factors in the virgin group. Branson philosophy that shaping the business around the people is one of the crucial factors for the company success. This has created the environment for the culture for innovation. Branson has proved to be one of the finest leaders with great leadership skills known for the continuing business model innovation (Mitchell, 2006). Virgin Group has empowered their staffs and has been able to draw talented people within the group (Virgin, n.d. b). Most of them have started a new venture which are encouraged and guided till they become a fully-fledged members of the Virgin family (Virgin, n.d. a). Virgin Group has created an environment for their staff to work and they are encouraged to develop proposals for new businesses. Branson looks at the ideas of others within the Group and is prepared to invest in new start ups. He provides full authority and offers minority share holdings to the managers of subsidiaries. Staffs are given a great deal of responsibilities and freedom which has given them a feeling of involvement. Staffs are provided and encouraged with financial rewards and other benefits (Pryce, 2009).

Strength and Weakness is considered as the internal factors. Abundant financial resource is the most important strength of the Virgin group. There is great amount for the research and development of the brand image and also for innovation which Branson describes as the driver of business (Gadhia, 2009 a). Virgin Group has a better logistic support. Because Virgin Group has little formal structure or management systems, the flow of information and resources is easily managed. They don’t have formal board meetings and committees ensuring that the channel of communication is short and effective. Virgin Group provides effective grassroots approaches which has shaped virgin in a different class. Someone having an idea can talk to Branson personally and he votes for that (Vries, 1998). Branson immerses into the idea of new venture and if feasible hand it over to a good managing director (Pryce, 2009). The Staffs can also be seen as the greatest strength of the Virgin group. Empowerment and responsibilities reminds them that they are a part of the company. Greatly improved understanding of the client needs have been one of the areas where they are good at. Branson has been able to identify the markets where conservatism and lack of imagination were in existence and provided customers a better alternative (Pryce, 2009). Virgin has been good both at customer care and customer focus (Macdonald, 1995).

One of the major weaknesses of the Virgin Group is the leader ability to say no for most of the time. Branson who loves to hear new ideas and do new projects goes for it and sometimes they fail. Staying and focusing on one area and concentrating on that would have helped the group create more profit, branding in different areas is one of their other major weakness (Vries, 1998). They have no clear strategic direction. As the investment in Virgin operating companies is transferred within the group, it’s difficult to track the financial results. Financial reports are fragmented, hard to locate and difficult to interpret (Pryce, 2009). Virgin group has low scalability compared to the competitors. For instance Virgin Atlantic has 35 aircrafts offering service to 38 destinations compared to British Airways who owns 210 aircrafts and offers services to 160 different destinations (Virgin Atlantic Airways Ltd., 2009).

PESTAL analysis helps to make strategies by figuring out the external environment in which the organization operates now and in future. The government initiative may create the risk for the company to fail on some policy. The government may be dissatisfied with the private companies and may decide to remove the private companies from some sector such as spaceship claiming the potential threat of terrorist activities via that. Current plans of the government to raise the pension age of men (currently 65) and women (currently 60) to 66 for both sexes in 2024, to 67 in 2034 and to 68 in 2044 would have to be taken into account while building the strategy (BBC, 2009). Not only the local and country government but the other countries may decide to remove the international brand from some of the sector to improvise their own companies. Decision to stop direct selling of product and service may cause the organization to change its strategy. New legislation may create the risk of non compliance with the law. Corporate governance will also be one of the factors to be considered in the future. Changes to UK capital gains tax laws would threaten to eliminate the advantage of multiple, offshore holding companies (Pryce, 2009). Advancement in new technologies in the gaming sector like Nintendo wii (Nintendo, n.d.) has already threatened the Virgin games and also may cause the problem to huge projects like Virgin Galactic. Internet has once more proven as a threat to the movie and music industries proving huge range of different products in lower price and some for free. Recession, changes in interest rates always plays a role in determining the strategy. Virgin group has been managing in the downturn by slashing costs to maintain the margin and this responsibility has been give to the senior and middle management (Gadhia, 2009 b). The price increase of the suppliers can also be a factor for changing the strategy. Considering the Virgin Atlantic, the rapidly fluctuating of fuel prices has limited its growth. The instability and unpredictability in fuel price would affect the prices in the service in coming days (Virgin Atlantic Airways Ltd., 2009). Considering the environment factors, such as Hurricane which recently bought dramatic end to Virgin Galactic's Spaceship Two event can obstruct the project (Branson, 2009). Diseases like currently Swine Flu may have the influence while making the strategy for the future.

Porter five forces model helps the organization to find the outside in linkage or the eternal factors that affect its ability to improve productivity and execute strategy. (Porter and Kramer, 2006). Threat of new market entrance, bargaining power of the buyers, power of the suppliers, threats of substitute products and competitive rivalry are the five forces. Virgin group has various products and services that it offers worldwide so they always have high threats regarding the new market entrance in different sectors and not only one (Virgin, n.d. b). Virgin Mobile for example was launched in India in collaboration with Tata Teleservices Ltd. (Virginmobile, 2009). India is a big market and is gaining rapid advancement in GDP and technology (Humayun, 2010). Despite it was ranked at the top in customer service in its first year of launch, (Virgin, n.d. c) there exists already some international player such as Vodafone and it faces threats from many other national and international company which are interested to enter the India market. (Companiesandmarkets.com and OfficialWire, 2010). Despite the quality, some international markets demand greater variety in lower prices. The buyer power being high can cause the prices to go down. As people are beginning to take social responsibility very seriously, this has to be taken into account for the buyer power too. For instance in Germany when Shell decided to dispose Brent Spar into the North Atlantic, people began boycotting Shell petrol and the petrol revenue dropped by between 20 percent and 30 percent (Kirby, 1998). Large organization like Virgin has greater advantage over the small retailers. They have been involved in direct selling of goods and services to the customers providing cost saving and bypassing the long distributive channels. For example how the Virgin Car and Bike challenged the existing dealership system of the automobile and bike manufacturers by offering direct sales at discounted price (Pryce, 2009). But considering the case of Virgin Mobile in India, the suppliers have strong brand and are also in the retail themselves. Again if we consider the case of Virgin Mobile in India, the threat of substitute product is very high. Considering the fact that most part of India being underdeveloped, there is no presence of retailer there and also second hand phone market is very popular because of its availability and cheap price (Chel, 2009). Competitive rivalry lies in the middle of the Porter five forces. As the Virgin group enters the market with its competitors well establish in that industry, the rivalry is very intense like the way when Virgin Atlantic entered the Airline business when British Air was the fully established well and well known (Pryce, 2009).

Virgin has position itself as one of the most recognized and respected brand. Virgin has been successful to extend its brand identity and is associated with the continuous use of the brand name Virgin for every product and services (Hatch and Schultz, 2003). Although there are some critics that the Virgin brand might become over extended, (Pryce, 2009) Virgin views that it is the brand itself and Branson reputation which has helped the new set up companies to grow, nurture and become successful (Virgin, n.d. b). Corporate branding strategy is one of the most important when it comes to Virgin group. Due to globalization, there has been a change of concept in marketing from product or service brand to corporate brand (Hatch and Schultz, 2003). There has been put lot of stress on corporate branding claiming that it has large impact in creating positive customer perspective whether it’s for the current product/service or new product/services (Brown and Dacin, 1997). Corporate branding has made it possible for Virgin to compete its brand values with its highly established and reputed competitors (Olins, 2000 cited in Hatch and Schultz, 2003).

One of the strategies Virgin has chosen over the years is strategic alliance and joint venture. Virgin accelerated its business in the late 90’s with new ventures in disparate markets. Virgin rail was a joint venture with stagecoach, Virgin net was a joint venture with NTL and in 1998 Virgin Mobile became a joint venture (Pryce, 2009). By teaming up with these companies, Virgin benefited from more established channel of distribution and marketing in that area. Branson sold 49% stake of Virgin Atlantic to Singapore Airlines. Both the airlines carrier routes and network did not overlap. This provided Branson with capital boost which he used for the further expansion of the Virgin group. With this alliance, Branson had mentioned that it would offer more destinations for customers with best service at competitive price (BBC, 1999). Again in September 2009, Virgin Atlantic formed strategic alliance with Regus Group and this offered benefits to each companies customers. This alliance mainly targeted the business travelers (LeClaire, 2009). In 2009 Virgin Money Australia formed strategic alliance with Citibank Australia to deliver a broad range of retail banking products like credit card, savings etc (Virginmoney, 2009). Again in the same year Virgin Technologies formed strategic alliance with RigManager making it possible for them to cross market their product and services through global marketplace (Kingmackerel, 2009). Virgin is making some gambles on different opportunities that exist everywhere around keen to make big success out of it. All these strategic alliance has helped Virgin Group to increase the speed in which it enters the market with very less investment and has proven very effective (Reeves and Deimler, 2009).

One of the other strategies Virgin has chosen is differentiation. Differentiation strategy involves positioning the business uniquely while charging high prices for them. Virgin Galantic (space tourism company), world first spaceline will provide opportunity for people to go to space. The ticket price for it is $200,000 (ReinforcedPlastics, 2008). Virgin then introduced the Necker Nymph aero submarine which price is $25,000 per week. This submarine designed for underwater adventure but some other reason too. It can only be hired by people who spend at least $88,000 for 7 nights on the Necker Belle, which is Branson’s private Caribbean island (Cassella, 2010). We can see how the differentiation strategy will generate profit for the Virgin Group while providing adventure to people.

Another strategy applied by the Virgin Group is the Corporate Social Responsibilities (CSR). Strategic CSR strength organization competitiveness by choosing a unique position and creating shared values (Porter and Kramer, 2006). Virgin Green Fund invests in renewable energy and resource efficiency sectors which has long term positive impact on the society (VirginGreenFund, n.d.). Virgin Green Fund invested $14.5 million in GreenRoad Technologies which aims to help reduce car accident, reduce fuel consumption and lower the harmful emission (VCCafe, 2008). In 2007, Virgin Earth challenge was launched with prize of $25 million to encourage a feasible and practical design which would help remove the anthropogenic, atmospheric greenhouse gases (Virgin, n.d. c). In his blog, Branson stated ‘Virgin Atlantic and our foundation Virgin Unite, have been liaising with organizations working on the relief effort with the Disasters Emergency Committee (DEC) to help deliver much-needed aid to the region’ (Virgin, 2010). In this ways, Virgin Group has been able to prove themselves as a good corporate citizen. CSR helps companies to get the license to operate by seeking to satisfy the stakeholders (Porter and Kramer, 2006).

By using the TWOS Matrix to find the strategic alternatives two of the Maxi-Maxi strategy, strategy that uses strengths to maximize opportunities may be to increase corporate branding with more strategic alliance and Invest in Corporate Social Responsibilities. Corporate branding which will create a great influence in positive customer perspective for current product/services or new product/services (Brown and Dacin, 1997) combined with strategic alliance which will increase the speed in which Virgin Group enters the market with very less investment will help the organization get competitive advantage over others and will prove to be the winning strategy in coming years (Reeves and Deimler, 2009). With this Branson can grow the Virgin Empire much bigger in a smarter way extending their technical and operational resources. In this decade, Corporate Social Responsibility will be the most important thing to be considered (Pryce, 2010). As the awareness of Social responsibility grows, the society expects organization to be more responsible. Virgin can look at the relation between its business and society in a new way that would benefit both the parties (Porter and Kramer, 2006). Society has many problems and one single company cannot be responsible to resolve all the issues but what Virgin can do is to find out critical issues which can be met by their resources thus creating a shared value (Porter and Kramer, 2006). With abundant financial resources, Virgin can practice CSR in a way to identify the unmet social needs and issues. This helps to create a great opportunity for innovation. Virgin will gain more competitive advantage if they are able to address those unmet social needs and social concerns (Galbreath, 2009).


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