Assignment 05 - Virgin Group

Strategic Management Individual Assignment

Ba (honors) in business & management

Offered by Cardiff metropolitan university

Strategic management

Assignment 05 – the virgin group

Word count - 1060

Submitted to: Mr. Shane De Silva

M.F.M.M Fazlan

ICBT/ BABM/07/12

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Table of Contents

1. Introduction..............................................................................................................................2

2. The Corporate Rationale of Virgin as a Group of Companies.................................................3

3. The Relationships of a Strategic Nature Between Businesses Within the Virgin Portfolio.....4

4. The Ways of Virgin Group add Value as a Corporate Parent..................................................4

5. The Main Issues of Virgin Group and How Can Should they Tackled...................................5

6. Conclusion................................................................................................................................6

7. Recommendations....................................................................................................................7

8. Reference..................................................................................................................................7

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1. Introduction

Virgin is a leading international investment group and one of the world's most recognized and

respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to

grow successful businesses in sectors ranging from mobile telephony, travel, financial services,

leisure, music, holidays and health & wellness. Across its companies, Virgin employs

approximately 50,000 people, in 34 countries and global branded revenues in 2011 were around

£13bn (Virgin Group. 2001)

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2. The Corporate Rationale of Virgin as a Group of Companies

Companies use different strategies to compete in the market. The main strategy which is

followed by Virgin is diversification in the Ansoff Matrix. Corporate-level executives perform a

corporate parent role with regard to the individual business units that make the Virgin Group

portfolio. They properly understand how corporate-level activities should be undertaken and how

decisions should be taken to add value to the business. They recognize how to achieve a good

mix of businesses within the corporate portfolio and which businesses corporate parents should

cultivate and which they should divest. They diversify into as many markets as feasible. They

extend the Virgin brand name further at a low cost, where their stature could be relied upon to

reduce barriers to entry into static markets. Their excellent management practices have also been

named as a major strength. Their corporate rationale is heavily depended upon detailed analysis

and research of any new venture that the group considers. Another important effective strategy

is to put their selves in the customer’s shoes to see what could make the market better.

3. The Relationships of a Strategic Nature Between Businesses Within the Virgin Portfolio

There aren’t any relationships of a strategic nature between businesses within the Virgin

portfolio. The Virgin Group is formed by various strategic business units (SBU). There are

currently 56 strategic business units in the Virgin Group. Therefore the companies within the

Virgin Group are part of a family rather than a hierarchy. Every SBU in the Virgin Group is

“ring-fenced”, separated and independent. Each of them operate independently and follow their

own competitive strategies in their own segmented markets. By 2002, the group included over

200 businesses spanning three continents.

As the Virgin Group follows unrelated diversification, the resources of one business are not

useful for other business and also the structure of Virgin Group is so opaque that the true

financial position of Virgin Group is unclear. Due to its status as a private company, the complex

group structure, and unavailability of consolidated accounts, it is difficult to arrive at accurate

turnover and profit and companies within the group did not even share a common accounting

year end. Therefore there are no relationships of a strategic nature between businesses within the

Virgin portfolio.

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4. The Ways Virgin Group adds Value as a Corporate Parent

Virgin Group as a corporate parent has added value to its businesses. The brand is the single most

important asset for them. The ultimate objective of Virgin is to establish itself as a major global name.

That means they need to have a number of core businesses with global potential while they try to

deliver on the promises they make while entering into new market. They add value to its core business

Virgin Atlantic in the following ways:

Virgin brand name to overcome barriers to entry

The Virgin brand name is a consumer’s champion and as mentioned previously is a much

respected brand with the British public.

Limiting risk in joint ventures

Any company, corporation or organization in a joint venture with the Virgin Group has the

benefit of limiting its risk in the market place because of their stability as an established brand.

Management is not restricted

A flat management structure helps encourage innovation; provides flexibility and promotes the

values of shared ownership and responsibility.

Innovation

Virgin’s senior staff consists of individuals with successful careers. The Group acquires like-

minded partners in ventures who match their ability to innovate and differentiate.

These collective innovative thoughts and ideas are applied directly into business; which most

often bares fruit.

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5. The Main Issues Faced by Virgin Group and How they Should be Tackled

They develop new business units (SBU) by leveraging their brand name. They focus more on unrelated

diversification. From one perspective their greatest threat may be their brand. The reason for this is

that, when a customer who had a bad experience will blame the Virgin company or product. Therefore

that particular customer will not use any other Virgin products or services.

One solution to this issue is to develop partnerships and licensing. This could be instrumental both for

globalizing the brand and for managing the different business by local experts. One way to extend the

brand would be for Virgin to license its name to existing businesses with proven records of quality.

The group could then be extended to new markets much more rapidly. Joint ventures have proven to be

a successful strategy for Virgin and should be further developed.

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6. Conclusion

The Virgin brand is the group’s greatest asset. Virgin’s role is to be the consumer champion, and

Virgin does this by delivering to Virgin’s brand values. Virgin has penetrated a large number of very

diverse industries, from the music industry, airline industry to the telecom industry and on-line car

sales. Although the industries are unrelated, Virgin has penetrated each of them with great or

reasonable success.

7. Recommendations

Virgin should become less diverse. Excessive diversity will lead to dilution of brand, create

management problems and reduce competitive advantages. Therefore diversification should occur

within existing stable companies. There are some current businesses in the Virgin Group with low

financial return, namely the airline industry. Therefore when selecting new diversification, thorough

financial analysis should be made. The Virgin brand should foster further globalization of brand by

opening subsidiaries or branches of its existing companies in more locations worldwide. Its name has

become diluted and its brand a purely endorsement brand. Virgin as a corporate parent can add

workable value to its businesses by investing and developing real expertise. The Virgin Group should

change its policy to accommodate both independent and joint ventures to rely upon short-term profits

on a few of its businesses for the sake of raising capital and release the ‘ring-fenced’ policy so that

important revenue making Virgin Atlantic businesses can be bailed out during the low times.

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8. Reference

Abdul, Rob , Virgin corporate strategy, 2003. Strategic Relationships [Online]. 1, Available at:

http://www.robabdul.com/the-virgin-group-case-study.asp [Accessed 21 June 2013]

Bosmia, Mitesh , 2010. CIP on Virgin case. Virgin Strategic Relationships , [Online]. 1, 1.

Available at:http://www.scribd.com/doc/21694481/Virgin [Accessed 21 June 2013].

G. Johnson K. Scholes and R. Whittington, 2008. EXPLORING CORPORATE STRATEGY.

5th ed. England: Pearson Publication.

Virgin Group. 2001. About Virgin . [ONLINE] Available at: http://www.virgin.com/about-us.

[Accessed 21 June 13]

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http://www.virgin.com/about-us

http://www.scribd.com/doc/21694481/Virgin

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Assignment 05 - Virgin Group