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The Virgin Group

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Many factors have come into play in the evolution of the Virgin Group from the small business idea designed to generate capital for a magazine that was not doing well financially (de Vries and Dick, 2007).   A company’s microenvironment is defined as the internal forces that are within the company or the forces close to the company over which it is possible to have control. The microenvironment is composed of internal environment and external environment (www.londonexternal.ac.uk/)

Internal environment includes the firm’s management structure, organization’s strategies and objectives and departments within the company.  Functions such as manufacturing, purchasing, finance which may include suppliers, marketing intermediaries, competitors and the public who include shareholders and local interest groups form the external environment of a company.

Macro-environment refers to the large forces that impact society; usually there is little a company can do about them. In effect it is necessary that a company adapts to the opportunities and threats presented by the macro-environment. These forces include demographic forces, economic, legal or political, cultural and natural forces (www.londonexternal.ac.uk/

Both the microenvironment and the macro-environment factors have affected Virgin’s strategic direction. As part of the top management and thus a factor of microenvironment, Richard Branson the Chairman of the Virgin Group has been instrumental in charting the way forward for the group of companies. His risk taking personality has led to opening up of opportunities for Virgin leading to major profits through expansion into fields that are different from what Virgin started out with initially.

Branson‚Äôs top management team has also influenced greatly the strategy of the company. Nick Powell has been useful in checking Branson‚Äôs erratic ways through his methodical and cautious personality. While at Virgin Records, Nick Powell provided the necessary counterbalance that helped the company to maintain its competitive edge when the company was started. In the 1980s when Virgin incurred heavy loses Powell was looked upon to come up with solutions to decrease the mounting financial pressure. The presence of Simon Draper also contributed to the success of Virgin. It was claimed he had ‚Äėgolden ears‚Äô. His uncanny ability to single out good artistes led to the signing up of various artistes who proved beneficial to the success of the company. After listening to Mike Oldfield of the Tubular Bells and signing him up Virgin was thrown into the big time of the music industry (de Vries and Dick, 2007).

            In the context of virgin records singing up of bands can be equated to purchasing their talent.  Following the recession of the 1980s the idea to sign up new bands led to increase in profits and Virgin was able to successfully move itself out of the financial uncertainty it had gotten into.

            Finance issues led to the start of Virgin Retail this was because the student magazine had failed to become a financial success and in the process of looking for a new way to finance the flailing business Branson decided to sell records. This strategy led to the creation of a cut-price mail order record business that eventually grew to Virgin Retail.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† Forces in the macro environment that have affected Virgin Group have mainly had their effect on the virgin Atlantic. ¬†The airline industry is less of an open environment compared to the record industry. Handing right awards usually involves negotiations between governments and after launching in June of 1984, Branson had to lobby British minister in order to obtain their support during dealings with ‚ÄėUS government agencies and UK authorities.¬† Also the fares war of 1984 required political intervention.¬† The government supported competition that would benefit the consumer, as it would result in lower fares for the consumer but the government also hard to protect the new entrants to the market to prevent limited competition.¬† Branson employed his diplomatic skills to cause the transport minister go back on the cut prices deal already agreed upon with British Airways thus saving virgin Atlantic the fate of Laker Atlantic. As a result the first financial year of virgin Atlantic ended in profits though marginal ones (de Vries and Dick)

Virgin Group’s involvement in the stock market in 1986 shows interplay of microenvironment and macro environment factors.  The economy of Britain at that time was experiencing a powerful bull market. This led many successful entrepreneurs to cash in apart of their company’s.  Branson also got tempted and due to financial issues, the company was in debt, Richard saw the stock market as a source of cash to pay off debt and to provide capital.  This led to addition of members to the executive management positions, Don Cruickshank was appointed group-managing director and he in turn recruits Trevor Abbot in the docket of financial management, more specifically debt management and banking facilities.  Their primary task was to create within the virgin empire structure systems and organizational discipline with which city investment bankers would feel comfortable.  The result was that Virgin Retail and Music were floated to the London exchange.   The flotation did not result in the success anticipated by the investor and Branson was unwilling to tolerate constraints placed on him so after the market crash of 1987 Branson decided to quit the stock market. (de Vries and Dick, 2007).  This involvement with stock market led to change in strategic direction and virgin group underwent privatization again after Branson decided to buy back the company from the stock market.

A change in strategy was evidently necessary and Branson decided to find financing through joint ventures with other established companies. This allowed Virgin group to expand geographically and also in terms of new products. (de Vries and Dick, 2007). Joint ventures where a percentage of the company is sold are characteristic of the Virgin group.  For example Japan’s Fujisankei bought 25% of Virgin records and Selby Saison bought 10% of Voyager.

            Marketing has to do with letting people know about your products or services and convincing them that they need to buy or use it (Ward 2007). A marketing strategy allows an organization to concentrate resources on the opportunities available to increase sales and obtain competitive advantage that is sustainable. It includes the organization’s overall goals and objectives (Ward, 2007).

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† A marketing strategy involves ‚Äėincreasing customers numbers, increasing the average transaction amount and increasing frequency of purchases‚Äô (www.marketing principles.com). ¬†When Virgin first began operations Richard Branson chose a name that would allow him in later years to expand to other products other than the music and the entertainment industry. Marketing handles customers and their needs. To test the market Branson‚Äôs and his friends placed an advertisement in the last page of the student magazine and through this they were able to ascertain that they were going to put out a product that would be well received. This approach dealt with primary pillar of market orientation, which is customer focus. Brand extension has characterized virgin group for many years and has been a vehicle for financing of various companies at Virgin group.¬† For instance sale of 25% of Virgin Records and 10% of the Voyager provided means of financing debt and acquiring capital for the virgin Atlantic company. (de Vries and Dick, 2007). These joint ventures with already stabilized companies led to an increase in the amount available for transaction.

            Profitability is one of the aspects of a marketing strategy. By extending the virgin brand name to other products and services such as the hotel business travel and communications, virgin group increases its profitability.  The voice and brand of a company are very important assets since unlike services products offered brand is difficult to copy (Aaronson 2002)

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† A brand is a reputation and a promise to all who chose to do business with a company. (De Vaughn, 2006) this assertion has truth in it that has been taken advantage of by the virgin group.¬† By involvement in various areas the company has generated talk and led to the brand name being talked about by everyone. The result is a public that is curious and interested in the virgin group and more often than not a public that wants to do business with the virgin group. By establishing a company in virtually every industry from financial services the food industry the airlines and music industry the company has carved a name for itself and has become among the top 5 brand names in the UK and top 25 in Europe (de Vries and Dick, 2007). The Virgin brand name has various things that it communicates. Among these are ‚Äėgood value for money, concept of style and social value‚Äô (de Vries, 2007). The lack of association with a specific product or service has allowed Virgin to cross market boundaries easily. Richard Branson has also become part of the brand name. He admits that some of the stunts he has performed like crossing the Atlantic on a speedboat, crossing the Pacific on a hot-air balloon were designed to draw attention to the trans- Atlantic airline and publicize it, (de Vries and Dick, 2007). His increasing market appeal served as a marketing strategy for Virgin.

There however have been both arguments that the brand name could be dilated as a result of extension and virgin moving further away from its original competencies.

Richard Branson is involved in strategy making, plays the role of main entrepreneur and has the function of public relations for Virgin. His unconventional nature has helped to create an organizational culture that places emphasis on teamwork, involvement in the business process and loyalty. Under his leadership employees have been given a lot of freedom and responsibility. The aim is to stimulate initiative commitments and fun. The outcome has been a strong entrepreneurial spirit in the teams (Grant, 2004)

            Leadership style refers to the way that a leader provides directions implements plans and provides motivation for people (US Army hand book 1973). There are several styles of leadership among them being authoritarian, participative and delegative. Most good leaders use more than one with one style being predominant but bad leaders usually restrict themselves to one style

(www.skagitwatershed.org/donclark/leader/leaderst/html)

The authoritarian method is where a leader tells his/her employees what they want done and how without consulting with other for advice. This method is effective if employees are well motivated, there’s little time and the leader has all the information. This method should be used rarely. John Branson has used it on rare occasions like when deciding to reprivatise the company after floating it on the stock market. At this time he felt he could not tolerate the impositions put as him by the stakeholders and chose to return to private entrepreneurship (de Vries and Dick)

            The participative style of leadership is the one that Branson has used frequently in business. This is because he has a team of workers who know their job well and due to the nature of Virgin group he does not have all the information pertaining to the different companies under Virgin Group. For instance when Virgin was being floated to the stock market Branson required the participation of Don Cruickshank who recruited Trevor Abbot. Both of them complemented the existing executive team made up of Simon Draper, Ken Baruyard Robert Devereux. They were charged with the duty of financial management; Cruickshank and Trevor more specifically dealt with debt management and banking facilities. This helped to carry out the process of flotation successfully.

            Branson also delegates in some situations, he gave Simon Draper leeway and under his (Draper’s) creative direction the records label. Virgin records began to expand.  It had been said that Simon had golden ears and thus Branson depended on Draper for creative decisions. (de Vries and Dick)

            The trait theory of leadership assumes that certain traits are inherent and particularly suitable to leadership and that people who become good leaders have the right mix of traits. (www.chancging.minds.org/) some of these traits as identified by Stogdill include being adaptable to situations ambitious, persistent, self confident and decisive among others.  Richard Branson then according to the traits theory qualifies as a good leader since he exhibits these qualities his ambition is demonstrated by his desire to have a global company and the effort he has put toward this, his persistence is shown by the failure of deterrents to stop him such as lack of capital and financial debt that would have stopped others from continuing with business.

            His skills have been honed with time especially social skills and diplomacy skills. These were put to test by his decision to get into the airline industry, where entry required negotiations with government officials so that the larger company would not oust Virgin Atlantic through a fares war. He was successful at this.

            The featuring of the virgin group in the stock market was a challenge to his social skills since there was the feeling that he did not quite fit well his role as chairman of the virgin group. This situation lends credence to the behavioral theory that assumes that leaders are made and that leadership can be learnt (www.changing.minds.org/).

 At the time of the flotation, Branson was not suited to the function that the chairman of a public company required to have with institutional investors (de Vries and Dick,). This had changed by the time he was lobbying for right’s of landing for virgin Atlantic he had acquired the necessary diplomacy skills.

            Behavioral theory asserts that other people can act in the same way that a good leader acts and be successful if they learn or can identify behavior that is associated with success. This means therefore that by observing Richard’s Branson’s behaviors then a possible leader for the virgin group can be groomed and successfully taught the capabilities of a leader and also the possible heir can be taught which behavior to avoid. It also indicates that though Branson has qualities of a leader he has also had to learn a lot during his entrepreneurship career.

            Charismatic leadership assumes that charm and grace is needed to have followers and that self-belief is fundamental. Features of this in Richard Branson’s are evident from his risk taking behavior his vision and ability to anticipate it.  Also at the start of his entrepreneurship career he remarks that his friends did not exactly work for him rather they worked with him since they received no pay apart from food and a place to sleep. This shows that he inspired people to work with him so much so that they agree to work for no pay. His behavior is also unconventional especially when he decided to venture into the airline industry an area totally different from the entertainment industry. Further his disdain for culture consistent with the Establishment signified by lack of a corporate headquarters for his company, his habit of working from home and failure to wear suits and ties when conducting business and involvement of friends and family in business issues. Another behavioral attribute that is indicative of Richard Branson being a charismatic leader is sensitivity to the environment shows by his feeling that he had a moral obligation to the stakeholders who had bought shares of virgin group before the market crash. He is also involved in many charity events that focus on issues young people have to deal with, for example he has helped to set up contraceptive awareness clinics. This is related to the fact that his girlfriend got pregnant when they were young and they did not know where to turn.

            Richard Branson’s leadership style has definitely contributed to his success. He has features of leadership from the traits theory behavioral therapy democratic autocratic which came into play depending on the situation. Through his skills of organization social and diplomatic skills ands his done devil personality he has been able to take virgin group to great success. His risk taking companies with unrelated services and products leading to increased profits.

By giving his friends, family and staff opportunities to work even without the necessary training and qualification and rewarding talented managers with share holding in the subsidiaries the sense of ownership in the company is increased meaning that even after he retires the company is bound to survive because a culture that embraces change, encourages sensitivity to the environment and that encouraged capturing every effecting idea has been ingrained into the members of the organization. That does not just go away with the retiring of a leader. Though some elements of his character and personality will remain with the organization when Branson leaves his functions are very many and it will prove difficult for one person to fill. Richard Branson is part of the marketing strategy for virgin group and he has achieved hero status in Britain. Due to the many contradictions that make up his personality once he leaves Virgin group a void will definitely be left.  Some of his employees however feel that he is unfocused especially in forming too many joint business ventures for them his departure may be a respite as it may usher in a person less willing to take on as much risk us the has so far.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† Virgin group‚Äôs philosophy stem‚Äôs from Branson‚Äôs ideas, if you want better performance shape the business around the people‚Äô.¬† This leads to certain behavior like one will ‚Äėbuild and not buy‚Äô, capturing of very fleeting idea‚Äô and will be active for change. This forms the basic principle of Branson‚Äôs readiness to take up an idea that care from someone else and readiness to get new opportunities.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The reason that Richard Branson buys and sells out all the time is to avoid becoming a conglomerate.¬† Hi states that in a conglomerate ‚Äėpeople get lost and fail to give their best‚Äô. (de Vries and Dick). Also by selling off to managers he increases the sense of involvement in the business and loyalty.¬† Growth at virgin group has been based on merger and strategic alliances and internal cash flow. After Branson had bought back the company from the stock market Virgin experienced continued expansion using internal cash flow from mainly Virgin Atlantic and also from external financing. The retailing group moved into new markets globally. New stores in Japan, US, Australia, Netherlands and Spain were based on the Mega store concept. This growth was made possible by a joint venture with Blockbuster Corporation, the US video giant (Grant, 2004

            The Gulf war of 1990-91 decreased airline profits leading to increased reliance on

joint ventures to provide finance for new business. Virgin overall growth strategy has been mainly in joint venture. Partnering agreements and arrangements especially in retailing included Marut a Japanese retailer and W.H smith, a UK retail chain, (Grant, 2004).

            The airline eventually came to dominate Branson’s interests and with time more money was needed to maintain Virgin Atlantic.  This led to the sale of Virgin Music to thorn EMI. This sale led to a dramatic shift in virgin away from entertainment toward, airline and travel (Grant 2004). As a result the growth that was implemented was more of differentiation rather than internalization.

            At the corporate level virgin group has experienced growth. The virgin group is not even be considered as a single corporate entity. (Grant, 2004) The virgin companies are made up of several holding companies and more than 200 operating companies (Grant, 2004). The group has a marked diversity in its companies but the entrepreneurial culture and strategy based upon new approaches for creating value for customers is a common feature of all the companies. (Grant).

      Bowman’s strategy Clock considers competitive advantage and how it relates to either differentiation advantage or cost advantage. This clock gives several strategic positions these are;

  • low price/low benefit that is likely to be ‚Äėsegment specific‚Äô,
  • low price which has the risk of price wars and low margins,
  • Hybrid that has low price, low cost and differentiation.
  • Differentiation without price premium is another option that results in the user having a perception of benefit that is characterized by a yield of market share benefits.
  • Differentiation with price premium is an option that results in an added value that can hold the price premium (http://marketttingteacher.com/)

Porter’s five forces namely entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and rivalry among existing players are a tool of strategy that are used to analyze the attractiveness of an industry (www.12manage.com)

 The threat of new entrants is influenced by such factors as economies of scale, brand loyalty, government regulations, capital requirements, access to technology among others. As a new entrant into various fields, the company has successfully overcome challenges that would face new entrants. When Branson decided to enter the airline industry, he had to overcome such issues as capital investment that he did by selling out 25% of Virgin Records. To handle the problem of retaliation by existing airlines he was involved in various lobbying activities with government officials.

            The entry of Virgin Atlantic in the airline industry exposes the limitations of Porter’s Five Force model. For instance, the model does not cater for synergies within a large corporation. Branson took advantage of the synergy and interdependence within Virgin Group to make Virgin Atlantic a success. Joint ventures with other companies provided the capital required to inject into Virgin Atlantic.

The strategy clock and porter’s model do not take into account marketing strategy and branding which have been instrumental in the success and creation of a competitive advantage for Virgin Group.

Involvement in ventures that involve direct sales to consumers demonstrates how competitive advantage can be gained by considering the force of bargaining power of suppliers. Bypassing traditional distribution channels removes the power of suppliers, passes on cost savings to consumers creating a cost advantage for Virgin since product can be sold at discounted prices. The launching of an alliance between Virgin and Norwich Union to offer telephone-based financial services removed the role of intermediaries. Virgin Car and Virgin Bike by offering direct sale to consumers at lowered prices created a challenge to already established automobile and motorcycle manufacturers. The Virgin companies were able to achieve Cost Leadership, one of the three strategies highlighted by Porter as strategy for gaining competitive advantage.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† Another strategy, perceived value, (differentiation) has been useful to the Virgin Group. Virgin Atlantic targets the lucrative business traveler and offers him/ her amenities that are not even available in first-class in other airlines. Among these are ‚Äėreclining seats (state-of-the-art), in-flight massages, hair stylists, and motorcycle and limo home pick-up service‚Äô (Grant, 2004). This unique customer service makes Virgin Atlantic among the most profitable of the world‚Äôs small airlines. By focusing on business travelers, Virgin Atlantic is guaranteed profits from a market group that is willing to pay extra for these services. The strategy of market segmentation has also been applied in this case, with the target group being the business traveler.

            Using the Strategy Clock most companies in Virgin are in the strategic position where differentiation without price premiums is the key strategy employed. These companies include Virgin Blue, Virgin Rail and Virgin Express, where the competitive advantage is the good customer service. This adds value to the service offered, hence differentiation.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The Resource-based view states that a firm can have above normal resources that are sustainable if the firm has resources that are superior and that are protected from reaching other parts of the industry. For a firm to have competitive advantage the resources have to be ‚Äėvaluable, rare, imperfectly imitable and are non-substitutable‚Äô (www.12manage.com)

 The dilemma that this view brings is that the most attainable resources are not sustainable, because most resources that can be obtained can also be imitated by the competition (www.12manage.com/). Development on the resource-based view suggests that for firms to achieve sustainable competitive advantage they need to adopt a learning curve that puts tem ahead of the competitors. There is also the view that asymmetries are important in maintaining competitive advantage where asymmetries are skills, processes or assets that competitors do not and cannot copy at a viable cost for economic rents. (www.12manage.com/)

The Virgin group with its apparent chaos, casual style and lack of formal structure and systems of control cover a sharp business acumen and determination in the group. This makes it easy for established businesses to underrate Virgin, a mistake made by British Airways. This form of organization culture contributes to competitive advantage of the Virgin Group.

The competitive advantage of Virgin Group also stems from the vast diversification of the organization. Though the organization is not exactly a multi-SBU corporation, the different companies support one another in the sense that when one company is not making profits, Branson sometimes sells of others that are more profitable.

The competitive advantage of Virgin Group is in joint ventures, which has been Branson’s most common method of acquiring finacing. Branson’s central role in use of this strategy is his ability to attract investors from outside through his profile that was high, his personality and networking abilities. The Virgin brand together with his celebrity status served to promote the new ventures making it possible to acquire equity in ventures that were sometimes unproportional to Virgin’s financial investment

The resource based view states that a firm can have above normal revenues that are sustainable if the firm has resources that are superior and that are protected from reaching other parts of the industry. For a firm to have sustainable competitive advantage, the resources have to be ‚Äėvaluable, rare, imperfectly imitable and non-sustainable‚Äô (www.12manage.com/) The dilemma that this view brings is that most attainable resources are not sustainable, because most resources that can be obtained can also by the competitors (www.12manage.com/). Developments on the resource based view suggests that for firms to achieve sustainable competitive advantage they need to adopt a learning curve that puts them ahead of the competitors. There is also the view that asymmetries are important in maintaining competitive advantage where asymmetries are skills, processes or assets that competitors do not and cannot copy at a viable cost for economic rents. (www.12manager.com/). The Virgin Group with its apparent chaos, casual style and lack of formal structure and systems of control. Cover a sharp business acumen and determination in the group. This Virgin Group, a mistake made by British Airways. This form of organization culture contributes to competitive advantage of the Virgin Group.

            The competitive advantage of Virgin Group also stems from the vast diversification of the organization, is not exactly a multi-SBU-corporation, the different companies support one another in the sense that when one company is not making adequate profits, Branson sometimes sells off others that are more profitable.

            The competitive advantage of Virgin Group is in joint ventures, which has been Branson’s most common method of acquiring financing. Branson’s central role in use of this strategy is his ability to attract investors from outside through his profile, which was high, his personality and networking abilities. The Virgin brand together with his celebrity and status served to promote these new ventures, making it possible to acquire equity in ventures that were not necessarily proportional to virgin’s financial investment. (Grant, 2004).

 The core competencies of Virgin Group lie in the entertainment industry with Virgin Retail led to Virgin Records, which led to business that landed Virgin in the big time as far as the entertainment industry was concerned. Virgin Retail also has the most geographical spread with mega stores in Australia, Britain and Ireland, Hong Kong, Japan, North America, South Korea and Continental Europe. Before the sale of Virgin Records, it was the most profitable company in the Virgin Group showing that indeed entertainment has been responsible for most of Branson’s success. For instance, it enabled his venture into the airline industry and later the sale of Virgin Records provided financing for the struggling Virgin Atlantic.

References

Analyzing the market environment, retrieved from www.londonexternal.ac.uk/…/programeresources/isc/isc-pdf/further-unip/marketing-chapter3 pdf.

Aaronson J, (2002) A unified Virgin retrieved from www.clickz/management.htm

Bowman’s Strategy Clock, retrieved from www.marketingteacher.com/lessons/lesson-bowman.htm

De Vaughn S, 2006 Open wide…and spread your own word of mouth, Branding Post, retrieved from www.brandingpost.com/2008/02/open-wideand-spread-your-own-w.html.

Five Competitive Forces (Porter’s) 12 Manage, retrieved from www.12 manage.com/methods-porter-five-forces.html

Grant R.M., 2004, Richard Branson and Virgin Group of Companies in 2004

retrieved from www.blackwellpublishing.com/grant/docs/isvirgin.pdf

Marketing Basics: A thesis in Marketing Strategies, Three Strategies can produce 101 marketing strategies. From www.marketingprinciples.com.

Stogdill R.M. (1994) Handbook of Leadership: A Survey of the Literature, New York: Free Press.

retrieved from www.blackwellpublishing.com/grant/docs/isvirgin.pdf

Trait Theory, retrieved from www.changingminds.org/disciplines/leadership/theories/trait-theory.htm

Wards, (2003). The key to marketing: The Marketing Plan from http://sbinfocunadu.about.com/scs/marketing/u/marketingplan.htm

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