The Virgin Group Corporate Business Strategies

1) What is the corporate rationale of the Virgin Group?

Corporate rational is the way in which a corporate parent envisages the way that it can add value to its strategic business units. The Virgin Group sees itself as a restructurer; this means that it has low central costs due to relatively small corporate center, with fairly minimal involvement at business level.

However they vary from the portfolio managers because they also set about trying to identify restructuring opportunities within their businesses and have the skills and expertise in order to intervene and introduce these changes where necessary. The Virgin Group have a huge range of about two hundred strategic business units ranging from airways to cola, and makeup to publishing. Part of Virgin’s corporate rationale is that it tries to invade ‘static’ markets in which there are few competitors and where consumers don’t get value for money because of this.

The Virgin Group enters these markets to try and shake them up, for example they did this with Virgin Airways and Virgin Cola. By doing this if they manage to produce the product or service for a slightly lower price than all other competitors within the market then they should, along with their strong Virgin brand name, gain a big market share fairly quickly because they have undercut everyone else. This is a good way in which to enter a market because it uses the shock tactic to the other competitors who may have become too comfortable in this monopolistic market, and has potentially huge initial gains.

By using this shock tactic, the other market leaders won’t have anticipated it and will be slower to respond, for example when Virgin entered the airways market, British Airways hadn’t anticipated them as competition and so were not prepared to be able to cut costs and compete. So Virgin Airways gained a big share of the market very quickly.

2) Are there any relationships of a strategic nature between businesses within the Virgin portfolio? 

I think that although The Virgin Group seems to have many businesses in as many different fields, there are probably some strategic relationships between the business units.

With these strategic relationships Virgin can achieve some benefits for example, economies of scale when buying supplies or with their logistics, more control over the market, access to more consumer information across several related companies or by making it easier for the corporate parent to understand and manage each strategic business unit if they are all in similar fields.

However on the whole Virgin follows an unrelated diversification strategy. This means that The Virgin Group is an organisation which moves out of its own industry or market and pursues new opportunities wherever they become available. It exploits its current competencies and sets about diversifying in ways which can make use of these competencies which may otherwise be under-used.

One way in which Virgin balances its corporate portfolio is to produce a Growth Share Matrix, otherwise known as the Boston Consulting Group Box. This splits each company up into either stars, question marks, cash cows or dogs dependent on their market share and the market growth. It is important to spread your companies within all four of these areas so that high risk companies are balanced with low risk companies.

However Virgin being a company who focuses on high diversification and we know it is willing to invest in companies, I think Richard Branson may focus slightly more on stars and question marks where the market growth is high.

I feel one of the main reasons the Virgin Group is so ‘randomly’ diversified is also due to Richard Branson’s personal objectives and his entrepreneurial spirit. He is a very well known figure who is known for taking huge risks. However he now has a solid background of income in order to take these risks but still have security to fall back on if they fail. This is a very enviable position because he is doing what many other entrepreneurs would love to do, but he has the ability due to his money and knowledge rich business base.

3) Does the Virgin Group, as a corporate parent, add value to its businesses? If so how? 

I believe the Virgin Group, as a corporate parent, does add value to its businesses. The main way in which it adds value to the strategic business units is by the use of their brand name and image.

This is very prominent and well recognised world-wide, and therefore gives each business unit instant recognition within their industries and therefore gives each business a strong external image to benefit from. Research shows that the Virgin brand was recognised by 96% of consumers in the United Kingdom, and 95% were able to associate Richard Branson’s name with the brand.

The brand name is also known for a huge variety of different businesses which shows the name has proved to be very versatile and can probably be put with most fields and brings an element of success. I think the corporate parent has done very well to keep the Virgin brand well maintained, it started out as being about value and I think this belief still stands. However the name Virgin also brings about images of quality and of them being trustworthy. It is absolutely vital that when a brand name is used so widely it is portrayed in the right light.

Any big stories in any of Virgin’s strategic business units, if it portrays Virgin in a bad way, could affect all the other companies with the name Virgin attached to it, and consumer trust in them could waver.

The strategic business units could also benefit from increased efficiency from their infrastructure. They may share support services such as IT or advertising. This means they may gain some economies of scale. They may also gain expertise and services from the corporate centres which is an ‘easy’ supply of knowledge available to them.

The corporate parent may also provide investment when necessary to companies by sharing out the available finds to companies which need them the most. By covering your costs and money over many different companies you are also spreading your risk over different industries so that if one is struggling then you would hope that another is doing well to ‘cover their backs’. Virgin may also use one company to set realistic standards for other companies.

This means that because the Virgin Group consider themselves to be a ‘restructurer’ they will intervene if they feel their standards are not being met. This element of control over the companies means that no company is able to go off on its own objectives and steer to far away from the overall corporate goals.

4) What are the main issues facing the Virgin Group and how should they be tackled?

 The main issues facing Virgin are competition and the search for new markets in which to enter.

They purposely look for static markets in which they can make an impact, they look at about 50 companies a week and asses their possibilities of success in each market. However they may soon find that they can’t find any more markets that are appealing to them. This would mean expansion of the company portfolio may slow down; however they could still then concentrate more effort and money into expansion and development of the businesses already in the portfolio.

Another issue could be managers being outsourced to other multi-national companies; however I do feel this is unlikely with Virgin because of their culture which gives out stock options, bonuses and profit sharing. There is also, where possible, promotion from within the company. This gives employees more incentive to stay and work well in order to gain promotion.

Another issue the Virgin Group may face is the decrease in spending due to high interest rates; this is caused by consumer’s nervousness surrounding the issue of debt. With increasing mortgage and energy costs throughout the United Kingdom, consumer confidence is the lowest it has been for 10 months. This was shown by Nationwide, a mortgage provider (www1). However this is likely to affect all their competitors to a similar extent.

Another key issue facing Virgin is the idea of over-expansion through continued diversification. There is a limit to how ‘complicated a companies infrastructure can become. The corporate parent has to run all the different companies and as more are taken on, the infrastructure may have to become taller in order to compensate and as this happens communications will become harder to maintain and decision making from the top management will become less efficient. Richard Branson has to be very careful over how much more it can handle and whether when he retires, there will be someone with suitable capabilities in order to take it on afterwards.

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  • www1: BBC News, Retailers suffer after M&S slump [30/08/07]
  • Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy 6th Edition Financial Times Prentice Hall, Essex, pp267-308