Virgin Group: finding New Avenues for Growth

Virgin is a leading international investment group and one of the most respected and recognized brands in the world. It has been one of the fastest growing companies in the world since its inception. Conceived in 1970 by Sir Richard Branson as a music mail-in service, the company has gone to grow as one of the largest companies in UK. Today, Virgin group has more than 400 companies worldwide in 34 different countries and with global revenues of $21 billion, as of 2011. How the group grew so fast has intrigued many analysts.

While there are many factors that contributed to the rapid growth of the Virgin group, it is its company structure and company culture that has powered and sustained its growth. The company started as a mail order service which sold records to customers who placed orders through Virgin Magazine. The business was so successful that it quickly expanded into Virgin Megastore (Corsi, pg. 1). Although there were already many established record stores during the founding of Virgin Megastores, the company differentiated themselves by focusing on the customers’ need which was delivered through low prices, friendly staff and welcoming environment (Corsi, pg. 2). The profits of the stores went back to the company for reinvestment.

This later led to the creation of Virgin Records. Just like the record store industry, there were also a lot of established recording companies during the creation of Virgin Records. Despite that, Virgin was able to thrive in the saturated industry because of its willingness to commit to unique and sometimes controversial artists who included Sex Pistols and Phil Collins, who catapulted the Virgin, records to becoming a major player in the music production business (Corsi, pg. 2). The success of Virgin records opened a lot of doors for Richard Branson as he started receiving invitations to fund start-ups which he took advantage of and made several investments in different sectors.

A lot of Virgin group’s companies and investment decisions mentioned above reflect the company’s vision and culture. All of its companies focus in five areas when delivering the products or services: value for money, quality, innovation, fun and sense of competitive challenge (Corsi, pg. 8).

This is most evident in Virgin Atlantic which was the first to offer in-flight entertainment with a first class experience at business class price. Parallel to Branson’s personality, Virgin group takes a lot of risk as they like to challenge the status quo and have fun. Although a lot of risk comes with this attitude, the company has been able to make big innovations because of it. As Richard Branson said "every risk is worth taking as long as it's for a good cause and to a good life." One of the pillars of Virgin group’s success is in its sustained growth. Every year Virgin group makes about 5 investments (Corsi, pg. 12).

Today, the group has grown to have more than 400 companies. But despite its size, Virgin group is able to maintain their investments’ growth because of its simple yet efficient company structure. Virgin group is not structured as a single corporate entity but rather a loose network of holding and operating companies (Corsi, pg. 9). Virgin has a decentralized approach to management. Instead of dictating the actions of the 400+ companies, Virgin allows its companies’ management teams to make independent decisions. This empowers each company to focus on their area of expertise which enables it to concentrate their resources to wherever needed. The structure also allowed the companies to make flexible response because it does not have to ask permission from the group.

Consequently, the flexible responses allow the companies to achieve high market orientation which ultimately promotes innovation to the companies. With its innovations, Virgin is able to charge higher premiums for their products and services which finally results in higher profits. Even with the success of the company, the Virgin group has faced multiple problems that ended up getting in the way of its success. One being that the company was unable to take advantage of the many opportunities to grow. Virgin was unable to do this because of a lack of capital and funding. Murphy, the CEO felt that Virgin’s capital base was too limited to be able to fully take advantage of possibilities for the company to expand (Corsi, pg.1).

This lead Murphy to find new strategies for growth, and because of the limited capital and funding, he had some difficulties with this, causing another problem for Virgin. Creating strategies for growth can be a challenge with in its own, but trying to do so with a limited amount of capital makes this even more challenging. Murphy struggled with this for around ten years, trying to decide how to fund new ventures and what opportunities to seek out (Corsi, pg. 2). Another problem Murphy faced was the fact that Virgin usually invested in new ventures, “from cradle to maturity” (pg. 2), but would investing in larger and more established companies be a good change for Virgin?

This was something that Virgin questioned. Murphy and the rest of the management group did not seem to have as much help from the founder Richard Branson as was planned (Corsi, pg. 1). Branson decided to set up a charitable foundation in 2005 called Virgin Unite (pg. 2). Due to this Branson realized he would no longer be able to offer as much assistant to Virgins management as before. Initially Branson planned on splitting his time 50/50 between the two, however he actually ended up spending 75% of his time to Virgin Unite and only about 25% towards Virgin’s management (pg. 2).

This left management struggling to be as efficient as possible without the expected help from Branson. Another problem Virgin faced was its choices in certain investments. Some investments were made that were completely unconnected. For example, the investment in Cola, which did not fit in anywhere with the company. This was actually an investment that Branson overruled the decision by the investment advisory board (Corsi, 11). Cola eventually ended up failing for Virgin (Corsi, pg. 11). Branson is known for being a risk taker and jumping into investments.

Due to his thrill-seeking mentality and passion to enter new industries, he needs to hire a team to help make investing decisions that are on the same page as him but also know how far to go with risks. By having a team in place, they can tell him when his ideas are a little too far-fetched. Also, instead of investing in anything and everything, Virgin needs to solely invest in larger and well established companies that are already strong rather than struggling start-up companies which it has been doing in the past. Virgin is spending too much money in effort to save the struggling companies and not making a significant return on the investment. The company needs to downsize the number of failing companies in industries with little growth opportunities; these companies will not bring in revenue.

Countless dollars and valuable efforts are being spent to save these companies that cannot even compete because of the bigger names in the market. For example, Virgin Cola will never be able to compete with top brands like Pepsi and Coca-cola. Finally, Virgin needs to focus on stabilizing its strongest companies and delay new ventures. By weeding out the failing companies, Virgin will have the time and resources to put into its successful companies.

By stabilizing these companies and generating revenue, Virgin will have the money to invest in new opportunities in the long run. For now though, Virgin has to stay focused on its money-making companies so that its investing is an option in the future. What seems to be the best solution for Virgin Group is that it should focus on its strongest companies and delay starting new ventures until stable. Its strongest companies that have the best opportunities to thrive are Virgin Galactic, Virgin Atlantic, Virgin Money, and Virgin Active. After the U.S. government cut the funding for NASA in 2010, private companies were made responsible for making future space missions.

This is a huge opportunity for Virgin Galactic and with not many rivals, they can become the market leader in space exploration if they work hard at it. Virgin Atlantic is Virgin’s largest sector. It is the company’s second-largest revenue generator and is still 51% owned by Virgin. It’s clearly already doing well for itself and can only become better with a stronger focus on company structure and ways to make a profit. Virgin Money is another future pillar of growth.

Richard Branson explained that “Customers feel that they have been ripped off by the banks; we can make a difference” (Corsi, pg. 4). Differentiating itself from other banks creates a great market value for it which will generate the company a lot of revenue. Virgin Active had revenues of £445 million in 2012. This is its second pillar of future growth. The market for health insurance is going to be growing soon because some European governments are thinking of starting to charge co-pays. This will create a much greater need for private health insurance which Virgin Active can be sure to provide.

Focusing on these thriving companies would produce the most profit for the Virgin Group and create even greater success for the company. As for tracking, we suggest that the company continues to use the methods it currently does. Currently, Virgin uses ROI, payback time, project returns and capital size to measure its success (Corsi, pg. 11). If Virgin were to focus on its strongest companies and delay starting new ventures until stable they should continue using these methods but keep track of new numbers from when the change started.

If the numbers improve then this shows that the company’s change is working. If there really is not a noticeable difference then it is clear something needs to be adjusted or maybe even reconsidered all together. Virgin’s structure and culture have been the pillars of the group’s success, but it has also caused some problems along the way.

Even though Branson has had overall success from his spontaneous investments and trill seeking ways, the company still faces problems that if fixed could make the Virgin group even stronger. Virgin’s overall business is a success, however to fix the problems it does have, our solution would be to focus on just a few of the thriving companies and build them up before starting on brand new ventures. This solution should save Virgin money it puts out, bring in more money and save time and effort which could be put towards other areas of business. This solution will also help Virgin down the long run when it come to looking into the future. Knowing its future is stable is an advantage for any company.

Works Cited

Corsi, E., and Gary Pisano. “Virgin Group: Finding New Avenues for Growth.” HarvardBusiness School Case 612-070, May 2012. (Revised from original March 2012 version.)