Virgin

289 CASE EXAMPLE The gross(a) Group Aidan McQuade Introduction The utter(a) Group is one of the UKs largest private companies. The group included, in 2006, 63 line of reasoninges as diverse as airlines, health clubs, music stores and trains. The group included pure Galactic, which promised to take paying passengers into sub-orbital space. The individualised image and character of the fo under(a), Richard Bran password, were highly bound up with those of the follow. Bransons taste for commonity has led him to stunts as diverse as appearing as a cockney street trader in the US comedy Fri abrogates, to attempting a non-stop b in alloon flight around the world.This has certainly contributed to the definition and recognisability of the stake. Research has showed that the virgin name was associated with words such as fun, innovational, daring and successful. In 2006 Branson announced plans to invest $3bn (A2. 4bn ? 1. 7bn) in renewable energy. stark(a), through its take time o ffnership with a cable compevery NTL, as well as undertook an expansion into media challenging publically the panache NewsCorp operated in the UK and the effects on British democracy. The nature and scale of both these initiatives suggests that Bransons taste for his brand of business remains undimmed. Origins and activities stark(a) was founded in 1970 as a mail order record business and real as a private company in music publishing and retailing. In 1986 the company was floated on the stock exchange with a turnover of ? 250m (A362. 5m). However, Branson became tired of the public listing obligations he resented making presentations in the City to people whom, he believed, did non understand the business. The pressure to create short-term profit, especially as the share price began to fall, was the final straw Branson decided to take the business back into private possession and the shares were bought back at the original offer price.The name arrant(a) was chosen to represent the idea of the company being a virgin in every business it entered. Branson has said that The brand is the single close to important asset that we pass on our ultimate objective is to establish it as a major planetary name. This does not mean that gross(a) underestimates the importance of correspondence the businesses that it is branding. Referring to his intent to set up a special K energy company producing ethanol and cellulosic ethanol fuels in competition with the fossil oil industry, he said, Were a slightly unusual company in that we go into industries we know nothing about and immerse ourselves. arrant(a)s expansion had often been through joint ventures whereby virginal provided the brand and its partner provided the majority of jacket crown. For example, the double-dyed(a) Groups move into clothing and cosmetics required an initial outlay of only ? 1,000, whilst its partner, Victory Corporation, invested ? 20m. With Virgin Mobile, Virgin built a business by form ing partnerships with existing wireless operators to sell services under the Virgin brand name. The carriers competences lay in network management. Virgin set out to differentiate itself by offering innovativeThis case was updated and revised by Aidan McQuade, University of Strathclyde Graduate School of Business, based upon work by Urmilla Lawson. image Steve Bell/Rex Features 290 CHAPTER 7 STRATEGIC DIRECTIONS AND CORPORATE-LEVEL STRATEGY services. Although it did not operate its own network, Virgin won an laurels for the best wireless operator in the UK. Virgin Fuels appears to be more or lesswhat different in that Virgin is chuckting up the capital and using the Virgin brand to attract attention to the issues and possibilities that the technology offers.In 2005 Virgin announced the establishment of a quadruple play media company providing television, broadband, fixed-line and mobile communications through the coalition of Bransons UK mobile interests with the UKs two cable companies. This Virgin company would have 9 jillion direct customers, 1. 5 million more than than BSkyB, and so have the financial capacity to compete with BSkyB for aid content such as sports and movies. 1 Virgin tried to expand this business further by making an offer for ITV. This was rejected as undervaluing the company and then undermined further with the purchase of an 18 per cent share of ITV by BSkyB.This prompted Branson to call on regulators to force BSkyB to reduce or dispose of its stake citing concerns that BSkyB would have material influence over the free-to-air broadcaster. 2 Virgin has been described as a keiretsu organisation a structure of loosely linked, autonomous units run by self-managed teams that economic consumption a common brand name. Branson argued that, as he expanded, he would rather sacrifice short-term mesh for long-term growth of the various businesses. round commentators have argued that Virgin had become an endorsement brand that could not always offer real expertise to the businesses with which it was associated.However, Will Whitehorn, Director of Corporate Affairs for Virgin, stated, At Virgin we know what the brand means and when we put our brand name on something we are making a promise. Branson saw Virgin adding value in three main ways, aside from the brand. These were their public relations and marketing skills its experience with greenfield start-ups and Virgins understanding of the opportunities presented by institutionalised markets. Virgin saw an institutionalised market as one dominated by few competitors, not giving good value to customers because they had become either inefficient or preoccupied with each other.Virgin believed it did well when it identified such complacency and offered more for less. The entry into fuel and media industries certainly conforms to the good example of trying to shake up institutionalised markets. Corporate rationale In 2006 Virgin still lacked the harness of a typica l multinational. Branson described the Virgin Group as a branded venture capital house. 3 There was no group as such financial results were not amalgamated either for external examination or, so Virgin claimed, for internal use.Its website described Virgin as a family rather than a hierarchy. Its financial operations were managed from Geneva. In 2006 Branson condoneed the basis upon which he considered opportunities they have to be globular in scope, enhance the brand, be worth doing and have an expectation of a reasonable return on investment. 4 Each business was ring-fenced, so that lenders to one company had no rights over the assets of another. The ring-fencing seems also to uphold not just to provision of financial protection, but also to a business ethics aspect.In an audience in 2006 Branson cricitised supermarkets for selling cheap CDs. His criticism centred on the supermarkets use of loss leading on CDs alter music retailers rather than fundamentally challenging the wa y music retailers do business. Branson has make it a primaeval feature of Virgin that it shakes up institutionalised markets by being innovative. Loss leading is not an innovative approach. Virgin has evolved from being almost wholly comprised of private companies to a group where some of the companies are publicly listed. Virgin and BransonHistorically, the Virgin Group had been controlled mainly by Branson and his trusted lieutenants, many of whom had stayed with him for more than 20 years. The increase conformity between personal interest and business initiatives could be discerned in the establishment of Virgin Fuels. In discussing his efforts to establish a green fuel company in competition with the oil industry Branson made the geopolitical observation that non-oil-based fuels could avoid another Middle East war one day Bransons opposition to the Second Gulf War is well publicised. In some instances the relationship between personal conviction and business interests is less c lear cut. Bransons comments on the threat to British democracy be by NewsCorps ownership of such a large percentage of the British media could be pictured as either genuine concern from a public figure or sour grapes from a business rival just been beaten out of purchasing ITV. More recently Branson has been reported as talking about withdrawing from the business which THE VIRGIN GROUP 291 more or less ran itself now,6 and hoping that his son Sam might become more of a Virgin figurehead. However, while he was publicly contemplating this coitus interruptus from business, Branson was also launching his initiatives in media and fuel. Perhaps Bransons idea of early retirement is somewhat more active than most. Corporate performance By 2006 Virgin had, with mixed results, taken on one accomplished industry after another in an effort to shake up fat and complacent business sectors. It had further set its sights on the British media sector and the global oil industry. Airlines clearly w ere an enthusiasm of Bransons.According to Branson, Virgin Atlantic, which was 49 per cent owned by Singapore Airways, was a company that he would not sell outright There are some businesses you preserve, which wouldnt ever be sold, and thats one. Despite some analysts worries that airline success could not be sustained given the cyclical nature of the business, Branson maintained a strong interest in the industry, and included airline businesses such as Virgin Express (European), Virgin Blue (Australia) and Virgin Nigeria in the group.Bransons engagement with the search for greener fuels and reducing global warming had not led him to ground his fleets. but rather to prompt a debate on measures to reduce snow emissions from aeroplanes. At the beginning of the twenty-first century the most public problem faced by Branson was Virgin Trains, whose Cross Country and West Coast lines were ranked 23rd and 24th out of 25 train-operating franchises concord to the Strategic Rail Authority s Review in 2000. By 2002 Virgin Trains was reporting profits and paid its first premium to the British government. xperience with any one of the product lines may shun all the others. However, Virgin argues that its brand research indicates that people who have had a bad experience will commit that particular Virgin company or product but will be willing to use other Virgin products or services, due to the very diversity of the brand. Such brand confidence helps explain why Virgin should even contemplate such risky and protracted turnaround challenges as its direct company. Sarah Sands recounts that Bransons arrive once proudly boasted that her son would become Prime Minster.Sands futher commented that she thought his mother underestimated his ambition. 10 With Virgins entry into fuel and media and Bransons declarations that he is taking on the oil corporations and NewsCorp, Sands may ultimately prove to have been precient in her comment. Notes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Sun day Telegraph, 4 December (2005). free-living, 22 November (2006). Hawkins (2001a, b). PR Newswire Europe, 16 October (2006). Fortune, 6 February (2006). Independent on Sunday, 26 November (2006). Ibid.The Times 1998, quoted in Vignali (2001). Wells (2000). Independent on Sunday, 26 November (2006). Sources The Economist, Cross his heart, 5 October (2002) Virgin on the ridiculous, 29 may (2003) Virgin Rail tilting too far, 12 July (2001). P. McCosker, Stretching the brand a review of the Virgin Group, European Case Clearing House, 2000. The Times, Virgin push to open up US air market, 5 June (2002) Branson plans $1bn US expansion, 30 April (2002). Observer, Branson eyes 31bn float for Virgin Mobile, 18 January (2004).Strategic Direction, Virgin Flies High with Brand Extensions, vol. 18, no. 10, (October 2002). R. Hawkins, Executive of Virgin Group outlines corporate scheme Knight Ridder/Tribune Business News, July 29 (2001a). R. Hawkins, Branson in new dash for cash, Sunday Busi ness, 29 July (2001b) mho China Morning Post, Virgin shapes kangaroo strategy aid liberalisation talks between Hong Kong and Australia will finalise carriers game-plan, 28 June (2002). C. Vignali, Virgin Cola, British Food Journal, vol. 103, no. 2 (2001), pp. 31139. M. Wells, Red Baron, Forbes Magazine, vol. 166, no. 1, 7 March (2000). The future The beginning of the twenty-first century also saw further expansion by Virgin, from airlines, spa finance and mobile telecoms in Africa, into telecoms in Europe, and into the USA. The public flotation of individual businesses rather than the group as a whole has become an intrinsic part of the juggling of finances that underpins Virgins expansion. Some commentators have identified a risk with Virgins approach The greatest threat is that . . Virgin brand . . . may become associated with failure. 8 This request was emphasised by a commentator9 who noted that a customer who has a bad enough Questions 1 What is the corporate rationale of Vi rgin as a group of companies? 2 Are there any relationships of a strategic nature between businesses within the Virgin portfolio? 3 How does the Virgin Group, as a corporate parent, add value to its businesses? 4 What were the main issues facing the Virgin Group at the end of the case and how should they be tackled?