According to Goold et al (1994) there are four main types of activity by which a corporate parent can add value. Envisioning – The corporate parent can provide a clear overall vision or strategic intent for its business units. Coaching & Facilitating – The corporate parent can help business unit managers develop strategic capabilities. Providing Central services – A provider of capital investment. Intervening – The corporate parent can also intervene within its business units in order to ensure appropriate performance.
This section will address the value adding activities of the Virgin HQ on the Virgin Group and show how aspects of the four key activities are evident in the case study.
Virgin have added value to their portfolio in several ways. The most clearly visible way in which they do so is through envisioning. As the Virgin HQ and Richard Branson are so closely intertwined, they have developed a unique approach to the business and believe in careful brand enhancement and the benefits of transferring this brand image across a diverse portfolio. They view companies as part of a family rather than a hierarchy.
The Virgin HQ has developed a very powerful and distinctive brand image across all of its subsidiaries. Its brand has associations with being “fun”, “innovative” and “daring”. It is evident that envisioning is the most important value adding activity that the Virgin HQ is performing as it has responsibility for streamlining the corporate image across all SBU’s. The HQ has also introduced a number of initiatives across the business, which helps give a common purpose to the group. People and planet: had the aim of ensuring that virgin companies contribute to a sustainable society.
Virgin Unite: had the aim of partnering to develop new ways to improve social and environmental issues.
Virgin green fund: Invested in companies in the renewable energy and resource efficiency sectors in Europe and the US.
All of these activities introduced by HQ help develop an attitude of corporate social responsibility across all subsidiaries and help bring them closer together. They also have the added benefit of improving public perception and corporate image which are valuable tools in today’s current economic climate.
Virgin has a mix of privately owned and public listed companies, as well as a mix of start-up small businesses and very large corporate ventures. This puts them in an excellent position for coaching and facilitating their staff. This vast mix of SBU’s gives Virgin an excellent tool for training and developing managers. It may give managers who have been successful in one area of the business the opportunity to apply their skills to another part of the business in a completely different sector. Virgin as the corporate parent can help business managers develop strategic capabilities, by coaching them to improve their skills and confidence. Developing a culture of cooperation across business units is extremely beneficial and will in turn create synergies that add value to the business as a whole.
Virgin HQ is a perfect example of a parental developer as they seek to employ their own competences as a parent to add overall value to the business. Virgin HQ has a streamlined approach to both marketing and PR across all of its business subsidiaries. Providing central services is a key way in which the HQ adds value to the whole portfolio as it ensures that no matter what business or sector they may enter the core values and brand will remain at the forefront. Centralised services also have the added benefit of creating better efficiencies and reducing costs across the business.
Virgin as parental developers focus on the resources and capabilities they have as parents which they can transfer downwards to enhance the potential of business units. It allows them to intervene within its business units in order to ensure appropriate performance. This is evident from their work with green field start-ups and its understanding of the opportunities presented by institutionalised markets. By strategically acquiring new businesses and incorporating them as part of the Virgin group, they are making it stronger, creating synergies among its SBU’s and thus, adding value to the business as a whole. It is clear from analysing this case that Virgin HQ, as a corporate parent, adds value to the company in several ways and covers all of the key areas by which they can do so.
Virgin HQ is at the core of the business and is a driving factor for the business as a whole. They have shown that they can easily manage a diverse portfolio and transfer their brand and corporate vision across multiple businesses in several different sectors. However, it is evident from the case that Virgin HQ may be inadvertently destroying value by obscuring financial performance. It is always a danger in a largely diversified company such as Virgin, that the under-performance of a weak business unit can be obscured. Weak businesses might be cross subsidised by the stronger ones. They will need to pay close attention to all SBU’s in order to avoid this type of situation developing. A useful tool for categorizing business units and clearly identifying the weaker ones is the Boston Consulting Group matrix, which will be explored in more detail later in this report.