Strategic Management – Virgin Case Study Essay
Strategic Management – Virgin Case Study
1) What are Virgin Group’s distinctive resources/capabilities?The Virgin BrandFirstly, the Virgin brand is valuable in the form of brand equity, where ‘Virgin’ is one of the most recognised brand names in the UK, and is also well-known in other important markets including Europe and the U.S.A. Based on 1990s research, the Virgin brand was recognised by 96% of UK consumers (Case, p.685). Secondly, it is rare for a brand to have such positive consumer perceptions; which include value-for-money, fun, innovation, success, and trust across a range of Virgin businesses (Case, p.685). Thirdly, Virgin has built up their excellent reputation over time, and is therefore path dependent and difficult for competitors to imitate. Lastly, competitors cannot substitute resources that serve the same functions as brand equity and corporate reputation.
Richard BransonThe personal reputation and image of Richard Branson is outstanding. He is well respected for his unconventional approach to business, is often cited as a role model, nominated for enterprises, voted the most-popular businessman and named in London polls as the preferred choice for mayor despite never putting his name forward (Case, p.697). Branson possesses distinctive capabilities, including his ability to effectively use the media to raise public awareness of Virgin, his superior negotiation skills and his excellent charisma. Furthermore, as an ‘international celebrity’, he is easily able to acquire access to the right people and obtain partnerships or alliances when necessary. Therefore, Branson’s reputation, and the rare tacit knowledge that he possess, creates value for Virgin Group and is imitable and non-substitutable by competitors.
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Innovation, company structure and cultureVirgin Group’s innovative environment creates value for the organisation as innovation promotes employee motivation and can lead to more efficient/effective processes, thereby improving performance. Additionally, Virgin’s organisational structure involves little hierarchy, the company view hierarchies as obstructive, and “impede rapid decision-making” (Case, p.688). This lack of hierarchy, along with their promotion-from-within policy generates opportunities for employees that “their gender, lack of experience, or training would have precluded in more conventional companies” (Case, p.694). Indeed, Virgin’s structure and positive culture attracts and retains quality staff that fit into the ‘Virgin People’ category, whose loyalty and talent have contributed immensely to the organisation’s success. Moreover, Virgin has created an effective culture that emphasises “praise rather than blame, and family rather than alienation”, and informality and ‘fun’ are also encouraged (Case, p.688).
2) In what ways are Virgin Group trying to create synergies across their various businesses?Virgin harnessed the profits from a range of existing businesses towards Virgin record label byinvesting in “new bands and to continue financing existing artists whom [Virgin] believed wouldeventually be profitable” (Case, p.682). Furthermore, Virgin engages in portfolio planning by balancing growth with maturity, cash flow with investment demands such as funding new ventures through divestments. E.g. Virgin Music Group was sold in 1992 to allow Branson to expand the airline business (Case, p.684). Later, Virgin also sold the UK and Irish cinemas in 1999 to repay the loans taken out to buy back Virgin Our Price (Case, p.700).
ParentingVirgin creates synergies through applying general management capabilities across their businesses. Virgin has developed effective HR practices, corporate structure and culture that can be applied to all Virgin businesses. ‘The Virgin way’ and ‘building Virgin people’ is consistently applied, i.e. “human resource tools such as assessment centres, personality profiling, and employee development are commonly used” (Case, p.685). Synergies are created for new businesses because instead from starting form scratch, they can adopt the Virgin framework to improve effectiveness and efficiency.
Economies of ScopeVirgin’s diversification has also created synergies across their related businesses by the added value that some businesses create for others, and therefore increasing the possibility of achieving competitive advantages. E.g. in the travel industry, Virgin Holidays ‘grew on the back’ of Virgin Atlantic by sharing operational resources such as promotion to reduce unit costs (Case, p.689).
Some Virgin businesses are also related in terms of being “ideally suited to e-commerce and in which growth is expected to occur – travel, financial services, publishing, music, entertainment” (Case, p.687). Virgin exploited this potential to create synergies by sharing activities across these businesses to reduce unit costs. i.e. the distribution of various products from different businesses can be shared by using “technology to give all Virgin customers a small mobile device form which they could purchase any Virgin product from a rail or cinema ticket to a CD… and streamline online service with a single Virgin web address: Virgin.com” (Case, p.687).
Furthermore, Virgin tries to create differentiation by bundling services together so that consumers derive more value from the bundled service than each service individually. E.g. Virgin retail stores and Virgin Cinemas in the entertainment industry were bundled together to create ‘Megaplexes’, which also included extras; taking coats, serving drinks and extra legroom (Case, p.689). Synergy is created through sharing customers across businesses, and the increased consumer willingness to pay for a combined service.
3) In light of your answer to Q2, what threats do you see to Virgin Group’s corporate strategy? I.e. what could undermine the success of the group as a whole?The Virgin corporate strategy is centred on the brand and the company has diversified into many unrelated areas to leverage the brand, at the same time achieving brand synergies across their various businesses. However one danger of this is that the underperformance of one Virgin business can undermine the perceived quality and/or value of other businesses. For example, the failure of the Virgin rail company has encouraged negative press (Case, p.698), and therefore the negative perceptions can also escalate to other Virgin products.
Additionally, investors are questioning the notion of financial synergies and portfolio planning due to the external capital market becoming more efficient and sophisticated over time. Investors will likely have all relevant information, and Virgin’s superior access to internal information is diminishing. Therefore investors may prefer to diversify themselves than invest in an already diversified company.
Furthermore, Virgin’s strategy of utilising Richard Branson as part of the company’s identity has additional implications. Firstly, compromise costs are involved, Branson’s core competencies are compromised as he needs to divide his attention between many businesses, and the effectiveness of his management may suffer as a result. Secondly, there are questions surrounding the long-term performance of Virgin Group without Branson, as “his persona is so closely associated in the eyes of the public and investors with Virgin and its ethos…If Branson goes, would the company lose the impetus for innovation and the ‘can-do’ culture that has for so long been its hallmark?… [would it] create a crisis of confidence so severe as to endanger the very survival of Virgin?” (Case, p.699, 701)
Dess. (2007). Strategic Management: Creating competitive advantages (3rd Ed.), The McGraw-Hill Companies.
Case:De Vries, D.R.K. & de Vitry d’Avaucourt, R. (2004) “The house that Branson built: Virgin’s entry into the new millennium” In: B. De Wit & R. Meyer Strategy: Process, Content, Context, Thomson: London, pp. 680-701.