Virgin Airline - the House That Branson Build

1)INTRODUCTION

This article is a group assignment submitted in part fulfillment of the requirements for GM512 Business Policy and Strategic Management, which is a core module contained in the curriculum of the UCSI Master in Business Administration program.

The article attempts to evaluate Case 3: The House that Branson Built: Virgin’s entry into the new millennium, and identify which of the strategic decisions taken by Richard Branson, Chairman of VIRGIN Group, indicated that he adopts the rational or generative reasoning perspectives.

It is divided into 3 main areas that will each attempt to answer the following research questions respectively:

1. To what extent does Branson’s strategic thinking fit the generative reasoning perspective? 2. To what extent does Branson’s strategic thinking fit the rational reasoning perspective? 3. What are the strengths and weaknesses of both strategic reasoning perspectives?

2)INTRODUCTION
2.1)Company Overview

Virgin, a leading branded venture capital organisation, is one of the world's most recognised and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group is a diversified grouping of more than 200 privately held companies, employing approximately 50,000 people, in 29 countries.

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Revenues around the world in 2006 exceeded £10 billion (http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx).

Virgin Group has gone on to grow very successful businesses in sectors ranging from Travel and Tourism, Leisure and Pleasure, Shopping, Media and Telecommunications, Finance and Money, Health and/or Social and Environment. The largest of these are Virgin Atlantic Airways, the number two airline in the United Kingdom; Virgin Holidays, a vacation tour operator; Virgin Rail, the second largest U.

K. train operator; the Virgin Retail Group, which operates numerous Virgin Megastores, a retail concept featuring videos, music CDs, and computer games; and Virgin Direct, which offers financial services. Other Virgin businesses include beverage maker Virgin Cola, a record label, book and music publishing operations, hotels, an Internet service provider, movie theatres, a radio station, cosmetics and bridal retailing concepts, and a line of clothing.

Source by: The Author

2.2)Company Perspectives

'Virgin is about doing things that really work, not just looking the part. We are passionate about running our businesses as well as we can, which means treating our customers with respect, giving them good value and high quality and making the whole process as much fun as it can be.' --Richard Branson, Chairman (http://www.fundinguniverse.com/company-histories/Virgin-Group-Company-History.html).

2.3)Virgin’s Business Model

Richard Branson’s personality is synonymous with Virgin’s strong branding & reputation. “The products must be innovative, challenge authority, offer value for money, be of good quality, and the market must grow”. Here's some examples of the ways that Virgin delivers its brand values:-

Value for Money - Simple, honest & transparent pricing – not necessarily the cheapest on the market. Good quality - High standards, attention to detail, being honest and delivering on promises. Innovation - Challenging convention with big and little product/service ideas: innovative, modern and stylish design. Brilliant Customer Service - Friendly, human & relaxed: professional but un-corporate. Competitively challenging - Sticking two fingers up to the establishment and fighting the big boys – usually with a bit of humor. Fun - Every company in the world takes itself seriously so we think it's important that we provide the public and our customers with a bit of entertainment. (http://www.virgin.com /AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx?L3_GenericContent_NavigateToPage=4)

Having no preconceived ideas about an industry, Richard Branson was able to identify unnecessary hurdles that his competitors took for granted, as well as to recognize hidden opportunities. When Virgin started a new venture, we base it on hard research and analysis. Typically, Virgin reviewed the industry and put ourselves in the customer's shoes to see what could make it better. Fundamental questions always being asked: Is this an opportunity for restructuring a market and creating competitive advantage? What are the competitors doing? Is the customer confused or badly served? Is this an opportunity for building the Virgin brand? Can we add value? Will it interact with our other businesses? Is there an appropriate trade-off between risk and reward? Virgin believe in making a difference. In our customers' eyes, Virgin stands for value for money, quality, innovation, fun and a sense of competitive challenge.

2.4)Virgin’s Corporate Strategy

The two main approaches to corporate Virgin’s corporate strategy development are the prescriptive approach and the emergent approach. is a strategy whose final objects are unclear and whose elements are developed during the course of its life, as the strategy proceeds. Considering the development process of virgin group, it draws on the emergent approach. The corporation level strategies adopted by Virgin can be summarized as the following aspects:

2.4.1)Corporate level strategy

• Unrelated diversification strategy:
From early 1990s, the virgin began entering new sectors outside of its core activities of travel and retail. Virgin business as diversity as radio broadcasting, book publishing, and computer games found a home in the same stable as hotels, railways, personal computers, cola drinks, cinemas, and financial services. Thus, Virgin has more than one SBU in its portfolio, with little or relatedness between the SBUs. It is obviously that Virgin takes Unrelated Diversification Strategy to achieve growth.

• Brand stretching strategy:
Virgin is involved in planes, trains, finance, soft drinks, music, mobile phones, holidays, cars, wines, publishing, bridal wear - the lot! What tie all these businesses together are the values of Virgin brand and the attitude of people? To succeed, a brand must be memorable, distinctive and superior in at least one of these three areas.

• Joint ventures:
A international and global business development/expansion strategy businesses are concerned with offer enhancements and offer extensions and with getting the resources to back these. The virgin faces similar resource allocation problems, but the access paths to resources are different. In the light of his stock market experience, Branson followed a path of growth through joint ventures with established companies. This approach permitted Virgin to expand, in terms of both product and geography. The joint operation of an international sale and marketing activity is unattainable for Virgin. This establishes international channels of distribution for the products or services of Virgin.

• Retrenchment and divestiture strategies:
At the beginning of ‘80s, recession and high inflation, combined with changing consumer tastes, severely affected the music business worldwide. Virgin had registered losses of 0.4 million pounds in 1980 and 0.9 million pounds in 1981. With financial pressure mounting, Branson was forced to act belt-tightening measures that inevitably included lying off personnel.

2.4.2)SBUs level strategy
• Differentiation strategy and cost leadership strategy: Virgin looks for opportunities where they can offer something better, fresher and more valuable, and seize them. Virgin often moves into areas where the customer has traditionally received a poor deal, and where the competition is complacent. And with growing e-commerce activities, Virgin also looks to deliver 'old' products and services in new ways. Virgin Atlantic is the company closest to Branson’s heart. Since its founding, the airline has relied on service, value-for-money, and innovation, dished up with panache and flair, to differentiate itself in the market.

2.4.3)Operational strategy
• Human-resource-based strategy:
There was a typical human-resource-based strategy and worked well for the company in virgin. It places the emphasis on people in strategic development. Motivation, politics, culture and the desires of the individual are all important.

• Proactive innovation strategy:
Innovation is key driving of strategy. New concepts, new products and services, new markets, etc. all derive from the process of innovation. It may be used where the enterprise is in a position to gain significant competitive advantage from being the first to exploit a source of innovation opportunity.

Virgin’s corporate strategy is best described as the corporate parenting strategy which is led by founder Richard Branson. At the same time, the individual businesses benefit from the world-wide, inter-industrial reputation of the parent corporation’s Virgin brand and are able utilize this brand recognition in their marketing efforts. This benefit of corporate parenting would not be available to them if they were operating under their own subsidiary brands, and is perhaps the greatest source of synergy within the Virgin Group. In this manner, Virgin is able to enjoy the benefits of both smaller entrepreneurial organizations and large conglomerates without the associated problems of bureaucracy and brand conflict that can often feature in diversified corporations.

3)CASE STUDY ANALUSIS: The House That Branson Built: Virgin’s Entry Into The New Millennium 3.1)To what extent does Branson’s strategic thinking fit the generative reasoning perspective? Liedtka (2000) view generative reasoning process is more than just brainstorming or a wild idea every once in a while. In the process, all strategic thinking activity are oriented toward creating, instead of calculating – ‘inventing’ instead of finding. It is the ability to break through orthodox beliefs and generate new insights and behaviors, requiring the extensive use of creativity (De Wit and Meyer, 2008). Generative reasoning perspective refers to creative thinking.

Creative thinking helps to make the strategic reasoning process more generative, producing more unorthodox insights, imaginative ideas and innovative solutions, instead of having a bland, conformist and conservative output. The heavy emphasis placed on rationality can actually frustrate the main objective of strategic reasoning, to generate novel insights, new ways of defining problems and innovative solution. It is based on Lateral thinking which are: uses experience, intuition judgment, creative thinking is driving force, emotional and biasness.

As far as the case study is concerned, many examples permit us to recognize that Richard Branson’s thinking fit to generative reasoning perspective.

3.1.1)The role of creativity
The proponents of the generative reasoning perspective argue that strategists should avoid the false certainty projected by rational approaches to strategic reasoning, but should nurture creativity as their cognitive asset and creatively interpret a problem situation. i)Richard Branson decided in the sale of records via mail-order that still overpriced despite the abolition of retail price maintenance. He placed an advertisement in the last issue of ‘Student’ magazine with additional of 15% discount compare to stores attract orders coming in. ii)Virgin Retail – the stop’s décor was a mix of the outrageous and the shabby. Attracting customers more bent on enjoying an experience that spending money. iii)Joint venture with a major retailer - Virgin’s Megastores began to sell home entertainment products such as music, video and book. They replace the string of small secondary retail outlets for which Virgin had become known. iv)E-commerce - Virgin.com emerge all the service that Virgin offer from a rail or cinema ticket to a CD or a savings products. Virgin.com targets the UK consumer market and wants to compete on ‘value-for-money, speed, excellent customer service and compelling content’.

3.1.2)The role of intuitive
One of specific of the element of this strategic thinking is that Generative reasoning is more than brainstorming of having a wild idea every once in a while. i)“Voice of Youth” Magazine - Richard Branson business career started when at the age of seventeen, he founded Student Magazine, the “voice of youth”, while still at the boarding school. ii)Virgin’s creative policy in the music business - when he had to decide on Virgin’s creative policy in the music business, his decision was largely based on instinct.

3.1.3)The role of unorthodoxy and innovativeness
The essence of strategic reasoning is the ability to creatively challenge and to generate new and unique way of understanding and doing things. The essence of strategic reasoning is the ability to creatively challenge and to generate new and unique way of understanding and doing things. i)Selling ‘Exported’ Record at local market - Richard Branson selling ‘Exported’ records through his London store while he found out records intended for export could be purchased by Virgin tax-free. ii)Effective method in tax payment - Richard Branson remains an unwilling tax payer and holds his Virgin shareholding in secret off-shore family trusts, preferring to reinvest profits in the business such as Virgin Record.

3.1.4)The role of informal, variable rules
A strategist understand that a solution can be viewed as an opportunity and believes that certain factors can be threatening if not approached properly. There is no fixed set of problem solutions from which the strategist must select the best one. Furthermore, the strategist try to explain that neither can strengths and weaknesses be objectively determined; i)There is no common human resource policy - the managers are not obliged to follow prescriptive corporate policies. These were understood rather than codified. ii)No group information-technology strategist or central purchasing function – Richard Branson believe that those roles would constitute interference and discourage managerial creativity.

iii)The Virgin Charter - sets out ways for Virgin to tackle common activities with a common approach. Virgin’s operation style was established not so much by design as by the exigencies of the time when Virgin was getting started. iv)Decentralized management - each operating unit was expected to stand alone with no obliged to follow prescriptive corporate policies. These were ‘understood’ rather than codified.

3.2)To what extent does Branson’s strategic thinking fit the rational reasoning perspective? Strategists employing the rational reasoning model state that strategic thinking is a logical activity (andrews,1987). Logical thinking can be applied to the four cognitive activities which are identifying the problem, diagnosing the problem, realizing what action should be taken and conceiving how the problem is addressed. Rational strategic reasoning is the process whereby an agent reasons about the best strategy to adopt in a given multi-agent scenario, taking into account the likely behavior of other participants in the scenario, and, in particular, how the agent's choice of strategy will affect the choices of others to deal with strategic problems the strategist must first analyze the problem situation, by which data must be gathered on all developments external to environment, and such data must be processed to clarify the opportunities and threats.

Furthermore the organization itself must be appraised to realize its weakness and strengths and to establish which resources are available. Upon the problem identification a set of alternative strategies can be identified by matching the external opportunities and internal strengths then a number of criteria are to be used for evaluating the strategic option like internal consistency. External consonance, competitive advantage, organizational feasibility and potential risks and profits. This type of intellectual effort requires well developed analytical skills that strategists must be able to process and interpret huge amounts of data to arrive at a rich picture of the current problem situation. Logical thinking can aid in making a distinction between fantasy and feasibility by analyzing the factors that will determine success or failure.

There are many areas in which the style of strategic thinking of the chair man of the virgin group matches the rational reasoning perspective as follows:

3.2.1)Reflecting on assumption critically
Branson, once convinced with an assumption or a suggestion, go directly to apply or implement it, for example he believes that the success of a company depend on the right people who can independently operate the company so in his speech to the institute of directors in London in 1993 i)Staff first, then customers and shareholders – this should be the priority of an organization chairman if it wants a better performance according to Branson. Happy staffs that are proud of their company make for happy customers who return. So Branson on trade union for communication he cites his decision to keep 200 airline staff on the payroll rather than lay them off during an economic recession. As per his philosophy, business should be shaped around the people, so in his record companies each new record label was given to up and coming managers creating in-house entrepreneurs who were far motivated to build a business.

3.2.2)Making distinction between fantasy and feasibility
In some ways you can realize that virgin was unconventional companies, he has said that A business has to be involving, it has to be fun, and it has to exercise your creative instincts. Branson has created the impression that people work at virgin for fun rather than simply a means of earning a living (more than any other element, fun is the secret of virgin success, Branson 1998, P.431).he saw no problem in paying modest salaries provided people enjoyed themselves and felt part of an idiosyncratic enterprise that had a heart without caring about material possessions; for example when Branson hands out wings to newly appointed cabinet crews he douses them in a champagne.

Branson started his business career when he was seventeen when he founded student magazine “the voice of youth” while still at boarding school. During that time , attention was given to the promotion of youth culture in which authority was challenged and fashion was rapidly changing .the initial success of magazine was not sustained so he decided to seek new activities in order to boost flagging business , he decided to try to tap the potential he saw in the sale of records ,still overpriced. Due to the lack of capital he and his associates placed an advertisement in the last issue of the magazine to test the market listing only records that likely to appealing people.

Then he gave it a name of virgin and relied on some friends to manage his new business for a 40% stake in the company. By end of 1970, virgin comprised a record label, recording studios, music retail outlets, music and book publishing, night clubs and cinemas. In 1977 signed the Sex Pistols and we went on to sign many household names from Culture Club to the Rolling Stones, helping to make Virgin Music one of the top six record companies in the world.

3.2.3)Fact-based reasoning
Based on the research done on the Virgin brand name, Branson made the important decision to diverse into new sectors. The research on the virgin brand name in the early of 1990 demonstrated the impact over time of quirky advertising and publicity stunts. The brand was recognized by 96% of UK consumers and Ricardo Branson was identified by 95% as the company founder. The name was associated with words such as fun, innovation, success and trust. Virgin enters new sectors outside its activities such as travel and retail so it become more diverse to encompass TV and radio broadcasting, book publishing, computer games, hotels, railways, cola drinks and financial services.

To seek such expansion he goes for joint ventures. His use of joint ventures was an extension of this model reinforced by his dealings with the Japanese. Branson was impressed by the Japanese approach to business, admiring their commitment to the long term and the way they took time to build a business through organic growth rather than acquisition. His only major acquisition was theof British Rail that formed Virgin Rail. Prior to that Branson had made only two significant acquisitions: Rushes Video for £6 million and the forerunner to Virgin Express. He saw similarities in the Japanese keiretsu system (multiple companies inter-locking through managerial and equity linkages in a collaborative network) and the structure he created at Virgin, with around 200 mostly small companies, which combined “small is beautiful” with “strength through unity.”

He explained this and other maxims that he believed to be necessary for success in a speech to the Institute of Directors in 1993. “Staff first, then customers and shareholders” should be the chairman’s priority if the goal is better performance. “Shape the business around the people,” “Build don’t buy,” “Be best, not biggest,” “Pioneer, don’t follow the leader,” “Capture every fleeting idea,” and “Drive for change” were other guiding principles in the Branson philosophy.

3.2.4)Reasoning based on formal rules
The Virgin Charter – aimed at capturing synergies between his businesses. With the rapid diversification of the 1990s, there was also the risk that the Virgin Brand had become overextended. The head of brand identity at consultant Landor Associates commented: “He’s still way too unfocused. He should get out of businesses that don’t fit the Virgin/Branson personality, such as beverages, cosmetics, certainly financial services, or come up with another brand name for them.” Experts suggested that Virgin’s brand-stretching had damaged the goodwill associated with the Virgin name and compromised the core values it was founded on. Applying the Virgin name to rail services has been especially damaging – Virgin’s vision of offering the traveling public new standards of speed and customer attentiveness had been swamped by the problems of Britain’s privatized but poorly integrated rail network.

The wisdom of applying a brand that had been identified with dynamic start-up business to the renaming of a former public sector monopoly was a source of much reflection within Virgin. These concerns were not new. During 1996–7, a refocusing had begun within Virgin. The executive team identified a number of “core businesses” where it wanted to see growth: Virgin Atlantic, Virgin Express, Virgin Rail, and the international expansion of its retail and cinema businesses. “We are going to consolidate around these cores Areas,” says Whitehorn, “Because we have a lot to do with them.” By 2002, most commentators believed that a new phase of refocusing was inevitable

4)STRENGTHS AND WEAKNESSES OF BOTH STRATEGIC REASONING PERSPECTIVES (Analyses and Recommendations)

This section we will presents the strengths and weaknesses observed from both strategic reasoning perspectives. We begin with overview of the strengths and weaknesses comparison between these two reasoning perspectives. Then it follows by more detail and in-depth explanations for both perspectives. Finally we will also explore the strengths and weaknesses in Virgin Group using the SWOT analysis method.

4.2)Strengths and weaknesses of Generative Reasoning Perspective

This section presents the strengths and weaknesses of the Generative Perspective. Many of these strengths and weaknesses are based from understanding on De Wit and Meyer (2008).

Encourage creativities

The main strength of the strategists who employed the generative reasoning perspective is the encouragement of creativity activities in the process. This allows creation of new ideas, new ways of defining problems and innovation in the solutions. They tend to argue that logical processes limit the mind creativities. Therefore they use the logical thinking as the supporting tool rather than the main driving forces. However this leads to many diversified solutions and may not even solve the actual problem they setup to tackle.

Decisions are made based on intuition and personal judgement

Generative reasoning perspective strategists usually based on their intuition and personal judgement in decision making. These judgements cannot be easily and objectively defined, hence the decision is opened to wide criticism and arguments. They believes that defining and solving strategic problems is a fundamental creative activity rather than logical. Making decision without the full analytical of the information will lead to higher risks of the project to be successful and decisions may be biased and emotional. Thou the return from these decisions may bring in big reward, the risk related to the unknown may far outweigh the rewards. Hence this decision making is a risky decision and lead uncertainty of the future income and the organization.

Lateral thinking

Lateral thinking is made popular by Edward de Bono, the author of more than 70 books (Bailey 2007). This strategy often used by successful leaders demands a breadth of knowledge and skills that required an understanding of complex decision. By adding creativities to reasoning abilities, new ideas are born (Hernandez and Varkey 2008). Lateral thinking tries to identify different directions of solving a problem. The thinking process may not be sequential and also not limited to the relevant information available. Such thinking may lead to higher risk of failures and financial losses for the organization.