Richard Branson and the Virgin Group of Companies in 2007
A. Problem Summary “Richard, you will end up in prison or as a millionaire”. These are the words of the headmaster of Stowe, a private boarding school Branson dropped out at 17. His success started by publishing a magazine called Student, then he moved on to mail order records. This is where the Virgin Group started. Richard Branson has developed his brand in a large variety of markets. The over-familiarity of the Virgin brand has caused the consumers to not take the brand in a serious manner. One might argue that he stretched his brand too thin.
This lack of focus and over-diversification could result in further over investments in projects that do not hold a steady future. In this paper we will brake down the strategic of sense of apparent entrepreneurial chaos. We will address topics such as key resources, dominant logic, characteristics of markets that conform to this logic, and designing a corporate strategy and structure. B. Analysis • Key Resources o Virgin Brand The Virgin name is the group’s most important asset. The group is involved in a variety of different business ranging from airlines, books, jewelry to limousines.
The Virgin Brand strives for value for money, good quality, brilliant customer service, innovation, competitively challenging and fun. The customers receive these attributes in a variety of ways. This is the brand’s competitive advantage. o Branson Branson’s eccentric personality, laid-back look and charisma are the essence of the Virgin brand. Branson embodied the spirit of “New Britain” to his generation because of his image and entrepreneurial spirit. Branson acted as a magnet for potential entrepreneurs; his brand actively encouraged the creating of fresh business ideas to its development office in London, Sidney and New York.
Branson’s opposition to corporate offices led him to conduct business from family homes, houseboats, and vacation homes. His image exuded a carefree approach to exploring new ventures. Branson was impressed by the Japanese approach to business. Their long-term development and focus on organic growth were the key points Branson admired. His networking skills started a very young age. His first team was comprised of childhood friend Nik Powell, and affluent individuals such as Simon Draper and Mike Oldfield.
Key management of the Virgin Group is the informal relations between Branson and a small core of long-term associates who form the senior management team of the group. Branson considers cash flow and capital value as important performance indicators, rather than concentrating in accounting profits. His tendency to avoid short-term taxable profits makes his approach ideal, concentrating in long-term capital growth instead. • Dominant Logic The ability of the Virgin Group to operate effectively with so little structure or management systems owes much to the group’s unique organizational culture.
This is defined almost entirely by Branson’s management style. His style reflects his sense of fun, disrespect for hierarchy and formal authority, commitment to employees and consumers and belief in hard work and individual responsibility. • Characteristics of Markets that Conform to this Logic o Consumer Branson wanted to offer consumers a “new deal” by continually being on the lookout for business opportunities. Branson did so by involving venture with direct sales to consumers and passing on the cost savings from bypassing traditional distribution channels. o Dominant Incumbent
Branson’s Virgin Travel is the dominant incumbent Virgin brand company. Post 2002 recovery in the airline industry, Virgin Travel was able to turn the largest profit of the Virgin Groups. o High Entry Barriers to Other Start-ups The airline and galactic companies both involve high entry barriers and significant start up costs. In addition to costs, Branson also had to negotiate with governments in order to receive approval. o Branson/Virgin Image Appeals to Customers Branson believed in multiple companies interlocking through managerial and equity linkages in a collaborative network.
He accomplished this by having small companies combined and believes “small is beautiful” with strength through unity. Branson is a strong advocate of sticking it to the large corporations. • Designing a Corporate Strategy and Structure o Business Model Virgin Group is built upon the theory of creating an entrepreneurial incubator and diversifying the corporation as much as possible. Branson does not want his best people to leave the company and start their own ventures. Instead, he prefers to develop them into millionaires within. The company is focused on diversifying into many markets.
Some of these markets include travel, jewelry, entertainment, records, and mobile. His corporate strategy is focused on cash flow and capital value. He wants to increase his company’s real value and a long-term cash generation potential. He does not care about his accounting profit. o Type of Structure The Virgin Group is structured as if they are 150 small companies. Each one stands on its own two feet, as if they are their own companies. Employees have a stake in their success. They feel they are crucial to their individual company because they are one-in-fifty or one-in a hundred instead of one-in-tens-of-thousands.
All of the companies are under the Virgin umbrella, but none of them are looked at, as simply a subsidiary. C. Alternatives As for the scope for New Approaches to Customer Service, Branson wants to create value for the customers entering with a new anti-establishment attitude, which sought to offer customers a better alternative. Branson hoped to bring a breath of fresh air. Virgin’s brilliant customer service approach strived to be “friendly, human, and relaxed; professional but not corporate”. According to the financial results of select Virgin Companies from 2004 to 2006.
Virgin Retail Limited had a negative net profit in 2004. This branch of Virgin could be looked at to potentially divest. In order to maintain the Virgin name a success. Branson may look to consolidate some of his different brands in the future. With the threat of Britain’s capital gains tax laws, this could eliminate the advantages of multiple off shore companies, which Branson is involved in. D. Recommendation We feel the best alternative for Branson and his Virgin Brand would be to look into divesting out of some markets and focusing more on a smaller scale.
Richard should look into investing more into the companies that are performing well and stray from unprofitable, high-risk markets. If Branson looks at the financial standpoint of his companies and possibly divest in the poor performing ones, he could potentially be more successful. Overall, Branson has been mostly successful in his quest for Virgin dominance. There is some room for improvement in Branson’s strategies; however, he is going to do what Branson wants to do. And this strategy has obviously been successful thus far.