The Virgin Group was an unusual organisation. It comprised a loose alliance of companies linked primarily by the Virgin Trade trademark which was run by self managed teams. The Virgin Group is of the United Kingdom's largest private companies and in 2006 it estimated turnover at £10 billion.
This is largely to the vast amount of diversification of setting up companies under the Virgin brand.The corporate rationale of the Virgin Group was to enter into new markets under a joint venture. The joint ventures are one way of using the theory of diversification, which can be defined as, 'a strategy which takes the organisation into new markets and products or services and therefore increases the diversity that a corporate parent must oversee.'1 The joint venture would consist of where Virgin will provide the brand.
For example the AMP injected £450 million and Virgin only contributed £15 million thus resulting them forming a company called Virgin Direct. Since the Virgin brand was the group's greatest single asset, they establish themselves as a major global name and hence resulting them to have a number of core businesses. For any other potential businesses looking to operate under the Virgin brand, this is a key asset for them as it will provide the recognition that they desire.The launch of so many new ventures provided the impetus for Branson to sell off his equity stakes in some of his more established ventures.
In 2001 Branson quoted that 'Every year I suspect we'll sell five businesses in a given country, but we'll replace them with 5 new businesses.' Branson's aims were to sell of the well established businesses, thus concentrating on joint ventures techniques which helped him to expand the Virgin brand at a low cost. For instead, the biggest deal that Branson completed was that he sold 49% of Virgin Atlantic to Singapore Airlines for £600 million.The theory of Boston matrix refers to what priorities should be given in the product portfolio of a business unit. To ensure long term value creation, a company should have a portfolio on all its products that contains high growth products in need of cash inputs and low- growth products that generates a lot of cash.
2 Therefore, the basic idea of the Boston Matrix diagram is that the bigger the market share a product has, the more better it is for the company. From figure 1, we can see that Virgin is constantly joint venturing and therefore causing them to be raising stars.Since Virgin is situated in the rising star area, this means they have a high market share and market growth, therefore Virgin will use large amount of cash on their individual businesses because of the market growth conditions.The Virgin Company was a public company then went back to private company as Branson was looking to concentrate on the long term profits rather than short term objectives.Strategy can be defined the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholders expectations.
3Within the Virgin Group, it is evident that there are some relationships of strategic nature within businesses, but not between businesses. For instead, In Virgin travel, Virgin Holidays and Virgin Atlantic might have the same strategic plans because of their target markets, whereas compared to Virgin Media, they will completely have a different strategy relating to their target market. The Virgin portfolio has a number of businesses in different markets like Virgin travel have Virgin Atlantic and Virgin Holidays whereas in Virgin Music it has Virgin Records and Virgin Radio. The structure of the corporate parent of Virgin Group is a functional hierarchy. This idea for Branson was able for him to keep in touch with all of his operations.
The Virgin Brands are individual businesses that have their own goods and services that they can provide to their target market. Therefore, depending on their target market each business is responsible for their own development and their decentralisation. When new ventures arise for the Virgin brand, they do not consider their current business units and hence there is no strategic relationship between these business units as the target market is different according to the product or service they are providing.Branson is renowned for a number of management techniques. One of his famous one was a 'hands- off' approach where he let his management team to take control of the business and feel free to do what they want to do.
Therefore this meant that there were little strategic relationships between the different business units as the management teams had their own goals to achieve and different target markets. Branson only took control when it came to marketing, financial and promotion aspects.The corporate parents refers to the levels of management above that of the business units and therefore without direct interaction with buyers and competitors.4 We can say that Virgin is like a parental developer where a corporate parent seeking to employ its own competences as a parent to add value to its businesses and build parenting skills that are appropriate for their portfolio of business units.5 Therefore this will add value to its businesses.Branson is another important asset to the corporate parent as he uses his experience, knowledge and creation of innovative ideas as a central guide to forming new business units as there is a lot of market research done before a business proposal is decided.
This adds value as it creates a focus to concentrate on different markets and tries to deliver differentiated products and service to its potential customers. Therefore, once a product or service has the 'Virgin' brand it makes a promise to deliver the highest quality products and service that money can buy, hence adding the value.Throughout the corporate parent of Virgin Group, there are a number of problem facing them. One example the failing of Virgin trains. Branson heavily invested £2.2 billion in the new trains and service improvements to regain some hold in the market, in which the company had been failing in.
Virgin could have avoided this disaster by using more effective strategy directed and developed throughout all of the Virgin business units. Hence, it was not possible to allow a free management structure to run Virgin trains without certificate management styles.Also other problem facing Virgin, if one of the customers has a bad experience on Virgin trains, they might have different views for the rest of the Virgin brands. Majority of customers know that each of the Virgin business units are managed different and are vastly diversified into different products and services.
Therefore each of the business units will have their own strategic plans according to their target market and hopefully this should convince the customers to continue to use their products and services.Since Branson is closely linked to the Virgin Brand, he is has developed a high profile as a successful business man. If one of these successful businesses fails, this could give Branson a bad reputation of an entrepreneur.The important issues arise in the future when its time for Branson to move away from Virgin, this could mean the end of the Virgin Group. To solve this potential problem, new management, marketing and promotional styles can be used that are not related to Branson's techniques and see whether these are successful.
Therefore, Virgin is a successful company that applies there own strategies according to their target market under the direction of Richard Branson. Virgin are able to diversify into new markets mainly through joint ventures, thus able to increase their market shares in respective markets. However, the question rises when its time for Richard Branson to part company with the Virgin Group, how will they cope and whether they can maintain a competitive edge in the markets that they are competing in.
