VIRGIN’S GROUP CORPORATE STRATEGY DIVERSIFICATION 1. Introduction The Virgin Group is one of Britain’s biggest and successful empires in the 21st century. The company has successfully incorporated a great number of diverse industries under the Virgin brand. This includes travel, mobile, financial services, leisure, cosmetics, retail, and music businesses. Virgin has been able to dominate the British market and has therefore continued to rapidly expand into other regions such as the United States, Canada and Australia.
The enterprise was founded by Sir Richard Branson in 1970 as a simple mail-order record retailer and has grown into one of the most prosperous business empires in the business world. To date, the Virgin Group has globalized and established in over 200 small to mid-sized firms, employing over 25,000 people. As a result, the company has exceeded over $7 billion in revenue in 2002. Each one of Virgin’s 200 firms operates as a single entity.
Branson either holds ownership of a firm as CEO, or has a minority or majority stake. The Virgin Group does not hold a hierarchal presence within the empire, which allowed its various subsidiaries to operate in an autonomous manner. 2. Richard Branson: The strategic thinking As the creator of Virgin and a famous personality around the world, Richard Branson has created an entrepreneurial culture that is carried throughout the Virgin group of companies.
His anti-corporation and anti-bureaucracy spirit resulted in a flat organizational structure with transparency and quick communication; his loyalty and care for friends let to an organization with great employee focus, and also attracted some of the best people to work for him for a moderate salary. Looking into his kind of strategic thinking, we can see that it is characterized by having a strong relationship with risk. His attitude towards risk is explorative, willing to take risks in order to enter into completely new businesses that the company knew nothing until now. In addition to this, their type of thinking, as an mage of their leader, is characterized by being intuitive, requiring no systematic risk analysis, based largely only in the rapid perception of alternative strategic intuition. This kind of thinkers are formerly known as entrepreneurs but in this situation combined with a strong social component as Sir Richard Branson often uses himself to convey the group’s message into the media or as a tool to promote the group’s brand. Is this kind of strategic thinking that explains the high level of unrelated diversification of the group that we are exploring in this report. 3. Organizational Analysis and Corporate Strategy Values
The Virgin Group’s overall brand identity is built upon the founder Richard Branson’s philosophy which states that “if you keep your staff happy then the customer will be happy, and if you keep the customer happy then the shareholders are happy”, “shape the business around people”, “Build don’t buy”, “Be the best, not the biggest”, “Pioneer, don’t follow the leader” or “staff first, then customers and shareholders” are some the main guidelines of Richard Branson and we can see it as some of the company values. This underlying belief transcends into each one of Virgin’s subsidiaries and into each individual organizational culture.
This is evident in the way in which members of the Virgin group interact with one another, as it is apparent that all members at Virgin agree strongly about certain beliefs, values, and assumptions, which are reinforced within the company. Virgin has continually retained a strong belief that it is their employees who: deliver brilliant customer service; give the company its personality, shape its culture, and innovate. They are viewed as Virgin’s greatest asset and as such, management believes that employees should be treated with respect.
Management looks after their employees’ welfare and allows them the freedom to grow and be themselves. Virgin actively encourages personal expression, whether it is in their speech, creative and conceptual thinking, or dress code. It is these fundamental values and beliefs that have allowed Virgin to thrive in such a competitive environment, challenge new opportunities and excel in its markets, while still continuing to operate with integrity. As we know the core competencies of a company should meet three requirements: -Significant value creation for the clients Difficulty of imitation by competitors -Access to new markets As we look into Virgin we can see that each subsidiary shares a set of values that are continually strengthened: value for money, excellent quality products, brilliant customer service, innovation, competition and consistently having fun throughout the process. Virgin would only put its name to a project if it met four out of five criteria: it must be innovative, challenge authority, offer value for money by being better than the competitors, be good quality, and the market must be growing.
In such a large conglomerate empire as the Virgin Group, these broad set of fundamental beliefs continually work to strengthen the company’s brand as well as its culture. 3. Corporate Strategy formulation: Diversification Entering new markets using the brand Virgin is the strong asset of the group. Diversification is the name of this process in which Virgin leveraged his brand recognition as a form of growth strategy for the company. It seeks to increase profitability through greater sales volume obtained from new products and new markets.
There are two kind of reasons for which a company look for diversification: – Defensive reasons which may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. – Offensive reasons may be getting into new positions, taking opportunities that offers greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs.
Instead of focusing in increasing the main competencies of their initial core business Virgin focused in diversifying risk acquiring new skills, new techniques and new facilities hence through an offensive strategy. Therefore, they followed not the internal development of new products or markets or acquisition of new firms but alliance or joint ventures with a complementary company which could enable them to operate in a new and unrelated market based on a set of attributes and values rather than a market sector. It was about being the consumer’s champion! We can all this type of strategy as Conglomerate diversification (or lateral diversification). The corporate strategy of the Virgin Group is to operate like a venture capital firm based on the Virgin brand. This strategy involves non-related diversification at the individual business unit level. By leveraging on the Virgin Brand which has established prominence in the minds of consumers, Virgin is able to enter new business areas shaking up existing orders. Branson’s has entered in a business after another in which he perceived a set of consumers that were being underserved by a complacent and dominant player.
The unique Virgin culture also allows Virgin to execute its ventures very effectively which were inspired in the keiretsu system as Branson was a convicted fan of the Japanese approach to business and “their commitment to long-term development and focus on organic growth”. The similarities are in a sense that Virgin is a group of companies pretty much diversified which have formal links in management and financial and also share a common identity. The formal linkages between the companies are, as we saw in the case, the ownership, the brand and the management.
In order to protect the brand Virgin and Branson’s name the group is keeping some companies that are running with losses. Speaking in financials they are selling some of the most profitable companies as Virgin Records to finance the new start-ups. This is due to the fact that they identify a company operating in a segment which is clearly moving toward maturity to decline and instead of keeping it they sell moving to a new and growing market through diversification. The Virgin Group covers a wide range of industries-from Travel and Tourism (Limousines, Vacations, etc. , Leisure and Pleasure (Spa, Games, etc. ), Social and Environment (Green Fund, Virgin Earth), Beverages (wines and soft drinks), Media and Telecommunications (Radio, Broadband, Mobile, etc), Books, Clothing, Finance and Money, and Health (Health Bank, Life Care). But despite its diversification in terms of industries and products, it never diversified its brand names. All of its services and products in every industry have the name Virgin affixed to it. Virgin is a strong but universal brand name; so universal that many analysts believe the group should franchise to others unrelated companies.
The Virgin brand made it possible to overcome barriers to entry in various industries and sectors and has been the group’s most important asset, together with Richard Branson. 4. Virgin Cola: Overview of Strategy Formulation Virgin Cola was created up during the early 1990s in a joint venture with Cott, a Canadian company that specializes in bottling own-label drinks for the UK market. Cott was looking for a major international brand that could have global appeal. That’s when Richard Branson attempted to extend the Virgin franchise into the cola market.
Using the brand pattern in the Virgin Group’s diversification strategy, Branson claimed to fight the incumbents, Coca-Cola and Pepsi Cola in alliance with an organization with core competencies in this area. Within a few months of its release, Virgin Cola had a 50% market share in the outlets that sold it. As Virgin stands for value of money, quality, innovation, fun and a sense of competitive challenge they focus in the brand awareness to create the differentiation from the main competitors.
Cross-promotion has been Branson’s main weapon, serving Virgin Cola on Virgin Atlantic flights and (until they closed down) at Virgin Cinemas. In fact, we can see that this pattern was repeated successively in each new diversification, in each one was followed by expansions of the products markets, based either on new strategic alliances or within internal development and Virgin Cola followed the trend and also increased the portfolio and created new products (flavor expansions).
The strong brand positioning and the innovative character were the key issues in the product differentiation options which can be can be explained due to the client’s linkage with the High risk perception associated with the product’s potential malfunction and the client’s low level of confidence in the choice of the product. We can also observe several stages of internationalization to countries where there was an Anglo-Saxon matrix, in this case France, Belgium, South Africa and later on the US.
We can also see that there are still some actions regarding vertical integration, but more with a commercial purpose rather than operational. So far it has failed to overtake Pepsi in the UK as Richard Branson claimed it would, and unlike Pepsi or Coke it’s relatively hard to find cans of Virgin Cola on sale anywhere as they have a weakness in distribution channels.