Virgin

289 CASE EXAMPLE The perfect(a) Group Aidan McQuade entering The virginal Group is one of the UKs largest hugger-mugger companies. The theme include, in 2006, 63 military controles as diverse as airlines, health clubs, music stores and trains. The group included thoroughgoing(a) Galactic, which promised to take paying passengers into sub-orbital space. The per give-and-takeal image and disposition of the founder, Richard Bran countersign, were highly bound up with those of the connection. Bransons taste for publicity has light-emitting diode him to stunts as diverse as appearing as a cockney street trader in the US comedy Friends, to attempting a no(prenominal)-stop balloon flight around the world.This has certainly contributed to the definition and recognisability of the stag. Research has showed that the virginal boot was associated with words such as fun, innovative, daring and booming. In 2006 Branson announced plans to invest $3bn (A2. 4bn ? 1. 7bn) in renewable ener gy. arrant(a), done its league with a cable company NTL, also undertook an expansion into media contest publicly the way NewsCorp operated in the UK and the effects on British democracy. The nature and carapace of both these initiatives suggests that Bransons taste for his brand of commerce remains undimmed. Origins and activities pure(a) was founded in 1970 as a mail order record business and unquestionable as a private company in music publishing and retailing. In 1986 the company was floated on the stock exchange with a swage of ? 250m (A362. 5m). However, Branson became tired of the public listing obligations he resented making presentations in the metropolis to bulk whom, he believed, did not understand the business. The pressure to create short-term profit, especially as the section price began to fall, was the final straw Branson obstinate to take the business back into private ownership and the sh atomic number 18s were bought back at the original offer price.The name new was chosen to represent the liking of the company being a virgin in e rattling business it entered. Branson has said that The brand is the single most important as make that we run through our ultimate objective is to establish it as a major globose name. This does not mean that unadulterated underestimates the importance of understanding the businesses that it is branding. Referring to his intent to direct up a potassium energy company producing ethyl alcohol and cellulosic ethanol fuels in competition with the crude industry, he said, Were a approximately unusual company in that we go into industries we hit the sack nothing participating and immerse ourselves. gross(a)s expansion had often been through mutual ventures whereby Virgin provided the brand and its partner provided the majority of capital. For example, the Virgin Groups move into clothing and cosmetics required an initial out stupefy of only ? 1,000, whilst its partner, achievement Corporation , invested ? 20m. With Virgin Mobile, Virgin built a business by forming partnerships with vivacious wireless operators to sell services under the Virgin brand name. The newsboys competences lay in network management. Virgin set out to antitheticiate itself by offering innovativeThis case was updated and revised by Aidan McQuade, University of Strathclyde Graduate School of Business, base upon work by Urmilla Lawson. Photo Steve Bell/Rex Features 290 CHAPTER 7 STRATEGIC DIRECTIONS AND CORPORATE-LEVEL scheme services. Although it did not operate its own network, Virgin won an a fightd for the lift out wireless operator in the UK. Virgin Fuels appears to be somewhat different in that Virgin is putting up the capital and using the Virgin brand to attract attention to the issues and possibilities that the technology offers.In 2005 Virgin announced the organic law of a quadruple play media company providing television, broadband, fixed-line and mobile communications through the m erger of Bransons UK mobile interests with the UKs two cable companies. This Virgin company would have 9 million direct customers, 1. 5 million much than BSkyB, and so have the financial capacity to compete with BSkyB for insurance premium content such as sports and movies. 1 Virgin tried to fan out this business supercharge by making an offer for ITV. This was rejected as undervaluing the company and then undermined further with the purchase of an 18 per cent sh be of ITV by BSkyB.This doed Branson to call on regulators to force BSkyB to reduce or ban of its stake citing concerns that BSkyB would have material influence over the free-to-air broadcaster. 2 Virgin has been described as a keiretsu organisation a structure of loosely linked, autonomous units run by self-managed teams that use a common brand name. Branson argued that, as he expanded, he would rather sacrifice short-term meshing for long-term growth of the various businesses. Some commentators have argued that Virgin had pass away an endorsement brand that could not always offer real expertise to the businesses with which it was associated.However, Will Whitehorn, Director of Corporate Affairs for Virgin, stated, At Virgin we know what the brand means and when we put our brand name on something we are making a promise. Branson saw Virgin toting value in 3 main ways, aside from the brand. These were their public relations and marketing skills its experience with greenfield start-ups and Virgins understanding of the opportunities presented by institutionalize markets. Virgin saw an institutionalised market as one dominated by few competitors, not giving good value to customers because they had become any inefficient or preoccupied with each other.Virgin believed it did well when it identified such complacency and offered more for less. The entry into fuel and media industries certainly conforms to the model of trying to shake up institutionalised markets. Corporate rationale In 2006 Virgin still lacked the trappings of a typical multinational. Branson described the Virgin Group as a branded venture capital house. 3 There was no group as such financial results were not consolidated every for external examination or, so Virgin claimed, for internal use.Its website described Virgin as a family rather than a hierarchy. Its financial operations were managed from Geneva. In 2006 Branson explained the basis upon which he considered opportunities they have to be globular in scope, conjure up the brand, be worth doing and have an expectation of a reasonable clear on investment. 4 Each business was ring-fenced, so that lenders to one company had no rights over the assets of another. The ring-fencing seems also to relate not just to readying of financial protection, but also to a business ethics aspect.In an call into question in 2006 Branson cricitised supermarkets for selling cheap CDs. His criticism centred on the supermarkets use of passing game in the lead on CDs damaging music retailers rather than fundamentally challenging the way music retailers do business. Branson has make it a central quality of Virgin that it shakes up institutionalised markets by being innovative. Loss leading is not an innovative approach. Virgin has evolved from being almost wholly comprised of private companies to a group where some of the companies are publicly listed. Virgin and BransonHistorically, the Virgin Group had been controlled mainly by Branson and his trusted lieutenants, many of whom had stayed with him for more than 20 years. The increasing conformity between personal interest and business initiatives could be discerned in the establishment of Virgin Fuels. In discussing his elbow greases to establish a green fuel company in competition with the oil industry Branson made the geopolitical observation that non-oil-based fuels could avoid another Middle East war one day Bransons opposition to the Second Gulf state of war is well publicised. In so me instances the relationship between personal reliance and business interests is less clear cut. Bransons comments on the threat to British democracy posed by NewsCorps ownership of such a large percentage of the British media could be depicted as either genuine concern from a public figure or act grapes from a business rival just been beaten out of purchase ITV. More recently Branson has been reported as talking about withdrawing from the business which THE VIRGIN GROUP 291 more or less ran itself now,6 and hoping that his son Sam might become more of a Virgin figurehead. However, man he was publicly contemplating this withdrawal from business, Branson was also launching his initiatives in media and fuel. whitethornbe Bransons idea of early retirement is somewhat more active than most. Corporate performance By 2006 Virgin had, with mixed results, taken on one established industry after another in an effort to shake up fat and complacent business sectors. It had further set it s sights on the British media sector and the global oil industry. Airlines clearly were an excitement of Bransons.According to Branson, Virgin Atlantic, which was 49 per cent owned by Singapore Airways, was a company that he would not sell outright There are some businesses you preserve, which wouldnt ever be sold, and thats one. Despite some analysts worries that airline success could not be sustained given the circular nature of the business, Branson maintained a strong interest in the industry, and included airline businesses such as Virgin Express (European), Virgin amobarbital sodium (Australia) and Virgin Nigeria in the group.Bransons engagement with the search for greener fuels and reducing global warming had not led him to ground his fleets. but rather to prompt a debate on measures to reduce carbon emissions from aeroplanes. At the get down of the twenty-first century the most public problem faced by Branson was Virgin Trains, whose Cross Country and West Coast lines w ere ranked twenty-third and 24th out of 25 train-operating franchises according to the Strategic Rail potentials Review in 2000. By 2002 Virgin Trains was reporting loot and paid its first premium to the British government. xperience with any one of the overlap lines may shun all the others. However, Virgin argues that its brand research indicates that people who have had a bad experience will blame that exceptional Virgin company or product but will be willing to use other Virgin products or services, due to the very diversity of the brand. Such brand confidence helps explain why Virgin should even contemplate such risky and protracted turnaround challenges as its rail company. Sarah Sands recounts that Bransons mother once proudly boasted that her son would become Prime Minster.Sands futher commented that she thought his mother underestimated his ambition. 10 With Virgins entry into fuel and media and Bransons declarations that he is taking on the oil corporations and NewsCorp , Sands may ultimately prove to have been precient in her comment. Notes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. sunlight Telegraph, 4 December (2005). separate, 22 November (2006). Hawkins (2001a, b). PR Newswire Europe, 16 October (2006). Fortune, 6 February (2006). Independent on Sunday, 26 November (2006). Ibid.The Times 1998, quoted in Vignali (2001). Wells (2000). Independent on Sunday, 26 November (2006). Sources The Economist, Cross his heart, 5 October (2002) Virgin on the whacky, 29 May (2003) Virgin Rail tilting too far, 12 July (2001). P. McCosker, Stretching the brand a review of the Virgin Group, European Case Clearing House, 2000. The Times, Virgin push to open up US aviation market, 5 June (2002) Branson plans $1bn US expansion, 30 April (2002). Observer, Branson eyeball 31bn float for Virgin Mobile, 18 January (2004).Strategic Direction, Virgin Flies eminent with Brand Extensions, vol. 18, no. 10, (October 2002). R. Hawkins, Executive of Virgin Group outlines corporal strategy Knight Ridder/Tribune Business News, July 29 (2001a). R. Hawkins, Branson in new dash for coin, Sunday Business, 29 July (2001b) South China Morning Post, Virgin shapes kangaroo strategy aid liberalisation talks between Hong Kong and Australia will determine carriers game-plan, 28 June (2002). C. Vignali, Virgin Cola, British Food Journal, vol. 103, no. 2 (2001), pp. 31139. M. Wells, Red Baron, Forbes Magazine, vol. 166, no. 1, 7 demo (2000). The future The beginning of the twenty-first century also saw further expansion by Virgin, from airlines, spa finance and mobile telecoms in Africa, into telecoms in Europe, and into the USA. The public flotation of individual businesses rather than the group as a whole has become an intrinsic part of the juggling of finances that underpins Virgins expansion. Some commentators have identified a risk with Virgins approach The greatest threat is that . . Virgin brand . . . may become associated with failure. 8 This point was emphasis ed by a commentator9 who celebrated that a customer who has a bad enough Questions 1 What is the corporate rationale of Virgin as a group of companies? 2 atomic number 18 there any relationships of a strategic nature between businesses inwardly the Virgin portfolio? 3 How does the Virgin Group, as a corporate parent, add value to its businesses? 4 What were the main issues facing the Virgin Group at the end of the case and how should they be tackled?