CASE STUDY OF WEEK 14

1.      What type of corporate parent is Virgin (portfolio manager, synergy manager or parental developer)?

Virgin Group is a portfolio manager corporate parent. The Virgin group is one of the one of the UK’s largest private company. According to 1996 survey, 96% of UK consumers were aware of the brand Virgin.

Virgin has been described as a “keiretsu” organization. Further, the Virgin Group had controlled by Mr. Richard Branson. His approach to management style was one that decentralized decision making and responsibility of the own development. Branson ruled by delegating power to managers, however when it came to marketing and promotion, he would take more involved role.

The name Virgin was chosen so that the brand can be remained virgin in every business it enters. Virgin’s expansion into new markets had been through a series of joint venture whereby Virgin provided the brand name and the partner provided the majority capital. It is involved in mobile telephony, travel, financial services, leisure, music, holidays and health and wellness. It partners with others and transfers and combines skills, knowledge and operational expertise from a wide range of industries. Also, Virgin Group Company is able to run their business by their self. Further the company actively helps each other to solve problems.

Virgin is involved in not only commercial activities but it is involved in finding solutions to world major issues or problem. With the help of Virgin Unite, a nonprofit foundation, it is organizing campaign like health, economic empowerment, conservation and climate change.

All the business in the Virgin Group is strategically targeted towards a “five pillar” empire system that Sir Richard Branson is eager to create. At “the heart of Virgin’s core strategy to develop the five pillars of the business empire: travel, leisure, mobile phones, entertainment retailing and personal finance”. (Press Releases 30/01/02, http://www.virginmoney.com/newscentre/news2002_3.html) 

By observing the ownership, the corporate structure and the management style of Virgin Group, we can say that Virgin is following the Synergy manager corporate parenting style. The synergy manager is a corporate parenting style looking to enhance value across business units by managing synergies across business units. We can easily say that Virgin is following synergy manager corporate parenting style because of the following reasons:

Resources and activities are shared:

Virgin group use common distribution system across its business. It uses the same from brand name for each of its products and services. In many of the countries its offices are shared by its smaller business units depending upon the geographical diversity.

Skills are transferable:

Virgin Group also actively transfers their skills to the required industry. For example Virgin Music can transfer its skill to Virgin Cinema and vice versa to improve its technology. Further, Virgin Group has its own value adding capabilities by which one business unit help each other in sharing technologies, skills and knowledge. The accumulated knowledge and skills learned in one business is utilized in another business unit in the Virgin Group. This has helped Virgin Group to increase its performance. In addition, marketing and R&D are the expertise skills which are used by Virgin Group to improve the performance of the newly launched products.

2.      How does the Virgin Group, as a corporate parent, add value to its businesses?

Virgin as a portfolio manager corporate parent it is adding value by sharing resources and activities, technologies, etc.

Resources and activities are shared:

Virgin group use common distribution system across its business. It uses the same from brand name for each of its products and services. In many of the countries its offices are shared by its smaller business units depending upon the geographical diversity.

Skills are transferable:

Virgin Group also actively transfers their skills to the required industry. For example Virgin Music can transfer its skill to Virgin Cinema and vice versa to improve its technology. Further, Virgin Group has its own value adding capabilities by which one business unit help each other in sharing technologies, skills and knowledge. The accumulated knowledge and skills learned in one business is utilized in another business unit in the Virgin Group. This has helped Virgin Group to increase its performance. In addition, marketing and R&D are the expertise skills which are used by Virgin Group to improve the performance of the newly launched products.

Other value-adding skills of Virgin Group

Envisioning (developing strategic mission, clear external image)

Intervening (Challenging/ Developing Strategy)

Coaching and Training (Developing strategic capabilities, achieving synergies)

Central Services (Scale advantages, Transferring managerial skills)

Expertise (Knowledge sharing, leverage, brokering)

3.      What’s the logic of portfolio? Why do you think they are in mobile telephony, travel, financial services, leisure, music, holidays and health & wellness?

The main aim of portfolio is to balance the business. It will help your business to adjust your profit and loss. There are different risks in different types of business, some have higher risk and some have lower risk. To solve this portfolio exist. It will help the investor to invest in different business rather than a single business where the risk is higher. There are several portfolio models available which will help corporate parent to manage their portfolio business. They are Boston Consultancy Group (BCG) matrix, the directional policy matrix, parenting matrix, etc.

Virgin is involved in different sectors such as mobile telephony, travel, financial services, leisure, music, holidays and health and wellness. As some of the businesses are more risky it has invested in another business to adjust the loss from another business. Virgin Atlantic was the big success in 2003, but as it is a cyclical nature of business it might reach to worst condition by which not only the Virgin Atlantic will be affected but as a whole Virgin Group will be affected .So in order to minimize that risk Virgin Group might have been involved in more than 250 businesses. Further, by increasing the business unit, it can make more profit as well as minimize the loss for risky business. With the beginning of 21^st century, Virgin expanded its business to telecommunication, financial services. Hence, Virgin is increasing its portfolio investment in order to minimize the risk.

4.      What are the main risks facing Virgin Group as a result of their strategy? How might they be reduced?

Every company faces risk as a result of their strategy. The most important asset of Virgin Group is its brand. The strategy of boosting up the brand might be dangerous. For example a customer enjoying a nice holiday’s package on a Virgin Holidays may be happy to use Virgin Mobile, but a customer who has a bad experience in any one of the product and services might avoid all the products and services of Virgin Group.

A real time example of Virgin can be shown by which it will be clearer. In the UK, the excellent service of Virgin Airlines and the terrible reputation of Virgin Railways remained unsolved by 2004, by which the loyal customer of Virgin Group were in dilemma whether to consider Virgin group a good or bad company.

Another issue relating to Virgin group is Branson himself. He was closely linked with Virgin Brand, there is also risk of weaken the value of Virgin brand if some of his high profiled marketing ventures failed. The main issue is what will happen to Brand Virgin after Richard Branson.

In order to face with the above risks Virgin Group needs to develop new strategy by which the risk might be minimized. The leadership and control over Virgin group should be more decentralized so that the impact of Branson can be lowered. Also Virgin needs to be less diversified. in addition, every effort should be made to bring in line the accounting year end date for all businesses in the Virgin Group to be on the same date. 
References:

•  Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 1 De 

• Wit, B and Meyer, R (editors) (2010). 4th Edition Strategy: Process, Content, Context, Thomson International Business Press: London. Chapter 6.
• The Economist, ‘Cross his heart’, 5 October (2002) 

• ‘Virgin on the ridiculous’, 29 May (2003)
• P. McCosker, ‘Stretching the brand: a review of the Virgin Group’, European Case Clearing House, 2000.
• Strategic Direction, ‘Virgin Flies High with Brand Extensions’, vol. 18, no. 10, (October 2002).
• R. Hawkins, ‘Executive of Virgin Group outlines corporate strategy’ Knight Ridder/Tribune Business News, July 29 (2001a).
• R. Hawkins, ‘Branson in new dash for cash’, Sunday Business, 29 July (2001b)
• C. Vignali, ‘Virgin Cola’, British Food Journal, vol. 103, no. 2 (2001), pp. 131–139.M. Wells, ‘Red Baron’, Forbes Magazine, vol. 166, no. 1, 7 March (2000).