1) Virgin Group possesses unique resources and capabilities, one of which is the valuable brand equity associated with the renowned Virgin brand. The Virgin brand enjoys widespread recognition not only in the UK but also in crucial markets like Europe and the U.S.A. In fact, during the 1990s, a staggering 96% of UK consumers were familiar with the Virgin brand. Furthermore, this esteemed brand consistently garners favorable consumer perceptions across different Virgin enterprises, including being known for offering value-for-money experiences, fun-filled ventures, innovative solutions, successful endeavors, and trustworthy services.
Thirdly, Virgin has a strong reputation that has been built up over time, making it difficult for competitors to imitate. Additionally, competitors cannot replace resources that have the same functions as brand equity and corporate reputation. Richard Branson, the founder of Virgin, has an exceptional personal reputation and image. He is highly respected for his unconventional approach to business and is often seen as a role model. He has been nominated for enterprises, voted the most-popular businessman, and even named in London polls as the preferred choice for mayor despite not running for the position (Case, p.97). Branson possesses unique abilities such as effectively using media to raise public awareness of Virgin, exceptional negotiation skills, and excellent charisma. Being an ‘international celebrity’ gives him easy access to the right people and allows him to form partnerships or alliances when needed. Therefore, Branson’s reputation and rare tacit knowledge add value to the Virgin Group and cannot be easily replicated or substituted by competitors.
The innovative environment at Virgin Group is beneficial to the organization as it motivates employees and improves performance by promoting more efficient processes. Virgin’s organizational structure is characterized by minimal hierarchy, as hierarchies are seen as hindrances to rapid decision-making. This structure, combined with the promotion-from-within policy, provides opportunities for employees who may have been excluded in other companies due to their gender, lack of experience, or training. The organizational structure and positive culture at Virgin attract and retain high-quality staff who align with the ‘Virgin People’ category, contributing to the company’s success. Additionally, Virgin has fostered a culture that emphasizes praise over blame and a sense of family rather than alienation. The company also encourages informality and fun. 2) How is Virgin Group attempting to create synergies across its various businesses?
Virgin utilized the profits generated from various established businesses to support the Virgin record label. This involved investing in both new bands and existing artists who were expected to become profitable in the future (Case, p. 682). Additionally, Virgin employed portfolio planning strategies to maintain a balance between growth and maturity, as well as manage cash flow and investment requirements. For instance, they sold Virgin Music Group in 1992 to facilitate the expansion of their airline business (Case, p. 684).
Later, Virgin sold the UK and Irish cinemas in 1999 to repay the loans taken out to buy back Virgin Our Price (Case, p. 700). Virgin creates synergies through applying general management capabilities across their businesses. They have developed effective HR practices, corporate structure, and culture that can be applied to all Virgin businesses. ‘The Virgin way’ and ‘building Virgin people’ is consistently applied, i.e. “human resource tools such as assessment centres, personality profiling, and employee development are commonly used” (Case, p. 685).
The Virgin framework can be adopted by new businesses to improve effectiveness and efficiency, creating synergies instead of starting from scratch. Virgin’s diversification has also created synergies across their related businesses by adding value to each other and increasing the possibility of achieving competitive advantages. For example, in the travel industry, Virgin Holidays benefited from Virgin Atlantic by sharing operational resources such as promotion, leading to lower unit costs (Case, p. 689).
Virgin has identified certain businesses within their group that are well-suited for e-commerce and have significant growth potential. To tap into this potential, Virgin has used shared activities to lower costs. They use technology that enables customers to purchase any Virgin product through a mobile device, allowing them to distribute various products from different businesses. In addition, they have streamlined online services by consolidating them under one web address.
To differentiate themselves in the market, Virgin bundles services together to provide more value to consumers than individual services would on their own. For example, they have combined retail stores and cinemas to create ‘Megaplexes’ that offer extras like coat checks, drink service, and additional legroom. This strategy generates synergy by sharing customers and increasing willingness to pay for combined services.
However, there are threats to Virgin’s corporate strategy. The company expands into unrelated areas while leveraging its brand and aiming for synergies across its diverse businesses. Yet there is a risk that if one business underperforms, it can negatively impact the perceived quality or value of other businesses within the Virgin Group.The negative press and perceptions surrounding the failure of the Virgin rail company can influence how other Virgin products are viewed. Additionally, investors are becoming skeptical about the idea of financial synergies and portfolio planning due to advancements in the external capital market. With improved access to relevant information, investors no longer see Virgin’s advantage of superior internal information as significant. Consequently, they may choose to diversify their investments instead of investing in a company that is already diversified. Furthermore, incorporating Richard Branson into Virgin’s identity strategy has further consequences.
Firstly, there are costs involved in Branson dividing his attention among multiple businesses, which could potentially compromise his core competencies and the effectiveness of his management.
Secondly, concerns exist regarding the long-term performance of Virgin Group if Branson were to leave. His persona is closely associated with the company in the eyes of the public and investors. If he were to depart, it raises questions about whether the company would lose its drive for innovation and its ‘can-do’ culture that has long been its defining feature. This situation could create a crisis of confidence that might threaten the survival of Virgin.
References:
Dess (2007). Strategic Management: Creating competitive advantages (3rd Ed.), The McGraw-Hill Companies.
Case: De Vries, D.R.K. & de Vitry d’Avaucourt, R. (2004) “The house that Branson built: Virgin’s entry into the new millennium” In: B.De Wit & R.Meyer Strategy: Process, Content, Context,Thomson: London, pp. 680-701.
