Global Corporate Strategy January 2007

SIMM05 – GLOBAL CORPORATE STRATEGY

ASSESSMENT TWO
- INDIVIDUAL ASSIGNMENT -

A CASE STUDY

A critical analysis and evaluation of Virgin Companies

Study Centre: XYZ

Student: XYZ

L. Elmes 1
Global Corporate Strategy January 2007

TABLE OF CONTENTS

1.0 INTRODUCTION..............................................................................................3

2.0 GLOBALISATION............................................................................................3

3.0 SWOT ANALYSIS OF VIRGIN........................................................................5

4.0 VIRGIN’S FOCUSED STRATEGIES...............................................................7

4.1 Innovative, technological and quality products.........................................8

4.2Closeness to the customer......................................................................11
4.3Quality of employees...............................................................................11
4.4Service.....................................................................................................11
4.5Fun...........................................................................................................12

5.0 VIRGIN – THE BRAND..................................................................................13

6.0 MANAGEMENT & LEADERSHIP..................................................................15

6.1Organisation structure..............................................................................16

7.0 VIRGIN IN THE 1970s....................................................................................18

8.0 VIRGIN IN THE 1980s....................................................................................19

9.0 VIRGIN IN THE 1990s....................................................................................21

10.0 FUTURE OF VIRGIN....................................................................................24

11.0 REFERENCES.............................................................................................25

L. Elmes 2
Global Corporate Strategy January 2007

QUESTION ONE

1.0 INTRODUCTION

The Virgin Company has its roots in the entertainment business. Richard
Branson began his first venture with a student magazine when he was a
teenager. He used this medium to express his love for music as well as to
express his unorthodox views. During the 1970s, he built an entertainment
business stemming from record production to music retail outlets. He managed
the value chain throughout the vertical integration activities. Through his
employees and the values which the brand exemplifies, he connected with the
customer where other dominant players had failed. The strong position of the
brand in the marketplace does not guarantee that each business generates a
profit. In fact, there have been failures such as Virgin Cola, Virgin Car and Virgin
Bike. The businesses are connected through the brand which loose operational
connections. However, the cash cows of the business do support the dogs and
the question marks. As the cash cow in the 1980s, Virgin Records was the
source of funds for Virgin Atlantic in its introductory years. This paper examines
the Virgin brand and the face of Virgin, Richard Branson, to understand the key
success factors. Through the use of business tools, the company is analysed to
address the assignment questions.

2.0 GLOBALISATION

Today’s ‘borderless world’ is facilitating the expansion of firms throughout all

corners of the globe, operating in the global marketplace. This intensifies the
level of competition and increases performance standards in dimensions such as
cost, quality and operational efficiency (Hitt et al 2005, p. 12). Strategic global
competitiveness can only be achieved and maintained if companies consistently
and continuously meet and exceed these global performance standards.

L. Elmes 3
Global Corporate Strategy January 2007

Mellahi et al (2005, p. 11) explain that a global strategy involves a carefully

crafted single strategy for the entire network of subsidiaries and partners,
encompassing many countries simultaneously and leveraging synergies across
many countries. Thus, achieving global competitiveness is its main goal. Mellahi
(2005, p.12) continues that global strategy differs from international strategy on
three main dimensions:

• It requires significant coordination between the parent company

and its subsidiaries
• Products are normally standardised
• Competitive battles are planned and executed on a global scale

Standardised
Integration
dimension
How much does a dimension
firm standardise its How much does a
offerings across firm integrate its
countries? competitive moves
across countries?
GLOBAL
STRATEGY

Configuration and
coordination dimension
How much are a firm’s activities
concentrated in a few locations and
coordinated across counties?

Figure 1: The three dimensions of corporate globality

Source: Zou and Cavusgil (as cited in Mellahi et al 2005, p. 13)

At Virgin, each business is left to develop their own strategic plans specific to
their industry. A global strategy for the brand as a whole is communicated

L. Elmes 4
Global Corporate Strategy January 2007

throughout the organisation and each business unit develops its own strategy to
support.

Mellahi et al (2005, p. 15) explain that the extent to which a firm adopts a global
strategy is driven by three major factors:

• Macro factors: globalistion of ideas and values and the creation of a global
economy; information communication technologies which create a
‘borderless world’ and the re-engineering of business processes
• Industry factors: market drivers where consumer tastes and buying
behaviour is converging creating a single global market; cost drivers to
achieve economies of scale and sourcing efficiencies; competitive drivers
where increase in number of global competitor’s needs requires globally
integrated strategies for monitoring
• Internal globalising factors: integrated moves are made between markets
and countries

3.0 SWOT ANALYSIS OF VIRGIN

A useful tool for assessing the internal capability of a firm is through the use of
the SWOT analysis. Although it is a simplified view, a SWOT analysis gives a
snapshot view of the strengths and opportunities on which the company needs to
capitalise to create a ‘distinguishing edge’. Also, it is useful to see the
weaknesses and threats which can challenge the competitive position of the firm.

L. Elmes 5
Global Corporate Strategy
Figure 2: SWOT analysis of the Virgin Group of Companies
STRENGTHS
• Value of the global brand
• Reputation
• Network of global contacts
in a range of industries
• Value creation ability
• Innovation and marketing
know-how in generating
ideas and driving business
• Positive and admired public
image of personality of the
company
• Lowered risk due to the
diversification of businesses
OPPORTUNITIES
• Continued expansion into
new and emerging markets
L. Elmes
January 2007
WEAKNESSES
• Too great a reliance on the brand
name
• Dilution of the brand due to
diversification
• Heavy reliance on Branson as the
face of the brand – risky
• Business losses and failures which
could affect the group
THREATS
• The linking of the subsidiaries via
the brand – negative press from
one company could affect the
image of one or more of the others
6
Global Corporate Strategy January 2007

4.0 VIRGIN’S FOCUSED STRATEGIES

The corporate statement provided demonstrates that Virgin’s global strategy has
its roots in creating value for the customer, which in turn creates value for the
company, specifically the brand. Its executives seek out industries and markets
which under-serve the customer and, predominantly via partnerships and its
internal resource capabilities (the brand), they fill the customer’s expectation gap.

The company adopts and emphasises throughout all its businesses a set of
global strategies. Porter (1985, p. 12) asserts that if a firm is to attain
competitive advantage, it must make a choice about the type of competitive
advantage and the scope within which it is to be attained. He identifies three
generic strategies which a firm can use to position itself in the marketplace, each
involving a different route to achieving competitive advantage.

COMPETITIVE ADVANTAGE

Lower cost Differentiation

Broad target Cost Differentiation

Leadership

COMPETITIVE
SCOPE

Cost Focus Differentiation

Narrow target Focus

Figure 2: Three Generic Strategies

Source: Porter (1985), p. 12

L. Elmes 7
Global Corporate Strategy January 2007

Virgin pursues a broad differentiation strategy, distinguishing itself on unique

features which are important to the customer, are different to competitors and
cannot be easily imitated (Johnson & Scholes 1997, p. 255). One method to
achieve differentiation is by creating an image for being different by branding
(Davies et al 2003, p. 16). Johnson & Scholes (1997, p. 248) cite four global
strategies which differentiates the entire company across countries and
continents from all other players in the marketplace.

• Innovative, technological and quality products

• Closeness to the customer
• Quality of employees
• Service

Gap in Creation of Creation of

customer superior brand value
Expectations customer
- Innovation value
- Closeness to
customer
- Quality of
employee
- Service

Figure 3 – Creating customer and brand value

4.1 Innovative, technological and quality products

Virgin’s innovation stems from a strong sense of self, an ability to experiment, the
skill to cross-fertilize ideas, and a willingness to change. The company has
largely grown, not through the unfolding of some master plan, but through an
accumulation of learning and ideas caused by threats, accidents and luck
(www.fastcompany.com)

L. Elmes 8
Global Corporate Strategy January 2007

In 2004, Virgin Galactic was launched precisely as an innovation strategy, filling

a need which no other company has attempted to do – commercialise space
travel. By April 2006, the firm had already collected US$13 million from potential
space travellers. Virgin has gained the first-mover advantage for space tourism.

‘The ability to rapidly assimilate powerful new and emerging technologies and
processes into products and services is now an important competitive factor in
the global environment. The company delivers existing products in new ways
through e-commerce and wireless technologies. Its website serves as both a
marketing and operational tool. Available in eleven regional versions, the site
supports the online purchasing of all the company’s products and services,
including space flights, at the convenience of the customer.

Virgin Atlantic has essentially changed the airline industry since its entrance in
1984. The use of e-business technologies to make travel fun and less hassle
has won it numerous awards by both consumer and business organisation.
Using Porter’s value chain analysis, we can see how e-business technologies
impact the airline industry creating internal value for the company and external
for the customer. E-business applications facilitate the booking of multiple parts
of a vacation and provides a ‘one-stop’ facility for clients.

L. Elmes 9
Global Corporate Strategy January 2007

SUPPORT
ACTIVITIES

Business
FIRM Relationship
Strategy Policies Partnership and
building Stakeholders
INFRASTRUC Financial Models Operational
Regulatory
Competition
Management
TURE SBU Procedures Management
Compliance
Management
Cooperation
Sales force
HUMAN Relationships Training
Job Training planning Career Planning
RESOURCE with trainers and Procedure &
Safety Training Agent Training Service Training
MANAGEMENT colleges Operational
Incentives
Training

CRM and
Flight scheduling system Product
TECHNOLOGY Datamining
Computer-reservations system Development
DEVELOPMENT Baggage
Yield Management system Market Research
Tracking System

Monitoring
eProcurement Specifications
Incorporating in Branding Supplies
PROCUREMENT Ordering & Delivery
operations Online Services Establishing
Receiving Instructions
Partnerships

Market
assessment Segmentation Customer
Yield Communication Distribution relationship
Coordination of
Management and with airport mechanisms management
stations and hubs
pricing authorities Promotion Customer
Ticketing and
Routes planning Baggage systems Special offers & profiling, service
reservations
Fuel Flight connection targeted and
Check-in and
Management Commission campaigns communication
gate operations
Flight scheduling payments Online sales Complaint follow-
PRIMARY Cargo
Crew scheduling Critical incidents Advertising up
ACTIVITIES management
Inflight catering management Frequent flyer Lost baggage
Aircraft
Aircraft Business Travel agent service
operations
Scheduling management and programs Coordinating with
On-board service
Facilities reporting Group sales partners and
Baggage
Planning Safety and Invoicing and alliance members
handling
Passenger security revenue Rental car and
Ticket services
Service procedures collection Hotel reservation
Competitor Rescheduling system
Monitoring

INBOUND OPERATIONS OUTBOUND MARKETING & SERVICE

LOGISTICS LOGISTICS AND SALES

Figure 4: ICT-enabled airline industry value chain

Source: Buhalis (2004)

L. Elmes 10
Global Corporate Strategy January 2007

4.2 Closeness to the customer

Customers are at the core of the strategy. The company understands that by
knowing customer needs and expectations, it can reach and exceed them. In
2002, upon the launch of its new wireless service, Virgin Mobile USA LLC, the
firm partnered with a third party to carry out customer monitoring and ensure that
the service given to its targeted youth market was superior to other services and
based on the customer’s requirements. The company understand that through
understanding customer needs and expectations that Virgin can reach and
exceed them.

4.3 Quality of employees

Virgin relies on the relationship between its employees and its customers to feed
its strategic plans and new ventures. Being face-to-face with the customers
allows employees to know first-hand where the products and services are
meeting the customers needs, where they are failing and the new ideas which
may improve value for both the organisation and the customer. Individuals who
are not complacent and challenge the status quo as a means of achieving quality
are those who will be able to best represent the brand. The employees embody
the values of the brand which include; competence, courteous, reliable,
responsive. Them believing in the brand validates it and influences the
customers belief also.

4.4 Service
Having a customer-orientation, the company understands the service
expectations of its customers and aims to exceed them – to stand out in the
marketplace. Virgin offers a luggage drop off and check-in at hotels on the
departure day of Virgin Holidays customers. This allows clients to enjoy the last
of the holiday actually being on holiday rather than stuck at an airport.

L. Elmes 11
Global Corporate Strategy January 2007

4.5 Fun
Unique, unusual quirky events stand out in a customer’s mind. It peaks curiosity
and interest in the product and brand. Virgin knows this type of psychological
positioning to consistently be at the front of a customer’s mind. The customer
thinks first about Virgin when he is in need of that service or product. When
launching Virgin Bride in 1996, Branson ‘sported’ a wedding dress, which
exemplifies the relaxed nature of him and by extension the company.

L. Elmes 12
Global Corporate Strategy January 2007

5.0 VIRGIN – THE BRAND

The Virgin brand name differentiates it from other products and services. Davies
(1992) explains that a brand has six different assets which can give it a
competitive edge.

Differentiation
(from competitor)

Recognisable Psychic value

(recall of name and associations, familiar logo) (image to self and others)

Premium
Registerable Name (in money or time)

Transferability
(license, brand extension)

Figure 5: The six assets of a brand

Source: Davies et al (2003, p. 78)

The Virgin brand has power. It creates interest in any industry which bears its
logo. It challenges the established brands to raise standards to meet the
customer’s expectations. The businesses do not all achieve returns and may not
even survive for significant periods, eg. Virgin Cola, Virgin Cosmetics. However,
they are a ‘wake-up’ call for the industry and essentially, the customer benefits
through improved service and quality. Success for the brand is achieved if its

L. Elmes 13
Global Corporate Strategy January 2007

values are distinctive and valued by customers, and if these in turn are
‘harmonised with what motivates customer facing staff internally’ (Davies et al
2003, p. 203).

L. Elmes 14
Global Corporate Strategy January 2007

QUESTION TWO

6.0 MANAGEMENT & LEADERSHIP STYLE OF BRANSON

Northouse (cited in Torrington et al, 2005, p. 300) suggests that there are four
components that characterise leadership: it is a process, it involves influence,
occurs within a group context and involves goal attainment. Kilpatrick and Locke
(cited in Torrington et al 2005, p. 301) explains that the key traits of an effective
leader includes drive to achieve, motivation to lead, honesty and integrity, self-
confidence, the ability to withstand setbacks, being emotionally resilient and
being able to manage the perception of others in relation to these traits.

Branson’s personal traits filters through to the Virgin culture. The company
represents a shift in the typical British ideals of social order. He believed in the
entrepreneurial spirit which was the basis of him empowering employees to
‘manage’ their own success. Each individual company was structured with few
levels so that employees were not overwhelmed with the size of the organisation.
They rather felt part of a small family where ideas were encouraged and
supported.

Branson’s leadership style can be described using a variety of theories. He

manages using the theory ‘y’ approach assuming that employees are responsible
individuals who are willing and capable of taking on responsibility (Torrington et
al 2005, p. 303). In this way, employees are motivated, feel empowered and
commit to enhancing the value of the organisation. His statement ‘People are
our greatest asset’ is the basis of his maxim - staff first, customers second and
shareholders third.

Senge (cited in Torrington et al 2005, p. 303) advocates the learning organisation

which encourages strategic thinking, coaches, guides and facilitates. Branson
places high value on people, seeing the brand as the people who comprise the
organisation and who are delivering value to the customers. He designs a

L. Elmes 15
Global Corporate Strategy January 2007

learning organisation whereby core values and structures can be translated into
business decisions. He seeks to be a role model for the employees, creating a
‘friendly, egalitarian, non-hierarchical, family-like atmosphere in all the
companies’ (Kets De Vries 1998). He believes that thru motivation, employees
are happy, more committed and make a larger contribution to the organisation.

Branson’s determination to achieve positions of dominance in all the industries in

which Virgin operates rather than be the biggest company fuels his search for
excellence and in recruiting individuals who fit with the philosophy of the
company. He wants to inspire employees at all levels of the organisation He
sees self-managed teams as the future of high performance teams and in so
doing, he recruits people who set their own standards and rewards, who are
inner-driven, who are high-achievers and critical of themselves when they fall sort
of goals. He establishes a psychological contract with them (De Vries 1996)
where their marketability is increased through the challenges of Virgin.

Since the inception of the company, he rewards key performers for commitment,
innovation and achievement. Employees are given a sense of control,
responsibility and challenges. Throughout it all, Branson emphasises a sense of
playfulness, fun and an environment of continuous change. He

6.1 Organisation structure

The organisation’s structure is not riddled with hierarchical levels, rules and
regulations – a reflection of his disregard for rules and authority. In this way,
decisions are made quickly, employees have close contact with management
and can transfer the sense of family on to its customers. Branson sees this as a
competitive advantage for an organisation of Virgin’s scope. In this way
employees do not feel alienated or less involved but are nonetheless part of a
global enterprise with vast opportunities for growth and building a long-term
career.

L. Elmes 16
Global Corporate Strategy January 2007

Virgin resembles a ‘keiretsu’ organisation where employees’ role constantly

change as they take on new challenges. It is a ‘centralised/decentralised
structure’ (De Vries 1996). It is flat enough to support employee involvement but
at the same time, it allows for the staying informed, ensuring accountability and
keeping the brand glued together in spite of the geographical separation between
units.

L. Elmes 17
Global Corporate Strategy January 2007

QUESTION THREE

7.0 VIRGIN IN THE 1970s

Market penetration was the focus of Virgin in the 1970s. The brand was
unknown and the goal was to create awareness. Branson was pursuing strategy
of vertical integration where the company was overseeing the flow of inputs and
outputs in the record business. The Virgin company contracted recording artists,
produced the records and sold them in its HighStreet Shop, managing the value
chain from recording artist to the customer. The company’s vertical growth
allowed it to set its quality standards throughout all stages of the chain, add value
through the stages which would create value for both the customer and the
organisation in terms of lower costs, for example. In addition, this strategy brings
the company closer to the market to understand what products the customer
wants and be able to deliver them.

Using the Ansoff matrix to illustrate, the company created new products for its
existing market.

L. Elmes 18
Global Corporate Strategy January 2007

MARKET MARKET
Existing
PENETRATION DEVELOPMENT
Virgin
PRODUCT
*entertainment industry

New PRODUCT DIVERSIFICATION

Product DEVELOPMENT

Existing New Product

MARKET
Figure 6: Ansoff matrix illustrating Virgin in the 1970s

8.0 VIRGIN IN THE 1980s

Horizontal growth was the focus of the 1980s. The firm spread its operations in
regional markets firstly with Virgin Records began operations in France via a
licensing agreement. This worked well for the firm. The brand was getting
awareness in another market, the firm was being paid royalties for the use of the
brand and there was no capital investment required. Virgin was able to look at
the market’s response to the brand, its products and services before committing
to a direct investment in that market.

It was at this time that the company began to pursue several types of growth
strategies simultaneously - product development with the launch of Virgin Vision
and market development with Virgin Records entering the US and Japan. The
value of the brand began being recognised as strategic alliances were set up to
enter new markets. Fujisankei Communications Group for a foothold in the
Japanese market.

L. Elmes 19
Global Corporate Strategy January 2007

Virgin Atlantic’s launch was the first of its diversified strategies. The airline
pioneered state-of-the-art reclining seats, in-flight massages, limo pick-up
services (Grant, 2004).

MARKET MARKET
Existing
PENETRATION DEVELOPMENT
Virgin
PRODUCT
*entertainment

New PRODUCT DIVERSIFICATION

Product DEVELOPMENT Virgin:
*travel

Existing New Product

MARKET
Figure 7: Ansoff matrix illustrating some Virgin businesses
in the 1980s

9.0 VIRGIN IN THE 1990s

L. Elmes 20
Global Corporate Strategy January 2007

Strategic alliances played an increasingly critical role in the firm’s expansion

strategy, diversifying the company’s product portfolio. The cost of start-ups was
high and the broad range of expert skills in the specific field was not within the
company so Branson aligned himself with successful partners who had the
industry specific skills and were already successful in their operation. He
exploited the brand equity of the firm in various businesses.

The aim was long-term mutual value creation. He brought intangible assets to
the table - the brand and public relations skills - while the partner firm funds the
deal, paying premium prices for the brand (Inkpen 2000, p. 98). Branson used
the value of the brand to divest businesses, funds from which he used to diversify
the company’s portfolio. For example, The Virgin Music Group was sold for a
record US$1 billion when the company only had book value assets of less than
half. The brand was the intangible which was generating cash for the Group.

Changes in the firm’s business environment drove its business development

(Grant, 2004). The firm uses its superior resources and capabilities to modify
industry structure and change the rules of the competitive game (Werner 1984,
Peteraf 1993 as cited in Mallahi et al (2005, p. 132). Using the PEST model to
analyse the macro environmental aspect:

• Legal – Privatisation and deregulation in UK encouraged new business

ventures – for example, joint venture with Stagecoach (Virgin Rail) and
acquisition of Euro-Belgian Airlines (Virgin Express).
• Direct selling of goods and services to consumers: elimination of costs
associated with traditional distribution channels – joint venture with
Norwich Union to offer telephone-based financial services to customers
• Technology, Media, Telecom boom: boom of internet as a media for
reaching customers – joint venture between Virgin and NTL (Virgin Net),
joint venture with Virgin and One-to-One (Virgin Mobile). Both of these

L. Elmes 21
Global Corporate Strategy January 2007

have been the source of the group’s use of internet technologies to gain
competitive advantage.

MARKET MARKET
Existing
PENETRATION DEVELOPMENT
Virgin Virgin
PRODUCT
*entertainment industry *Japan, Netherlands

New PRODUCT DIVERSIFICATION

Product DEVELOPMENT Virgin
Virgin *travel (airline, hotels,rail)
Partnerships in EU,
*mobile
Australia

Existing New Product

MARKET
Figure 8: Ansoff matrix illustrating some Virgin business
in the 1990s

In addition, using the BCG matrix, we can classify the positioning of 7 of the
firm’s 200 business units.

Legend
High

VA = Virgin Atlantic Airways Ltd.

VM
StarsVH ? Question Mark ? VR = Virgin Rail Group
Market Growth Rate

VH = Virgin Holidays
VMH
VA VS VM = Virgin Mobile Telecoms
VR
VS = Virgin Stores

VMH = Virgin Mobile Holdings

Cash Cow Dog

= loss maker
Low

= generates profits

High Relative Market Share Low

L. Elmes 22
Global Corporate Strategy January 2007

Virgin Atlantic Airways Ltd is the highest revenue earner. Although the business
units are run independently, profitable units support the loss leaders as was the
case in the 1980 when the profits of Virgin Records funded the expansion of
Virgin Atlantic.

Virgin Rail Group is generating negative cash flow which drains the resources of
the other businesses.

L. Elmes 23
Global Corporate Strategy January 2007

10.0 FUTURE OF VIRGIN

Virgin will continue to be developed as a global brand. Branson explains that

rather than continue on a strategy of increasing the range of products and
services, it now seeks to expand into new markets (www.virgin.com). This brings
a new dimension to the brand as it now aims to serve customers in geographical
markets that are being underserved. In 2005, it increased Virgin Atlantic services
to Shanghai and introduced it to Beijing. In 2006, it launched Virgin Mobile and
Virgin Money in South Africa. This trend will continue.

Critics advocate that brands also exhibit life cycles with different stages (School
of Management Marketing Group, University of Surrey, p. 335). So, there is
concern that with such a mix of unrelated business within its portfolio that the
brand will be come diluted and the value of the brand will die. However, as
Branson explains that customer value is at the heart of the firm’s strategy and
they believe that the value of the brand is strong. Developing each business as
its own unit focuses the team on developing that business and creating value for
employees, customers, shareholders and management.

L. Elmes 24
Global Corporate Strategy January 2007

11.0 REFERENCES

Buhalis 2004 eAirlines: Strategic and tactical use of ICTs in the Airline Industry
Information & Management Retrieved August 17, 2006 from Business
Source Premier database

Davies, G et al 2003 Corporate Reputation and Competitiveness Routledge

London

De Vries, M 1996 Leaders who make a difference European Management

Journal Vol. 14, No. 5 pp. 486-493 Retrieved January 3, 2007 from
Business Source Premier database

Grant, R 2004 Richard Branson and the Virgin Group of Companies in 2004

Hitt, MA, Ireland RD & Hoskisson, RE 2005 Strategic Management –

Competitiveness and Globalisation: Concepts and Cases Thomson
Southwestern Ohio

Johnson, G & Scholes, K 1997 Exploring Corporate Strategy: Text and Cases
4th edition Prentice Hall

Mellahi, K, Frynas, JG, Finlay, P 2005 Global Strategic Management Oxford

University Press

Porter, M 1985 Competitive Advantage: Creating and sustaining superior value

New York

School of Management Marketing Group 2003 Marketing Pearson Custom

Publishing Essex

Torrington, D, Hall, L & Taylor, S 2005 Human Resource Management 6th edition
Financial Times Prentice Hall

www.fastcompany.com Accessed January 10, 2007

L. Elmes 25
Global Corporate Strategy January 2007

www.virgin.com Accessed December 20, 2006

L. Elmes 26