Problem Summary
Virgin Group, Ltd. was founded in 1970 and is based in London, the United Kingdom. The group underwent rapid expansion in the late 1990s and diversified its business into different, to a great extent, unrelated areas. The groups’ expansion policies did not follow any plausible commercial logic, rather was based on Richard Branson’s instincts and whims. The outcomes of such ad hoc expansionary policies were imminent problems that the management is too complacent to perceive. We may summarize the problems that we found in the case that the group faces are as follows:
- The role that Virgin Group played in the whole organization. Was it a brand franchising organization, or an incumbent of new starters, or a conglomerate? The role that the group played in the operations of the 200 plus companies was not very clear. Such ambiguity would cause depletion of trust of the holding companies in the group because its operations and strategic intent for the future is not transparent to them.
- The inconsistency in the financial success of the companies was another problem. Some of the companies were loss-making whereas others were earning profit.
- Due to the lack of any defined structure – the structure which is in place is too complex – there was ambiguity regarding the relationship between the companies.
- Managing the Virgin brand which has been called the most important asset of the company is a problem. The strategies that are ought to be taken to protect the brand is uncertain.
- Branson was synonymous with the Virgin brand. Now that he is in his late-50s, the problem of his role as the brand ambassador is uncertain. Further, a problem of succession also arises.
Analysis
Now that we are clear of the problems that are being faced, we can do a SWOT analysis of the Virgin Group to diagnose the problems that the group faces.
Strengths
- Strong brand name: The Virgin brand name is supposedly one of the most valuable assets. It cements the whole group into a single entity and provides values and the mission that the entire group sticks to.
- Experienced in two different kinds of distribution: Has the experience of handling a traditional retail-based business as we saw in the case of Virgin Music, which was hugely successful. Experience in direct selling which was launched to eliminate the traditional distribution channel and gain cost advantage to provide better deals to the customers. This was done through Virgin Direct.
- One of the group’s main aims is to stick to the best quality in its products and superior product performance vis-à-vis its competitors provides a positive advantage.
- Another source of strength for the group is its lack of integration in its structure. Less integrated than other big groups like Daimler or Smiths Industries so higher flexibility.
Weaknesses
- Undefined Structure: The structure that is followed is too loose and lacks interrelations. So no company is clear of its relationship with the other company in the group. Moreover, the structure is too complex to be retained.
- Lack of a strategy for development: The company’s past history states that it has always taken decisions at the spur of the moment. No particular strategy was undertaken to evaluate the business decisions. The company still runs on sd hoc decisions.
- Lack of focus: Strategists believe that the group should do away with companies that do not adhere to the spirit of the company or at least they should be taken out of the Virgin brand, or otherwise the brand may get depleted.
Opportunities
With the increased diversification, the group has the opportunity to reap profit from all the different areas of business. The collaboration of the company with the Japanese will provide a great opportunity to the company.
Threats
Richard Branson was the face of the group. He epitomized the culture and vision of the organization. He was famous for his non-conformist ventures and adventurous nature. But he is now in his late 50s. the question arises is that, will the consumers accept his enterprising ventures at this age? There also is a looming problem of a successor to this company. The new capital-gains tax implemented by the British government is a possible threat to the company if it wishes to continue being an unconsolidated entity. Virgin Rails has been running into losses due to services that have continuously dissatisfied the customers. The reason being highly congested British railways.
From the analysis, we see that though the group has its strengths it needs to undergo an organizational change in order to remain competitive as well as hold on to its values. One of the main problems that plague the company is its entrepreneurial way of operations. Branson is the one-man-show, and his decisions are again that of an entrepreneur. By keeping the brand name Virgin in all of its products, the Virgin group has watered down the strength of the brand instead of strengthening it further. This is also probably why not one of their products is considered the leader in any of the industries it is in. Also, it is very hard to develop brand loyalty with Virgin, as the consumers cannot develop one particular relationship with the brand as it is not connecting in a way that is relevant to them.
Alternatives
We understand that the Virgin group’s success rests a lot on its image. This image has been created by the persona of Branson. And according to Branson, the success of the company lies in its being what it currently is. So the other alternative that can be put forth is the company undergoes a structural change retaining its core characteristics but defining clearly the relationships between the operational units. Virgin isn’t a leading brand in any of its businesses. Whether it is flights, electricity, or music, Virgin is simply one of the market players but never the market leader. Virgin may be an internationally recognized brand, but Virgin Cosmetics isn’t, nor is Virgin Cola, Virgin Active, or Virgin Cars. Otherwise, the company may have to disinvest in a lot of its ventures.
Recommendations
The group is known for its appeal and culture to the customers. The organization needs to come out of its entrepreneurial way of operation. Research shows that as entrepreneurial ventures grow, they need to systematize procedures. Though Virgin had been successful so far, it needs to reevaluate its systems and processes.
Conventional wisdom says that brand strength comes from a brand’s single strong message, its ability to convey a powerful message to consumers in a simple, yet often abstract way. But Virgin doesn’t appear to have a single message anymore—the company that once floated the Sex Pistols past Parliament on a Thames riverboat now sells cars, credit cards, and pension funds.
Though the company believes in innovative ideas in business, the problem is it doesn’t innovate the way that Apple or IBM have been doing. Instead, it takes an existing service or product and undercuts prices, or offers a variation on the business model. Virgin Megastores followed HMV Megastores; Apple’s iTunes Music Store was followed by Virgin’s own less expensive version. This is great business thinking, and a welcome alternative to the competition when it is done well, but this is not the same thing as good branding. A really powerful brand is made not when a business is merely better, but when it is different when it stands for something simple and powerful in people’s minds.