In this era of globalized business where, both large corporations and small firms strive fervently to survive in business, through consolidations and other strategic transformations; it is amazing and indeed mystical to see Virgin Group, wallowing the global business terrain like 'jack-of-all-trades'. Global business revolution has made the market so competitive today, that business consolidation has become very popular among firms. Some organizations even see it as the only hope for business survival. As a result, many firms are going through one form of restructuring and reorganization or the other, to enable them compete favorably in the global market and achieve greater efficiency. But to Virgin Group as it is today, developing and expanding new businesses with cash flows and capital value, appears to be their ultimate goal; as opposed to consolidating the group's assets and income, with accounting profits. In view of the foregoing, this report attempts to answer the following critical questions in connection with the structure, management and operations of Virgin Group of Companies:
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Are there any synergies between the separate Virgin Companies?
Which businesses, if any should Branson divest? And why?
What should Branson do to assure that Virgin survives him?
2. Answer to Question-i: (Synergies)
Despite the general public perception of the opacity associated with Virgin's structure, management and finances; it is still obvious that there are strong synergies between the disjointed-separate Virgin companies. To me, I see synergy as the main property that keeps these groups of 'supposed independent' companies surviving together in the 'harsh' global business environment. This is evident by the fact that there are interactions, cooperation, combined effect, collaborations, concerted effort as well as strong sense of obligation among these companies. These themes, as possible proof to existence of synergies between the separate Virgin companies appears to be firmly connected to the following sources and links, from which they drive their synergies: (1)-Sir Richard Branson's Personality (2)-Group's Brand Name (Virgin) (3)-Organizational Structure (4)-Management Style and (5)-Financial Structure. These sources of synergies are discussed in details as follows:
2.1 Branson's Personality: The first and a very important source and link for interaction leading to synergies between the separate Virgin companies is the presence and the role of its founder and instigator-Sir Richard Branson. Branson, right from the humble beginning of the student magazine, has been at the helm of affairs in building the business empire known today as Virgin Group Ltd. Branson has instilled his entrepreneurial spirit and business values throughout Virgin Group. His disdain for bureaucracy has brought about transparency and quick interactions among management and employees of Virgin group of companies. This level of interaction, courtesy Branson's business acumen and entrepreneurial vigor has seen a number of cases where, monies accrued from another Virgin company are used to expand that business, resuscitate another ailing company or develop entirely a new line of business within Virgin. For instance, the continual expansion of Virgin group using internal cash flows from Virgin Atlantic Airways is a typical example of this scenario. Similarly, the Virgin Megastores provided another opportunity for expansion, with new such stores opened in other locations such as Japan, United States, Australia, Spain and the Netherlands. Being a private group of companies, with few individuals at the top of decision making, it is fairly-easy to cause such internal interactions to create the desired synergy within Virgin Group.
2.2 Group's Brand Name (Virgin): Aside Branson's personality, and business charisma, another important asset that serves as strong source of synergies for the entire group is the use of common brand name (Virgin). The use of 'Virgin' brand by this diverse range of enterprises creates that sense of belonging and cooperation within the group. The brand name is perceived by many to be the single greatest asset binding these different companies. The brand name and the novel entry of Branson into new business frontiers has become an open door to the entire group, as the companies collaborates in business. Branson's modest approach to business has done a lot to strengthen the brand name, which in turn strengthens the synergies among the separate Virgin companies. Despite public criticisms over possible over extension of this brand, the wide spread use of the brand in capturing new and ailing business is enjoyed by many within the Virgin group. The business collaborations among the ever expanding Virgin group of companies are indeed a strong indication that without such synergies through use of its brand, majority of the Group's firms would have folded up and cease to exist. From customers' point of view, Virgin's desire and ambition to be known as 'customers' champion' is achieved basically by delivering brand values across the entire Virgin Group.
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2.3 Organizational Structure: Another critical indicator that attests to the existence of synergies between the separate Virgin companies, is the combined effect created by the different entities through what many describe as a 'loosely-random-organizational structure'. Although, many analysts criticizes Virgin for its composition and lack of defined structure and hierarchy; but, the over two hundred Virgin companies operate together, with most of the operations conducted through other companies within the group; creating that combined effect. Irrespective of the fact that there is no overall single parent company for the entire group, there exist some companies within Virgin whose functions are basically to own and manage other operating firms within the group; which indeed creates the desired synergies of working and helping one another. Of all these over 200 Virgin companies, majority are operating companies who own assets and offer goods and services, the remaining few are holding companies. For example, Virgin Travel (Holdings) Ltd is said to own Virgin Group investments in Virgin Atlantic, Virgin Blue, SN Airholdings, and Virgin America; while the overall ownership of most of the Virgin Group is under the direct control of Virgin Group Investments Ltd. Therefore, no matter how seemingly-chaotic the Virgin situation might be, in terms of established structure and formal control systems; this weakness is effectively balanced by their high-level of cooperation.
2.4 Management Style: The lack of hierarchical structure and Branson's disregards to established business principles and conventions has succeeded in fostering stronger synergies between the separate Virgin companies. His unhappiness to function as the chairman of public corporation in the merger between Virgin's music, retail and vision businesses attests to this. Each of Virgin group of companies, are known to be individually setup and managed; unlike what is obtained in large established corporations such as Shell, Chevron, and British Airways etc. In Virgin Group today, the aspirations of employees of each individual company are properly aligned to those of the company; which gives the employees the desired latitude to do a lot of business exploits for their individual companies/group. There are no boards of directors for Virgin Group, and strategic decision making is solely the responsibility of Branson with a few top management executives. This type of management system offers short lines of communication and prompt response to urgent issues; instead of bureaucratic process of waiting for approvals and responses. This is defined almost entirely from Branson's own personal values and management style. Ironically, this style of leadership, coupled with absence of established formal business conventions, has made many undermine the values and business powers of the Virgin Group; with British Airways being a major victim of this 'corporate disguise'.
2.5 Financial Structure: This is another link/source of synergy to the Virgin group of companies. Business analysis from sources such as the Economist and the Financial Times, have consistently criticized Branson's sense of business, alleging that most of his companies are underperforming and making losses; while some are taking cover under the viable ones. Branson also has consistently disputed such allegations, pointing that each of his numerous companies is setup and operated as a standalone company. Whichever is the true position on the group's financial structure, the synergies created by way of combined effects by these companies are the attractive dimensions for this analysis. The bottom line here is that, these companies are not public, but privately owned and financed by internal cash flows and equity. Others are financed through joint venture agreements or external debt. According to Branson, each of his companies is funded individually and separately on a standalone basis. The idea is to nurture the companies to stand on their two feet and compete favorably among themselves and others in their lines of business. Reports from publicly available sources has it that since before now, Branson has taken a more radical and conservative approach of funding his businesses; which helps Virgin to have little income output while still having chunk equity stake when setting up new businesses.
3. Answer to Question-ii: (Divestment)
For over a decade, the privatization and deregulation drive of the UK government and elsewhere around the world; by way of relinquishing direct funding and control of state owned enterprises, saw Branson and his Virgin group enter new business frontiers beyond 'reasonable boundaries'. Branson saw this trend as a 'golden opportunity' to expand and widen his business horizons. He seized that moment to acquire both profitable and ailing assets. Virgin penetrated a large array of unrelated industries, of which the weak link from such unprofitable ventures turned out to be a 'drag-net' for the group. Financial analysts and many public opinions view this as a possible reason for the group's poor financial performance over these years. Furthermore, after a careful analysis of the Virgin business-case to form a personal opinion, I would recommend that for Virgin Group to enhance and maintain its return on investments (ROI); Branson needs to divest the following businesses: (1)-Transportation Business (2)-Financial Services (3)-Beverages & Cosmetics and (4)-Apparels. The rationale for my choice of these businesses for divestment is as follows:
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3.1 Transport Business: It is indeed my opinion that Branson divests from transport business (both Air and Rail travels). My position is based on the premise that different empirical studies about transportation, have consistently proved that the transport industry generally has been unprofitable for so many decades. Return on investments for firms operating in this industry has also remained on the negative side of the financial scale, compared to those in lucrative industries such as the ICT. Narrowing this perspective to Virgin Group specifically, it is glaring to note that the privatized railway industry in the United Kingdom where Virgin has acquired great stake; has performed so poorly that it nearly ruin the hard earned brand name of the group. Since Virgin's entry into this line of business around late 90s, Virgin Rail has been known to set horrible records of poor performance and financial accounting. This same ailing situation is found also in air travel. Viewing this strictly from a business perspective, I would recommend Virgin to divest fairly quickly from this industry to avoid total crumble.
3.2 Financial Services (Virgin Money): Another industry which Virgin Group is deeply involved in; which does not depict the character and business values of the man Richard Branson and the brand name, is the financial services industry. To me, the financial sector negates Virgin's culture of entrepreneurship. The desire of Virgin to be grassroots and people oriented model does not in any way coincide with the traditional financial institutions. Many public opinions have argued that customers seeking financial services tend to look for long-standing organizations, with solid financial background and proven track records; of which they view as largely lacking in Virgin Group. Though, Branson's ability to extend Virgin brand so widely, pointed to his excellent business acumen and the broad appeal of Virgin's business Values. However, the over-extension of this to include the 'shoddy' financial services sector, could spell doom to his image and integrity of Virgin brand. Thence, the opportunity of good quality, brilliant customer service and value for money might be lost. The earlier virgin divest from this industry, the better for its good and innocent name.
3.3 Beverages & Cosmetics: Many public commentators have censured over and again that Branson is still too unfocused for his business direction. Some also see the use of Virgin brand to cover business such as; Beverages and Cosmetics to be an over extension of the brand name that would possibly put the brand at risk of losing its appeal. For instance, some heads of brand identities at other organizations have also made similar comments, condemning Virgin on this issue; and advise that Branson is still unfocused and should leave such businesses that don't fit his personality and that of Virgin, or better still, come-up with another brand name for such businesses. With such a collaborating views to my personal opinion, I think that Virgin business ventures such as, Virgin Wine are really not suitable for this prestigious brand name; considering also the fact that most of such businesses carrying the brand are non-performing. In light of the above rethinking, I also believe it will do Virgin more harm than good to maintain such 'mush room' businesses with this brand name.
3.4 Apparels: I was somehow stunned, when I discovered that Branson towed the line of Virgin Bride on recommendations of his employee; simply because she was dismayed by what was offered by existing UK bridal shops. This is not in any way a position to discourage Virgin employees from being innovative, but a caution to Branson, on the need to think carefully before applying Virgin brand to some business-proposals. In a related development, Branson acquired a bankrupted health club-chain in South Africa on recommendation of Mandela; which as of today, the Virgin Active South Africa has no proven track record of immense financial contributions to Virgin Group. From business point of view, such acquisitions are reckless investments that would only bring down the public appeal of the brand. In my view, Branson should divest from such businesses and invest the money and the brand name to booming businesses such as telecom. Except, he choose to maintain such businesses for social and philanthropic reasons, thence, he should divest the brand and come up with a new name that depict their status.
4. Answer to Question-iii: (Future Outlook)
Sir Richard Branson, the instigator and promoter of Virgin is a famous personality and a great entrepreneur around the world. He has done a lot of exploits in the business arena, and has consistently maintained his business values and style of management. Branson right from startup, with a student magazine has been leading this privately owned and managed group of companies. He has instilled his anti-corporation and anti-bureaucracy policies across Virgin Group. While majority adore and hail Branson for his style of leadership and business sense-perhaps, for his concerns for common people; this style of management has over the years, come under heavy scrutiny and criticism from a circle of 'business watch'. Business analysts believe that his disjointed companies are not performing to expectations, for various reasons and the future of survival and continuity in uncertain. I also believe that for Branson to grow this business empire profitably and see it survive him, his should have a rethink and refocus the business along the following lines: (1)-Organizational Restructuring (2)-Management Restructuring (3)-Financial Restructuring (4) and (4)-Business Consolidation.
4.1 Organizational Restructuring: For now, the organizational structure of Virgin Group is nothing to see Virgin grow beyond Branson. Virgin is described by many, as a flat organization that is centered on an individual. The inability of Virgin Group to operate under a formal structure leaves many of its performances to questioning. As it is today, Branson calls the shot and determines the business and policy direction. It is true, that Branson has excellent business acumen and charisma, and it has been working for him under this loosely structured arrangement. But what happens when Branson departs today? How would it be if Branson retires? We all wish him and his group well, but in case of any eventuality, how would their future look like without Branson? To ensure a proper succession plan, I would expect Branson to restructure Virgin Group to a formal structure, with centralized decision making body, such that any other top opinion former coming after him can easily fit in. Virgin Group should also have a corporate headquarters, where the group's policy and financial decisions are centralized.
4.2 Management Restructuring: It is difficult with the current structure, to differentiate Virgin from Branson. The culture, the style and the working principles in Virgin Group today, depicts Branson's values and believes. Many opined individuals alleged that Virgin group of companies seem like Branson's personal venture. This kind of position is dangerous for the future survival of Virgin. For now, there is no centralized policy and decision making body. Strategic decision making and policy direction are done by Branson and a few chief executives of his companies. But, my candid question again is: will Richard Branson remain there forever? Again, how many of the few chief executives with him can really be able fit-in and adopt his style of management, and successfully move the group forward? These are pertinent questions that call for a rethink and an action for change. I would therefore, suggest that right from now that Branson is still present and active, decisions making process in Virgin should not be based on Branson's personal values and believes; but it should be based on universally acceptable business conventions.
4.3 Financial Restructuring: As it is today, financial structure and accounting system in Virgin remains fragmented. The financial position of Branson's business empire is one of the most sophisticated to interpret. No consolidated accounts exist for the group, not even for some holding companies and their subsidiaries. To me, this kind of financial system is rather ridiculous. Tracking the financial results of the separate Virgin companies appears to be the most daunting part of Branson's business. Even though, Branson consistently argued that all his business investments are financed on a standalone-basis, but analysts also pointed many instances where monies accrued from viable companies have been transferred to other ailing companies to resuscitate them without proper accounting. For example, records available proved that in 1992, Virgin records, one of the most profitable businesses of Branson, was sold to safeguard Virgin Atlantic; and about 49% of Virgin Atlantic again given up to Singapore Airline to survive Music Retail Business. In view of this, and to ensure continuity, I would recommend a more structured and centralized financial accounting system for the group.
4.4 Business Consolidation: Ultimately, to ensure that Virgin survives beyond Branson's believes and business values, the group must consolidate its investments (both assets and income). Virgin cannot continue to operate in a haphazard manner like that. Branson should consolidate both his assets and finances, and equally go public. I would also recommend Branson to divest minor businesses and focus on highly profitable industries such as ICT, and form a large conglomerate. The idea is for the group to fine-tune its products and services and retain its brand equity profitably. In doing so, Virgin can also franchise its brand to other high profile businesses of proven track records and integrity, so as to collect royalties at minimum risks to the group. Finally, for Virgin to survive Branson, he should institute without delay a centralized and systematic management structure that is universal for every CEO; without which his absence might only become catastrophe for Virgin Group. He should also be willing and indeed-prepared to give up full operating control of his enterprise, and be willing to consolidate both physical and liquid investments.
In conclusion and as a final thought however, I personally see Sir Richard Branson as not being an ordinary entrepreneur. He has sets world records in and out of boardrooms. Beginning with a humble students' magazine, Branson has indeed taken the name 'Virgin' to an enviable height. Many see the structure and management style of his business empire as being reckless, but Branson has consistently proved to his critics that he and his group have staying power, and would continue to dominate the global business space!