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In this era of globalized business where, both large public corporations and small private firms strive fervently to survive in business; through consolidations, mergers and acquisitions, 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 so popular among firms. Many even see it as the only hope for business survival. Growing business profitably is the key objective of every company. The common goal is to improve profit margins and remain among the top-ranked firms on the 'business league table'. Today, almost all sectors of the world economies 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 consolidation of the group's income and assets, with accounting profits.
This report therefore, aims at answering the following critical questions associated with structure, management and operations of Virgin Group of Companies:
Despite the general public beliefs about 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 terrain. 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. Those themes as possible proof to existence of synergies between the separate Virgin companies appears to be firmly connected to the following common sources and links, from which they drive these 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:
Branson's Personality: The first and a very important type and level of interaction leading to synergies between the separate Virgin companies are the presence and the role of its founder and instigator-Richard Branson. Branson, right from the humble beginning of startup with student magazine, has been at the helm of affairs in building the business empire known today as Virgin Group. Branson has instilled his entrepreneurial spirit throughout the Virgin group. His hate for bureaucratic arrangements has created transparency and quick interactions among management and employees across the Virgin Group. This level of interaction, courtesy of Branson's business acumen and entrepreneurial vigor has seen a number of situations where, funds accrued from another Virgin company are used to expand that same business, resuscitate another ailing company or develop entirely a new line of business within Virgin group. For instance, the continual expansion of Virgin group using internal cash flows from Virgin Atlantic Airways is a typical example of this scenario; with Virgin Atlantic Airways also expanding its own network to about twenty more cities. 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.
Group's Brand Name (Virgin): Aside Branson's personality, connections and business charisma, another important cooperative property that creates different levels of synergies across the entire group is the use of a common brand name (Virgin). The use of 'Virgin' as a brand to all these diverse range of enterprises creates that sense of belonging and understanding within the group. The brand name is perceived by many to be the single greatest asset binding the different group's entities together. 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 cooperate together 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 name, the wide spread use of this brand in capturing new and ailing business is enjoyed by many within the Virgin group. It is obvious that the near monopoly of brand name created by Virgin group is enjoyed by all within the group. The business collaborations among the ever expanding Virgin group of companies are indeed a strong indication that without such synergies using its brand name, majority of the Group's firms would have folded up and cease to exist either as a standalone or group of companies. From customers' point of view, Virgins desire and ambition to be known as customers' champion is achieved basically by delivering brand values across the entire Virgin Group.
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 structure. Though criticized by many for its composition and lack of defined structure and hierarchy, 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. 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 great talents found among management and employees of the Virgin Group. Virgin employees are known the world over to have high sense of job responsibility; with willingness to take home modest salaries. This high sense of belonging and patriotism is indeed a great asset to this group.
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 companies. Branson has consistently demonstrated and instilled this position in his employees. 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 ExxonMobil, Shell, Chevron, British Airways etc. In Virgin Group today, the aspirations of employees of each individual company are properly aligned to those of the company, which give them the latitude and freedom to do a lot of achievable exploits for the company. There are no boards of directors for Virgin Group, and strategic decision making is solely the responsibility of Sir Richard Branson with his 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. This style of leadership, coupled with absence of formal and established business conventions, has seen many undermine the values and business powers of the Virgin Group; with British Airways being a major victim of this 'corporate deceit'. However, Virgin group has constantly proved many wrong of their perception about the group's business performances.
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 one like Virgin Travel. Branson has also consistently disputed such allegations pointing that each of his numerous companies is setup, funded and operated as a standalone company. Whichever is the true position on the group's financial structure, the synergies by way of combined effects created by these companies are the attractive dimensions of interest for this analysis. The bottom line here is that, most of the group's companies are not traded on the floor of stock markets. They 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 Sir Richard 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 other in their line of business. Reports from publicly available sources has it that since the 90s, Branson has adopted a more radical and conservative approach of funding his businesses; which enables Virgin to have little financial output while still having large equity stake when setting up a new business.
Answer to Question-2:
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. However, from a personal perspective after a careful analysis of the Virgin case, I would recommend that for Virgin Group to maintain and enhance its return on investments (ROI); the group 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 explained as follows:
Transport Business: It is indeed my opinion that Virgin divests from transport business (both Air and Rail travel). 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 in this industry has also remained on the negative side of the scale, compared to other 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 some 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 a horrible record of poor performance and financial accounting. This same ailing situation is found in air travel as well. View this strictly from a business perspective, I would recommend Virgin to divest fairly quickly from this industry to avoid total crumble.
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 Sir Richard Branson and the brand name is the financial services industry. To me, the financial sector negates Virgin's culture of entrepreneurship and innovative spirit. 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; which they view as largely lacking in Virgin Group. Though, Branson's ability to extend Virgin brand so widely pointed to his good business acumen and the broad appeal of Virgin's business Values. However, the over extension of this brand to include the volatile financial services sector could spell doom to the image of Branson and the integrity of the brand. Hence, 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.
Beverages & Cosmetics: Many public commentators have criticized over and again that Branson is still too unfocused for his business direction. Many also see the use of Virgin brand to cover such lines of business like 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, the head of brand identity at consultant Landor associates made the following comments of the same issue: "He's still way too unfocused. He should get out of businesses that don't fit the Virgin/Branson personality, such as beverages, cosmetics, certainly financial services, or come up with another brand name for them". With such a collaborative statement with my personal views, I also believe 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.
Apparels: I was personally stunned when I discovered that Sir Richard Branson towed the line of Virgin Bridal on recommendations of his employee, simply because she was dismayed by what was offered by the existing UK bridal shops. This is not in any way a position to discourage Virgin employees from being innovative, but to caution Branson, on the need to think carefully before applying the hard-earned Virgin brand to any kind of business proposal. In a related development, Branson acquired a bankrupted health club chain in South Africa on recommendation of Mr. Mandela; which as of today, the Virgin Active South Africa has no proven track record of contributing immensely to the profit margin of Virgin Group. From business point of view, such acquisitions are reckless investments that would only bring down the public appeal of the Virgin brand. In my view, Branson should divest from such minor 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 from such, and come up with a new name that depict their status.
Answer to Question-3: 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 style of management and business sense. Branson right from startup, with a student magazine has been leading the privately owned and managed Virgin Group of companies. He has instilled his anti-corporation and anti-bureaucratic policies across the Virgin Group; resulting in a plain organizational composition, with transparent and easy communication among management and employees. His personal loyalty and concern for employees and friends result to an organization with great employee focus, and an attractive working environment where the best minds are still willing to work for a modest take-home package.
While majority adore and hail Branson for his style of leadership and business sense-perhaps, for his concern for the common people; this style and strategy has over the years come under heavy scrutiny and criticism from a circle of 'business watch'. Business analysts believe that his separate companies are not performing to expectations, for different reasons and the future for continuity and survival 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.
Organizational Restructuring: For now, the organizational structure of Virgin Group is nothing to see Virgin grow beyond the man 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 calls many of its operations to questioning. As it is today, Branson calls the shot; he determines the business and policy direction. Yes-it is true that Branson has excellent business acumen and charisma, and it has been working for him under this loosely structured group. But, what happens when Branson departs today? How would it be if Branson retires today? We all wish him and his group well, but in case of any eventuality, who would the future look like without Branson? To ensure a proper succession plan, I would expect Branson to restructure the 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.
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 and nothing more. This kind of position is dangerous for the future survival of the group. For now, there is no centralized policy and decision making body. Major of 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 here 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.
Financial Restructuring: As it is today, financial structure and accounting system in Virgin Companies remains fragmented. The financial position of Branson's business empire is one of the most complex and difficult to interpret. No consolidated accounts exist for the group, not even for some holding companies and their subsidiary operating companies. To me, this kind of financial system is rather ridiculous. How on earth would a massive business empire of over two hundred companies operate in this manner? In fact, tracking the financial results of the separate operating 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, and nurtured to stand on its two feet; 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.
Business Consolidation: Ultimately, to ensure that Virgin survives beyond Branson's believes and business values, Virgin group must consolidate its investments. The group cannot continue to operate in a haphazard manner. Virgin should consolidate both its assets and finances and go public. I would also recommend Branson to divest minor businesses and focus on highly profitable industries as ICT, and form a conglomerate. The idea is for the group to fine tune its products and services and retain its brand equity. In doing so, Virgin can also franchise its brand to other high profile businesses of proven track records and integrity, in order 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 spell doom for Virgin Group. He should also be prepared to give up full operating control of his enterprise and be willing to consolidate both assets and finances and go public.
Conclusion: In conclusion and as a final thought however, I personally see Sir Richard Branson is not being an ordinary entrepreneur. He has sets world records in and out of boardrooms. From a humble students' magazine, Branson has indeed taken the name Virgin to an enviable height. Many see his business empire as being reckless, but Sir Richard Branson has consistently proved his business critics that he and his group have staying power, and would continue to dominate global business space!