The Virgin Group is a multi national corporation with a hugely diversified business portfolio. This essay examines how the Virgin Groups corporate strategy has allowed it to sustain competitive advantage. The first area that is covered is the composition of Virgins portfolio, namely what businesses Virgin is in and what is the logic of their portfolio. Within the composition section it puts forward two models that help to show why Virgin has chosen particular avenues for achieving growth and sustaining competitive advantage. The Core Competence Theory and Parenting Concept are then reviewed critically in regard to Virgin. Porters three tests are then related to the Virgin Group. Next the co-ordination of Virgins portfolio is addressed, how Virgin has managed its portfolio in its quest for growth and a sustained competitive advantage. Within the composition section of the essay is the issue of control versus the co-operation of Virgin and its business units. It then handles the four concepts of corporate strategy and how Virgin can and has used them to add value to its business units. The link between Virgins Corporate and Marketing strategy is then discussed before the other side of the argument is considered, looking at how Virgins corporate strategy destroyed rather than added value. Finally having synthesised the various diverse elements the essay concludes by using the knowledge gained to raise questions for Virgin about their future corporate strategy.
The Virgin Group itself does not compete, it is only its Strategic Business Units that do. ‘Successful corporate strategy must grow out of and reinforce competitive strategy.’ (Porter, 1988) It is Virgins strategic business units and not the group as a whole that attempt to create and sustain competitive advantage.
Diversification can come in two forms, namely related and un-related. ‘The underlying assumption has been that portfolios of related businesses perform better than portfolios of unrelated ones.’ (Campbell et al, 1995) Virgin constantly diversifies into un-related areas and this is where it goes against the rule. As figure 7.4 shows typically related diversified companies perform better than companies who are un-diversified or diversified in an unrelated manor. Related diversification example virgin atlantic to virgin blue. By transferring some of the competences that virgin atlantic had in relation to air travel, virgin blue could re-use much of the knowledge that virgin atlantic had accumulated and also take advantage of economies of scope. An example of Virgin diversifying into an un-related area is its move into Virgin Mobile.
The Ansoff Matrix , shown above, would be a good framework to aid Virgin in deciding upon their growth strategy in the initial stages of planning. If diversification (though riskier than product or market development) is implemented effectively it can provide significant improvements in profitability for the organisation, in this case Virgin. One example of Virgin bringing a new product to a new market is its diversification into the air travel industry in 1984 with Virgin Atlantic at a time when they were more renowned for music with Virgin Records. (Virgin Atlantic, 2009) From a critical perspective it has to be noted that alone the Ansoff Matrix is only the start of the strategic plan for organisations and for it to be fully useful it has to be combined with other models.
The Growth share matrix encouraged companies to fill their portfolios with a variety of types of business units described in their model.
Core competence concept developed by Hamel and Prahland, 1990 proposes that organisations should build their portfolios of business units around a set of shared competences. In the case of Virgin their core competences are their top management teams’ skill at spotting potential opportunities for diversification along with the Virgin Brand itself and its excellent marketing abilities. This concept is effective but it has its weaknesses. Organisations have found it hard to define their core competences because they lack the tools required to do so. Hamel and Prahland propose three tests in order for an organisation to identify core competences. Firstly a core competence should provide access to a wide variety of markets. Secondly a core competence should make a significant contribution to the perceived customer benefits of the end product and finally they should be difficult for customers to imitate(decrease last three points due to plagerism)……..However from a critical perspective the degree to which this concept applies to Virgin is a difficult question to answer. Virgin itself has been described as a Branded Venture Capital firm(evidence) While the Virgin Group has its competences (what it is good at) each of the business units will have their own set of core competences that can be readily transferred to existing or new business units. As Virgins business units are run independently as individual companies there is a limited amount of information sharing between each individual unit. Hamel and Prahland find it ironic that the business unit managers compete for corporate cash but never for the people who embody the core competences.(plagerism alert) Virgin again seems to go against this theory. There is little capital outlay from the Virgin headquarters and each of the individual units actually borrow money from each other at high levels of interest. For example virgin megastores(evidence) The core competence theory gives a better understanding of how Virgin sustains competitive advantage. It doesn’t explain however how alot of Virgins business units share few or no technological or operating competences with the Virgin Group.
While the core competence concept has its shortcomings the Parenting Concept (Campbell et al) takes the theory onto the next level. It explains how organisations such as Virgin can sustain competitive advantage with a diversified portfolio of business units. The question that most corporate level managers find it hard to answer is whether there is fit between a parent (Virgin) and its business units. The first part of assessing fit is the identification of critical success factors. Certain activities in a business create competitive advantage
Again this comes back to the ability of Virgins top people at headquarters to be able to spot the opportunities in businesses where Virgins competences and resources can add value rather than destroy it.
This is where porters threes tests come into play. The attractiveness test, cost of entry test and the better off test. These tests form the building bricks for any successful corporate strategy, their elusive nature is the reason why most diversification fails. It is in these decisions where Virgins top managers excel in picking (more often than not) businesses where Virgin can add value and allow the business unit to sustain competitive advantage.
Finally in regard to the composition of the Virgin Group it is important to remember that a larger organisation does not necessarily mean that value is created.
When co-ordinating its business units the Virgin Group needs to strike a balance of control and co-operation. Virgin controls its business units to a lesser extent than they co-operate with their business units. As each individual unit will be more honed to their markets needs than the Virgin personel at headquarters they are empowered to run their companies with little interference from the corporate centre. This allows the business unit managers to act creatively and this helps to achieve growth. The main area where Virgin maintains control are areas that are more important to the overall success of the Group and that is its brand image.
The essential aspect for Virgin to maintain is the preservation of the Virgin brand itself. One way that they use this to reinforce their competitive advantage is through the use of its online Virgin portal. This is where the customers can access all parts of the Virgin Group. A good experience with one business unit will lead to repeat business throughout the Virgin Group a bad experience would cause potential customers to be put off all parts of the Virgin portfolio. Virgin aim for the public to become Virgin customers and use them for almost all of their needs. A single mistake could tarnish the Virgin Brand so it is essential for the entire portfolio of companies to deliver what the brand represents, namely value pricing, quality and above all fun. (marketing minds)
It is the de-centralised style of structuring the Virgin Group as a whole that has allowed them to create competitive advantage. It has allowed the individual business units to enjoy the entrepreneurial benefits of smaller organisations. Some of the areas where a diversified company can destroy value by adding management costs, adding bureaucratic complexity Virgin reduces by employing such a structure as they do. This is backed up by (Collis et al) in the sense that each corporate function should be reviewed to see if it can add value, this would prevent unnecessary bureaucratic interference, value destruction can lead to friction between Virgin and its business units. These cost saving steps that Virgin’s structure enforces help to create competitive advantage for Virgin, an advantage that a more centralised conglomerate could not achieve. Choosing the right kind of people in the beginning is the critical success factor when empowering the business unit managers to such an extent.
The four corporate concepts identified by (Porter )
The Portfolio managers main role is to seek out and buy undervalued businesses and to try and improve them. In the case of Virgin
synergy managers while this parenting approach doesn’t fit with the Virgin group as well as the portfolio managers role it does have several links with Virgins strategy.
and parental developers.
Combining corporate and marketing strategy is essential in Virgins quest for sustained competitive advantage. “By standardizing marketing strategy managers seek to achieve economies of scale and brand image consistency” (white griffin) Virgin uses this to help them sustain competitive advantage by using the impact of their brand globally to take advantage of economies of scale and therefore lower costs. The Virgin portal ,as has already been mentioned, also helps to promote the Virgin brands image globally taking advantage of massive economies of scale. They tailor their marketing to specific target markets and then service them accordingly. An example of this is the way Virgin Mobile Canada targets its customers by sending specific messages to their customers to increase mobile usage. (Verisign) The important thing to remember here is that Virgin has only got to market one brand not several and that their localised marketing strategy allows them to reach their customers on a more personal level. The Virgin Brand and the impact that Richard Branson has globally cannot easily be imitated by its competitors and so while the Virgin brand sustains its excellent image it can sustain competitive advantage in all its business areas.
Despite its undoubted success Virgins corporate strategy of growth through predominantly un-related diversification has failed on numerous occasions. Two examples of this are Virgin Vodka and Virgin Cosmetics. While Virgin seems to have succeeded where the majority of companies fail (managing an un-related portfolio) it seems that there is one key reason for their success, namely the Virgin brand. The importance Virgin puts upon protecting its brand image is so high that when Virgin Megastores was sold to Zavvi they were paid fifty million pounds to re-brand the stores under Zavvis name in order to protect the Virgin brand. (Robertson, 2009) This again links back to the earlier point that one mistake could tarnish the Virgin name and take away Virgins main way of adding value to its existing and future business units.
In conclusion it is clear that Virgin has enjoyed success in its growth strategy. In many ways it has proved a number of key theories and models to be wrong? There are examples however where just putting the Virgin brand to a business unit has not been enough to make it succeed. In the future Virgin needs to think about opportunities that reflect what the brand means and in industries where branding is the most important aspect.
Cite This Work
To export a reference to this article please select a referencing style below: