Download Richard Branson and the Virgin Group of Companies in 2007 analysis.pdf PDF

TitleRichard Branson and the Virgin Group of Companies in 2007 analysis.pdf
TagsBrand Tech Start Ups Venture Capital Strategic Management
File Size317.8 KB
Total Pages7
Document Text Contents
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Virgin Key Issues
First, the financial structure of the company makes it difficult to evaluate the overall

health of the company. There seems to be no internal accounting or record keeping on how each

company is performing. The other concern is Virgin’s startup companies are financed through

internal equity and external financing. If a startup fails, it will weaken the financial health of the

company. Historically, Virgin has in the past, sold profitable and growing companies in order to

finance new ones (p.810).

Second, the over diversification of company put Virgin at a greater risk for failure. Virgin

has 210+ companies that range from airline to bridal gowns to financial services which create

many organizational complexities (p.414). The unrelated diversification can cause a lack of focus

or shift focus away from the organization’s core competencies, which in the long run can affect

the company’s profitability. Also, over diversification tends to result in the company to “cross-

subsidize poorly performing [companies]” and to reluctantly transfer cash flow to better

performing companies (p.413).

Although Virgin is able to create value from diversification by “exploiting linkages

between the different businesses” such as the brand and Branson’s leadership (p.409; p.416);

over diversification into businesses that do not align with their core competencies can create

inefficiencies and profitability concerns. The strategic linkage with the use of the brand in all

these various businesses can potentially dilute the brand, especially if that business fails.

Lastly, the decentralized structure is a potential source of weakness to Virgin.

Decentralized structure does create many positives as mentioned in the above “key success

factors”, but it also has negative consequences. The current structure is a contributor to the

organization’s successes, but if the external environment changes, then the structure become

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inefficient. For example, in the event that England’s tax law changes, Virgin needs to reorganize

in order to take advantage of any changes. The current structure creates coordination and agency

problem concerns since each business is independent and each are pursuing its own individual

goals. Finally, the other concern as it relates to organization structure is the role Richard Branson

plays. Currently, he is the face of Virgin and controls the entire business. If anything negative

occurs as a result of his actions or he passes away, the company and the brand will suffer.

Recommendations


1) Divest and focus on areas of success through consolidation

In order to maintain the integrity of the brand image, Virgin keeps businesses around that

are not profitable. The practice of subsidizing failing ventures with the cash flow of healthy ones

needs to change to provide overall financial health for the organization and for the brand. Virgin

should divest businesses that are not profitable or not aligned with their core competencies.

Virgin’s focus should be concentrating on what they do well such as the area of service delivery

type of businesses (airlines, rail, mobile/wireless communication, etc).

Divesting poor performing or unprofitable businesses will reduce future risk of damaging

the Virgin brand. It will also free up cash flow to reinvest in businesses that are successful and

expand into other markets (internationally). If Virgin consolidated successful companies into one

group, they can refocus developing the product or service line in each and expanding their

offerings into new markets. The focus to build on the successful companies can strengthen the

financial position of the organization and increase the brand equity.

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If Virgin wants to continue to diversify, they should focus on diversification within

related businesses (p.415) that are similar in industries, markets or technologies (p.416). For

example, do not make the leap from being successful in music publishing (successful business

that Virgin sold) to now wanting to make a “coke” like beverage (which Virgin was

unprofitable).

2) Create “contingency approaches” to organizational design

Virgin needs to implement some type of formal structure or plan of succession in the

event that the competitive environment changes, strategic direction changes or if Richard

Branson is no longer in existence. Currently the control of the organization lies within one single

person, Branson, who is also closely tied to the brand image. If Richard Branson passes away,

the brand can fall with its owner. If Branson’s public image is tarnished, the Virgin brand image

will also be tarnished. As a result, it is best that Virgin reduces the interdependence relationship

between Branson and the brand.

One suggestion is that Virgin can create a Board of Directors that can counterbalance

Branson’s decision making. At times, Branson’s decisions are made on personal belief and sense

of fun rather than on “commercial logic” (p.813). A Board of Directors can create synergy in

decision making by pooling all the knowledge, talent, and expertise. This will also create a check

and balance so that financial decisions are made with strategic intent. Furthermore, centralized

and balanced decisions can slowly separate Branson from the brand, making the continued

success of the brand less dependent on Branson’s image and more on sound business decisions.

Another suggestion is to also have a succession plan in place in the event Branson can no

longer or is unable to run the business. This succession training and planning can groom the next

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