by Marianne Sweet utrodue' Bre Vien Group is 2 highly diversified organisation which ps range of businesses including mobile telephony, fpacial services, airlines, ralways, music, holidays and Bath and care services, It has grown t9 be one of the gest private UK companies, employing around 50,000 Hpmpein 50 counties anc with revenues in excess of £15bn felsin, 220m). According to the Centre for Brand Anal in 2015 Virgin was the number three best-known and in the UK after British Airways and Aj Virgin's flamboyant founder, Sir Richard Branson, is one Dthe UK's richest and best known entrepreneurs and at the lento! the group's growth, Branson nas a flair for publicity ‘nd over te past 40 years has generated the interest and Iayoreness that have made Virgin such a strong brand. The {Gow believes the Virgin brand is so well respected that it adds value to any business that bears the name, What is difficult to unpick is how much of Virgin's Success is down to Branson's entrepreneurial flair and how much is down to the group's unusual structure and business model. Virgin's strategy and business models are not widely understood and, as a result, investors have J questioned its sustainability should Branson depart. The parent company describes itself as a leading international lawestment group. But does Virgin Group add value to the diverse portfolio of SBUs? Does the portfolio of busi- hesses make strategic sense? Virgin's beginnings and style Branson founded his first business, a student magazine, After cropping out of schoo! at the age of 15. Virgin began 1 1970 when Branson sold music (vinyl records) by mail order. Able to undercut high street retailers, the business pidly, He opened Virgin Record Shop ~ named to feflect his naivety in business ~ in Oxford Street, London 8 year later. Further expansion took the form of backward Integration as he moved into recording and publishing Music: his frst album, Tubular Bells by unknown musician Mike Oldfield in 1973, became a worldwide hit. He then controversially signed the Sex Pistols, a punk rock group Marianne Sweet is Director of Damsetly Communications Limited and lectures on business enterarise and UK, This case example includes some mater: he U ity of Gloucestershire, Virgin - is the brand more than Richard Branson? Richard Branson who became notorious for their tude anti-establishment behaviour and lyrics. Those two events epitomised the busi ness philosophy Branson would use to build a worldwide brand —2 love of risk-taking, irreverence to the ‘old schoo of business’, @ passion for fun and a flair for publicity The common threads uniting this diverse group of companies are the core values of the Virgin brand ~ as described by Virgin Group itself: customer-driven with an ‘emphasis on value for money, quality, fun and innovation. Branson is not risk averse, but a core part of his busi ness philosophy is ‘protect the downside’ ~ that is liiting possible losses before moving forward with a new busi hess venture. It was a lesson his father taught him when ine was 15. His dad agreed to let him drop out of school to start a magazine, but only if he sold £4,000 of advertising to cover printing costs.® 'san approach he repeated in 1984 when launching low-cost transatlantic airline, Virgin Atlantic. To create this new venture, Branson had to batlle to procure landing rights at London's Heathrow Airport. Up to that time, the routes had been dominated by British Airways, which led to.an intense rivairy between the two carriers, involving @ dirty ticks’ campaign by BA and a very bitter and public court case, which Virgin won, adding fuel to the image of Richard Branson as the underdog, average businessman reneurship at al and sources from previous cases on Virgin which Feature i earlier editions of Exploring Strategy, written by Urmila Lawson ané updated by Aidan WicQueen and by John Treciocka mCHAPTER B CORPORATE STRATEGY AND DIVERSIFICATION taking on the oppressors, self-interested ‘big business’ and the traditional establishment; Branson had to make some tough decisions to support the fledging airline. At the time, Virgin Records was 2 profitable business and Virgin decided that selling that business was the safest way to raise funds. ‘f we contin ued running beth companies, then we risked them both At that point, it seemed possible that Virgin Atlantic would have had to close, leaving 2,500 people without jobs and our brand's reputation in tatters. By selling Vir Bin Records, we left both companies in strong positions,’ explained Branson in one of his Virgin blogs.? Virgin Records was sold to EMI for £500m. The Group then decided to go on to the London and NASOQ stock markets, offering 35 per cent ownership. But Branson's business style did not suit the accountability needed for @ chairman of @ public corporation and he returned the eroup to private ownership in 1988, Growth of the Virgin brand The Virgin Group grew rapidly through a series of new start-ups, joint ventures and acquisitions. Branson, a5 chair of Virgin Group, has overseen approximately 500 ‘companies during the parent group's lifetime. The rationale behind many of the initiatives can be hard to.understand and some appear to be pure whim. For Bran. on it all made business sense. "Think of the world as one Country — it's @ lot more fun to do business that way; he ‘commented. Initially the group focused on travel/holidays ‘and music. Since the 1990s, it has expanded into a wide Variety of businesses (Appendix 1, below, lists a selection cof new businesses and key events). Virgin Group has repeat. edly demonstrated that itis skilled at environmental scan ning, Searching for those strategic windows of opportunity = usually created by innovation or changes in legislation ~ and then taking the market advantage. For instance, the development of digital technologies enabled Virgin to grow its retail interests, moving into the Online sales of music, cars, wine, financial products and internet services. Virgin Mobile was the result of deregu- lation ofthe telecommunications sector in the UK and the ‘growing advances in cellular communications. Deregula- tion ofthe railways in the UK led to Virgin launching Virgin Rail first running the passenger train service on the West Coast of England and then, in 2014, in a joint venture with Stagecoach, winning the franchise for the East Coast line, between London and Scotiand. In 2012, Virgin purchased Northern Rock, a medium-sized UK mortgage finance provider, which the Government had temporarily nationalised atthe beginning of the financial crisis in 2007. The purchase marked the Brovith of Virgin as a financial services provider, leading 22 tothe eventia flotation of Virgin Money on the Londog ‘Stock Exchange in 2014. Branson is also known for is taste for adventure ang in 2012 launched Virgin Galactic, intending to provige bassenger service into orbital space. He has often cop” ented that being an adventurer and being an entrenre neu is the same thing ~ and both involve risk. Athouga Virgin Galactic sutfered a huge setback in 2014, when gee Of its test planes crashed, the following year Virgin Getas tic won @ $4.7m contract from NASA to catty more than @ dozen satellites into orbit on board its LauncherOne ‘Again identifying opportunities from deregulation, this time of health services in the UK, Virgin acquired a 78 Per cent stake in Assura Medical, which in 2012 wag rebranded a5 Virgin Care. Since then, Virgin Care has become one of the market leaders in providing health care, for example, in 2012 it signed a £500m five-year Contract to provide community health services for the National Health Service's Surrey region. The Virgin Care website was able to claim that it was providing more than 230 NHS social care services and since 2006 had ‘treated more than four million people. Corporate rationale tn 2016, the Virgin Group described itself as a leading International investment group and one of the world's ‘most recognised and respected brands, While the group does not provide an organisational structure chart, itis Possible to see a discernible grouping of businesses (see Figure 1) within six categories. The operational companies are all separate strategic business units (SBUs), financed ona stand-alone basis, Branson believes that companies should succeed Within the first year or exit the market. In 2013, Virgin Atlantic taunched @ UK domestic airline, Little Red, linking London Heathrow with Edinburgh, Aberdeen and Manchester. After 18 months, it was scrapped, Branson Claimed the venture had benefited consumers but ‘the odds were stacked against us Virgin looks for market opportunities where the Group believes its brand can create competitive advantage, usu ally in markets where existing customers are not receiv ing value for money, such as health clubs, cosmetics, Weddings, drinks, airlines and clothing. The Virgin brand {is perceived as the consumer's champion for value-for- money, good quality, brilliant customer service, innov tion, being anti-establishment afd fun. Virgin is a mix of publicly listed and privately owned companies, renging from start-up ventures through to large corporate businesses. Each is ‘ring-fenced! so that lenders to one company have no rights over the assets of another. Each company may have very different strategicCHAPTER 8 CORPORATE STRATEGY AND DIVERSIFICATION through high financial leverage and the use of equity part- ners. The financial picture is very mixed: in 2014, Vie gin Money reported a £34m statutory profit before tax whereas Virgin Australia reported 2 AUS$356m ($276m, 245m, £193m) net loss after tax for the same year. A ‘spokesman for Virgin Care, in 2015, said the company hhad not yet reached ‘a state of profitability’ and share~ holders were still investing in the growth of the business. Branson remains, as ever, defiant to his critics. Is Vir- gin a strong enough brand to survive if he steps aside? Would the Virgin Group survive? ‘The Virgin brand is not @ product; it's an attitude and a way of life to many’ explained Branson in 2012 in an interview for Economia, ‘That attitude is about giving customers a better time and better value in a fun way that embraces life, But brands, ultimately, belong to the consumer and while a business can influence its brand by what it does and how it behaves, itis what the customer thinks at the end of the day that is the only important thing. 1 houdini. comricintmagestcampanyorertennor toma 426089 po | he-igh-raup-2015 2m-UStiR het arco howling e-et tnding ocyourusiness 4, htessfewwrgn convertrarereut 5. ips sensing cortichard-ransentppactnty eed 6. htossewairgrsconuschard-branson/aai-amtco 7. ipitwinbleomberscomienteteles2015 04-167 braitageesc-by 80. weg seth forabout en 8. hlp/imvn guaran com/busines/201 Slap 6! kanal take-out ates brat 9. ho: fecorsria eae com peoninvembet 2012) Questions 1 What directions of strategic development have been followed by Virgin over the period of the case (use Figure 8.2 as 2 guide)? 2 Which type of corporate parenting role as per Figure 8.5) best describes the Virgin Group? Justify your choice. 3 How does the Virgin Group as a corporate parent add value to its businesses? To what extent ave these parenting skills relevant to the differing business units? 4 What should the future corporate strategy be? (And how essential is Richard Branson himself to that strategy?)VIRGIN ~ 18 THE BRAND MORE THAN RICHARD BRANSON? vendix 1 Strategic developments of the Virgin Group 1970-2016 1970 Branson founds the Virgin business selling records on First Virgin record shop opened 1977 Virgin cord label is launched 1984 Virgin Attic, a long-haul arine is founded j 1985) Virgin Holidays is founded 1986 Virgin Group PLC formed 1987 Virgin Records America is launched 1988-90 Virgin Megastores are opened in prime city locations in Europe, USA and Japan Branson takes Virgin Group PLC private for £248 m Virgin Pubishing formes through merging Virgin Books and WH Allen PLC Virgin Games formed Vigin Records sold for £610 m Virgin Games floates as Virgin Interactive Entertainment PLC Virgin Radio commences broadcasting 1994 Virgin Retail acquires Our Price chain of shops 1996 Virgin Net an internet service provider is launched 1997 Virgin Train is founded to run West Coast ral franchise in the UK Virgin Cosmetics launches wih four flagship stores Virgin Radio sold for £87m 1999 Virgin Mobile is launched in joint venture with Deutsche Telekom Virgin Health starts a network of health clubs Virgin Ginemas is sold for £215 m 449 per cent af Viegin Atlantic sold to Singapore Airlines for $500 m 2000 Virgin Mabile launches US wireless phone service IV with Sprint) Virgin Blue launched (low-cost rine ~ Australia) Virgin Cars launched to sel online 2001 150 per cent of Virgin Blue sold 2008 Virgin Digital launched to sell online music Virgin Unite, a charitable foundation, launches 2006 Virgin Mega is launched in partnership with NTLTelewest Virgin Fue! launched Virgin Cars closed 2007 Last of Vigin Megastore (125) sold Virgin America (aitine) launched Virgin Earth Challenge and World Citizen initiatives are launches 2009 Virgin Green Fund launched 2010 Virgin Hotels launches Virgin Racing launched (Formula One) Virgin Gaming launches ] Virgin Produced launched (tim and TV production company) Virgin Money aequires Church House Trust to acquire UK banking licence Virgin Group acquires majority stake in Assura Medical 2011 Virgin Cosmetics anc Virgin Money (USA) are closed Virgin Active acquires Esporta for £80 m Virgin Unite (charitable foundation) launches Branson's Centre for Entrepreneurship 2012 Assura Medical rebrands as Vigin Care Virgin Care signs £500m contract to run Surrey Care Services, part of NHS Surrey 2013 Virgin Money acquires Northem Rock for about £1bn Virgin Media sold to Liberty Global Pore Virgin Money flaated on Stock Exchange Virgin and Stagecoach joint venture wins East Coast mainland ral franchise Virgin Golactic spaceship crashes Virgin Active sells 80% ofits stake Virgin Galactic wins $4.7m NASA contract Virgin Amecica is sold to Alaska Air for £1.8bn Branson unveils ign Galactic's new space tourism rocket plane 2015 2016