Longitudinal Strategic Development Study Virgin - Essay Example

? Longitudinal Strategic Development Study - Virgin Table of Contents Introduction 3 2. Strategic development history 4 3. Current strategic situation 7 3.1 Strategic micro environment 7 3.2 Organizational capabilities 9 3.3 Benefits from organization’s past strategic decisions 10 4. Strategic direction for the future 10 4.1 Choices available to the company in the future 10 4.2 Recommendations 12 5. Conclusion 13 References Appendix 1. Introduction The position of firms in the global market is highly depended on their ability to align their strategies with the market’s trends and needs setting goals that are feasible taking into consideration their capabilities and resources but also the conditions in the internal and the external organizational environment. In any case, it has been proved that firms, which promote innovation, are most likely to achieve their targets, either in the short or the long term. Virgin Group is an indicative example of this phenomenon. The Group operates in many different sectors responding to various consumer needs; the leadership style of the founder of the firm, sir Richard Branson has been considered as the key reason of the Group’s success. Current paper focuses on the strategic characteristics and growth of Virgin Group. Reference is made to the Group’s strategic development history, its current strategic characteristics and its strategic prospects in the future. The research on the Group’s past and current strategic choices has proved that there are two key criteria mostly influence the firm’s strategic framework: innovation and market needs. The Group’s leader, sir Richard Branson, has highly emphasized on the importance of innovation for the Group’s growth; his view has been verified in practice, as reflected in the performance of one of the Group’s firms for the last 2 years (Figure 1, Appendix). However, it is clear that in the future the stabilization of the organizational performance will be depended on the ability of the firm to transform its strategies following the continuous change in the consumer preferences and the market characteristics. In other words, in the future the success of the firm will not be exclusively depended on innovation but also on flexibility. 2. Strategic development history In order to understand the strategic development history of Virgin, it would be necessary to refer to the context of strategy, as a key criterion for the success of business operations. In accordance with Waters (2006) the term corporate strategy ‘contains all the strategic decisions that affect the whole diversified corporation’ (Waters 2006, p.18). In the above context, corporate strategy refers to a series of organizational problems, such as the following ones: a) which part/ sector of the organization is of more importance for the organization’s growth, b) at what level integration should become one of the organization’s activities, c) how the growth of the organization can be secured – especially in the long term, d) in which way the organization’s mission could be achieved, e) how the strategies of the organization’s different sectors can be combined so that organizational culture is secured, and so on (Waters 2006). In other words, the corporate strategic history shows the methods used by the organization for promoting its culture and achieving its goals; these methods can be differentiated across organizations – in accordance with the conditions in the internal and external environment but also the aims and the values of each organization. It is clear that the strategic development history of successful corporations, like Virgin, can be identified in the practices these firms used not just for entering the global market but also for securing a long term growth – as proved through the organization’s current performance, analyzed in the section that follows. The strategy of Virgin has been considered as unique – mostly in terms of its structure and operational processes. As already explained above, the group includes a series of companies of different sectors – for example, airlines, music, trains and so on. All these companies have certain common characteristics: ‘they are likely to be start-up companies based on the expertise of Sir Richard Branson, they sell to final consumers and they strongly promote innovation’ (Furrer 2010, p.69). As a result of its advantages, the Virgin Group has managed to continuously strengthen its position towards its competitors – despite the financial crisis and the high competition in the global market. The key characteristic of the firm’s strategic development has been the following one: the continuous expansion of the firm’s in new sectors has been supported by innovative techniques; in fact, the above practice has been in progress from 1970, when the firm first established, up today (Furrer 2010). The success of the above strategy is reflected in the following fact: the firm managed to establish approximately ‘200 branded companies in 29 countries’ (Furrer 2010, p.69), operating in a variety of sectors, including ‘travel, mobile services, media and transportation’ (Furrer 2010, p.69). Under these terms, another characteristic of the firm’s strategy could be the following one: ‘the extremely unrelated portfolio’ (Furrer 2010, p.69). This problem had to be taken into consideration when designing the firm’s operational practices in each sector; however, for sir Richard Branson the above problem is not of particular importance – emphasizing more on long term growth rather on the need for extra operational strategies – in order to respond to the demands of each sector. Another important characteristic of Virgin’s strategic development history is the following one: the establishment of each new venture is carefully designed and monitored by experienced and appropriately skilled members of the staff. In any case, effort is made so that the employees working in the new venture are aware of Virgin’s culture and strategic priorities, meaning the principles on which Virgin’s operations are based but also the values that characterize Virgin’s daily plan and activities – no matter the sector in which each venture operates. At the same time, emphasis is given on the experience of staff, but also on their background and their perceptions regarding the market’s and the organization’s ethics (Furrer 2010). The above practice may be criticized as reflecting a high involvement of the firm’s strategic management group on daily operations, at the level that the ability of employees to take initiatives is limited. On the other hand, the above practice guarantees that the culture of the organization will not be diminished; in fact, because of the above practice, the management style of Virgin has become popular ensuring the continuation of organizational values without rejecting innovation (Furrer 2010). Also, through the above practice, the following target has been achieved: the network of the organization’s friends and supporters has been significantly increased, supporting organizational initiatives and plans; the above fact had a key role in the organization’s current success as a key competitor in the global market – as explained in the next section. The current growth of the organization is also related to the following fact: the firm has been kept private, despite the difficulties and the market turbulences. At this point, the following issues need to be explained: In 1985, under the pressures of the global market, the firm had to increase its cash stock – in order to respond to its financial obligations. Branson decided to support the transformation of the firm to a public corporation; indeed, for about 2 years, the firm was listed in ‘the London and, later, the NASDAQ stock market’ (Grant et al. 2003, p.289). After becoming a public corporation, the firm’s cash potentials were increased; however, the ability of Branson to control the key strategic decisions of the organization were limited. It was clear that the culture of Virgin, referring to the firm’s values and ethics, was threatened. Branson decided to gather a sum for supporting the exit of the organization from the above stock markets. Indeed, in 1987 Branson managed to gather the amount necessary for initiating the transformation of the firm to a private one, a process which was completed by the end of 1987 (Grant et al. 2003). The completion of the above process, re-appearance of the firm as a private company, required an amount of ?200 million, but it was successful; for the future, the organization’s operations could be supported by the funds of external shareholders (Grant et al. 2003, p.290). 3. Current strategic situation 3.1 Strategic micro environment In the context of strategic planning, the elements of an organization’s micro environment are the following: a) shareholders, b) employees, c) customers, d) suppliers, e) media and f) competitors. In the case of Virgin, the above elements could be analyzed taking into consideration the current market trends and challenges – referring mostly to the recent financial crisis but also to the increase of competition, as enforced by the expansion of globalization: a) shareholders: the firm’s shareholders are quite important for the success of organizational plans; Virgin is a private company, meaning that it is based on private funds for completing its plans. However, the involvement of shareholders in the organization’s key strategic decisions is not decisive, at the level that the view of Richard Branson on the organization’s strategic planning is of critical importance, a fact which is among the key strategic characteristics of Virgin Group, b) employees: in Virgin, the achievement of organizational targets is ensured by hiring only appropriately skilled staff; at the next level, emphasis is given on candidates who can best understand the organization’s culture and values, in the terms that they are willing to support the firm’s strategic decisions, c) customers; for Virgin customers have a critical importance for the success of business operations; in fact, the firm’s key strategic plans are based on current market trends – as reflecting the customer preferences in the global market. At this point, the following issue should be highlighted: Virgin is a global corporation with a strong brand name; the firm’s customers are likely to come back and buy the firm’s products/ services mostly because of the quality that these products offer; d) suppliers; as explained above, Virgin operates in many different sectors; this means that the chain of its suppliers is extremely expanded. For this reason, the control on the prices of suppliers needs to be continuous – ensuring that a balance is kept between the expenses and profits; as of the relationship between the firm and its suppliers, this can be characterized as quite effective, as reflected in the significant response of customers to the firm’s services, e) media: the expansion of Virgin in many markets is significant at the following level: as noted above, media, as a sector, is incorporated in the Group’s activities; from this point of view, the image of the organization, as promoted by the media, is quite satisfactory, enhancing the growth of the organization worldwide, f) competitors; Virgin Group is a multinational corporation with a key position in the global market; the firm’s main competitors are the following: a) the Coca-Cola company, b) the Walt-Disney company and c) the Marriott International Inc. (Hoover, 2011). As already noted, the firm operates in many different sectors, so its competitiveness in the global market is significant – meaning that it is quite difficult for the firm to be threatened by its rivals since it covers a wide range of services, having the potential to cover the temporary losses of each one of its brands using the profits of the other brands. The strategic micro environment of Virgin is supportive to the organization’s initiatives – as proved through the performance of the one of the Group’s firms in the last 2 years (see Figure 1, Appendix). It should be noted that the cooperation among the organization’s stakeholders is ensured because of the following fact: in Virgin, there is a central corporate strategy – referring to Virgin Group; at the next level, ‘each brand of the organization – for instance, Virgin trains, Virgin Media and so on, has its own strategy’ (Waters 2006, p.18). In any case, the strategy of the firm’s Strategic Business Units (as indicatively described above) can be differentiated from the strategy of the Group. 3.2 Organizational capabilities Due to its structure, several brands within different sectors worldwide, the firm’s ability to reach the customers with different characteristics, background and preferences is unique. Indeed, in order to respond to the market needs, the company emphasizes on its marketing strategy using innovation and research as key tools for expanding its customer base. In 2010, Virgin Media has decided to alternate its marketing campaigns in order to reach more consumers (UK Marketing News 2010). The changes required the use of Virgin broadband services, appropriately customized, for promoting the Group’s services (UK marketing news, Broadband 2010). Up to now, the ability of the organization to review and improve its marketing approaches has been proved significant, playing a key role in the stabilization of the organization’s performance – despite the global crisis (Marketing Minds 2010). In this context, it could be supported that the rapid transformation of organizational practices for improving the firm’s image in the market is among the organization’s key capabilities. For most people, the success of the firm in the global market and its competitiveness towards its rivals has been related to its leader, sir Richard Branson. The continuous development of the firm’s operational strategies using innovation – an element of Branson’s strategy – could be characterized as the major capability of the organization. It is this capability that allowed the expansion of the organization in the global market. 3.3 Benefits from organization’s past strategic decisions The organization’s strategic decisions in the past have resulted to a series of important benefits: a) the brand name of the organization has been made known worldwide, as related to quality, b) because of the emphasis on innovation – as developed in the past, the organization has been made popular for its innovative services, a fact that offers to the firm an advantage towards its rivals, c) the position of the organization in the global market has been standardized in the following sense: even in case of strong market turbulences, external (independent) investors would be willing to support the firm’s operations, taking into consideration its performance up to now, d) due to its past strategic decisions, the firm’s prospects for achieving a further growth are increased under the terms that certain changes are made on the firm’s existing strategies, as suggested in the section that follows and e) the past strategic decisions has offered to the firm the following advantage: the key potentials of the organization – referring to the global market – have been explored; in this way, it is easier to estimate the prospects of the organization in the future – having identified past strategies and their performance/ failures it is easier to propose effective strategic decisions, or at least strategic decisions of low risk. 4. Strategic direction for the future 4.1 Choices available to the company in the future The review of the firm’s strategic development history and its current strategic framework revealed the following fact: the principles of strategic planning in Virgin are standardized – meaning that they are likely to remain unchanged through the decades. On the other hand, it is clear that certain initiatives are undertaken only at the level that they are necessary and feasible – in accordance with the firm’s current market position. In any case, the role of sir Richard Branson in the development of organization’s plans is critical at the level that no important strategic plan can be used across Virgin – its brands and ventures globally – unless it is carefully reviewed by the firm’s leader (Dempsey 2006); reference is made specifically to critical organizational decisions on which all the firm’s corporations are based and not to business decisions of minus importance – for instance the decision on buying a particular product in the local market. Despite the fact that the above process has been proved particularly successful up to now, it would be reviewed and updated at the level that flexibility in regard to the firm’s decision-making process could be established. Indeed, instead of accepting the unique power of Branson for defining the firm’s culture it would be preferable to use the view of Branson for developing the firm’s current practices – without having to follow the exact guidelines of Branson for addressing each organizational problem. In this way, the following target will be achieved: the contribution of Branson in the development of key strategic decisions will be partially alternated for increasing the independency of the firm in terms of its cultural framework – in the long term the strong dependency of the organization on a particular person would be proved a disadvantage, for instance, if Branson would choose to leave his current position due to personal reasons. The above initiative would help to increase the response of the organization to strategic choices available in the global market, such as: the merger with key competitors, the acquisition of organizations that have a significant position in their market, the use of strategic schemes, such as ventures, for entering new markets, the review of the firm’s existing sources and the change of the organization’s structure – for instance, the increase of brands for increasing the competitiveness of the firm towards its rivals. 4.2 Recommendations As explained above, the current strategic framework of Virgin is carefully structured and monitored – ensuring that the organizational culture is secured. However, the expansion of the organization’s activities in new sectors and markets is continuous. It is always possible for the costs to be increased – above the schedule – leading to the decrease of organizational performance. In the future, the establishment of new brands should be more carefully reviewed taking into consideration the continuous changes in the global financial markets; the current instability in the global market is a problem that is expected to last for a while. For this reason, at least for the next 2-3 years, the organization’s strategic planners should avoid expanding the firm’s activities. They should rather focus on minimizing the organization’s risks (Ireland et al. 2011). Another element of the organization’s future strategy should be the following one: the practice of trying new projects even if the risk involved is high – a practice used extensively by Branson (Thompson et al. 2010) – should be terminated. The above practice offers the advantage of reaching new markets before the rivals; however, in current market conditions, risk is quite dangerous being able to result to severe organizational failures. Of course, the fact that Virgin Group provides ‘an umbrella’ to its brands guarantees the limitation of risk for these brands’ activities (Aaker 2004). At the same time, the Group’s branding strategy – characterized as ‘brand mono strategy or brand endorsement strategy’ (Hansen et al. 2003, p.116) - should be possibly reviewed; offering a secure environment for its brands can be considered as an advantage for the organization. However, in the long term, this practice could lead to the isolation of the organization within the global market, meaning the lack of strategic alliances, a fact that could be negatively perceived by the global competitors (Hansen et al. 2003). In accordance with Grant (2010) the brand strategy of Virgin Group offers to its brands an advantage, being characterized as parenting advantage (Grant 2010, p.412) which is valuable for securing the organization’s performance but it could, sometimes, result to delays in the completion of organization’s projects – as each project needs to be reviewed and accepted (or else verified) by the organization’s strategic planners. 5. Conclusion The performance of strategic choices of firms in different industrial sectors is not guaranteed; in fact, it is possible that firms with significant history in their market to face severe market pressures, a fact that usually leads to long – term financial losses. Of course, there are schemes and practices that can ensure the increase of organizational profits – even in periods of strong market turbulences. Branding is a strategic choice quite common in companies operating globally. This strategy can help the organization to increase its advantages towards its rivals – even if the success of the relevant efforts are not guaranteed. In the case of Virgin this strategy has been proved quite effective – as reflected in the organization’s financial results (Figure 1, Appendix) – referring indicatively to one of the Group’s firms, the Virgin Media. Being combined with other strategic decisions, branding can lead to the radical growth of the organization, under the terms that it is carefully monitored by the organization’s strategic planners. Virgin has a significant advantage towards the other firms operating globally: the unique experience and skills of its leader, sir Richard Branson. However, in the future, the organization’s strategic processes should become more independent and flexible, allowing the quick adaptation of the organization to the market needs and trends. References Aaker, D. (2004) Brand portfolio strategy: creating relevance, differentiation, energy, leverage, and clarity. New York: Simon and Schuster Broadband (2010) Virgin Media considers new broadband marketing strategy. Online, available from Dempsey, M. (2006) Branson's grand power strategy. BBC News. Online, available from Finkelstein, S., Harvey, C., Lawton, T. (2007) Breakout strategy: meeting the challenge of double-digit growth. New York: McGraw-Hill Professional Furrer, O. (2010) Corporate Level Strategy: Theory and Applications. Oxon: Taylor & Francis Grant, R. (2010) Contemporary Strategy Analysis and Cases: Text and Cases. Hoboken: John Wiley and Sons Grant, R., Neupert, K. (2003) Cases in contemporary strategy analysis. Oxford: Wiley-Blackwell Hansen, F., Christensen, L. (2003) Branding and advertising. Copenhagen: Copenhagen Business School Press DK Hoovers (2011) Virgin Group. Online, available from < http://www.hoovers.com/company/Virgin_Group_Ltd/crjkji-1.html> Ireland, D., Hitt, M., Hoskisson, R. (2011) Understanding Business Strategy: Concepts and Cases. Belmont: Cengage Learning Marketing Minds (2010) The Virgin Brand. Online, available from Sgentrepreneurs (2007) Virgin Corporate Strategy. Online, available from Thompson, J., Martin, F. (2010) Strategic Management 6th. Belmont: Cengage Learning EMEA UK Marketing News (2010) Virgin to review its marketing strategy. Online, available from Virgin Atlantic (2011) Strategy. Online, available from Waters, D. (2006) Operations strategy. Belmont: Cengage Learning EMEA Appendix Figure 1 – Statement of operations for Virgin Media (Source: Virgin Media Annual Report 2010) Read More