Corporate and Global Strategy Virgin Group - Essay Example

? Corporate and Global Strategy – Virgin Group Executive Summary Branson, the leader of Virgin is often characterized as a charismatic leader. However, in many cases, the risk involved in the decisions of Branson is high. Can the expected benefit justify the level of the risk taken, especially if taking into consideration the current market turbulences? The answer to the above question should be positive. Risk is a key part of business activities. In fact, all parts of a firm’s operations are related to risk and it is for this reason that techniques and theories have been developed in the literature for managing risk. Moreover, the success of business decisions cannot be guaranteed. There are always chances for failures, even severe. For this reason, the failures in leader’s decisions should not be negatively criticized in case that they do not perform well when they are first applied. The leadership style of Branson is reviewed in this paper. The effects of this leadership style on the firm’s operations and success are discussed. Table of contents Executive Summary 2 1. Introduction 4 2. Virgin Group – Presentation and analysis of corporate strategy/ leadership 2.1 Introduction 4 2.2 Corporate strategy – Leadership 6 2.3 Business Unit 7 2.4 External Analysis 7 2.5 Internal Analysis 10 2.6 Evaluation of the strategy 11 3.Conclusions and recommendations 13 References 16 Appendix 17 1. Introduction The development of business activities is related to specific criteria: a) the business internal and external environment, b) the strength of the organization in terms of the funds available for the realization of the business projects and c) the Leadership style. Current paper focuses on the importance of leadership as a key element of the organizational strategy. Reference is made to a particular company: the Virgin Group. The above organization is based in London and it is characterized as an example of the potential effects of leadership on business success; indeed, the style of its leader, Richard Branson, has been considered as the key reason for the growth of the organization worldwide. Currently, the group operates in many different industries. Branson decides on all key issues of the organization. This means that the evaluation of the leadership style of Branson and its effects on the organization’s success would require referring to the performance of the entire group, i.e. without limiting the research on a particular business unit. The financial results of the organization have been studied along with the literature published in this subject in order to identify the key reasons for the organization’s success, especially in regard to its leadership style. 2. Virgin – Presentation and analysis of corporate and global strategy 2.1 Introduction Virgin is quite successful organization. The performance of the organization in the last decade has been proved to be impressive – taking into consideration the performance of other multinationals. The firm’s employees have been estimated to ‘50,000 employees in 30 countries’ (Virgin, About us 2012). Their role in the development of the organization has been significant. However, the success of the organization has been related mostly to its leader, Sir Richard Branson. Initially, the practices of Branson as a leader used to face the opposition and the concerns of shareholders. However, through the years, it was made clear that the decisions of Branson in regard to various organizational activities were well planned, even if they were developed in quite short time. The leadership style of Branson has been studied by researchers - as an example of charismatic leadership. Of course, failures in the firm’s operations have not been avoided. However, in any case, major damages have been controlled while the profits resulted have been significant as it is proved by the continuous expansion of the organization in new markets and new industries. Despite the capabilities of Richard Branson as a leader, turbulences in the performance of Virgin have not been avoided. In order to understand these turbulences it would be necessary to refer, indicatively, to the performance of certain of the group’s units. The unit of the organization in America reported for 2010 a significant loss; an opening loss of $29.5 milion was reported in the beginning of 2011 (Virgin America 2011). In the first quarter of 2011, the firm’s profits were increased, reaching the $201 million, which was an increase of 37% compared to the same period of 2010 (Virgin America 2011). The increase in the profitability of Virgin America in 2011 compared to 2010 is made clear through the firm’s financial results, Figure 1 (Appendix). On the other hand, Virgin media in UK has been characterized by turbulences in each performance, as indicated in Figure 2 (Appendix) where the share price of the specific business unit from March 2011 up today is presented. It is clear that the leadership style of Richard Branson should be reviewed; weaknesses should be identified and appropriately addressed. 2.2 Corporate strategy - Leadership The development of strategic decisions is the key responsibility of leaders in modern organizations (Mills et al 2006). However, the challenges that each leader has to face may be differentiated in accordance with the conditions in the internal and external organizational environment (Hellriegel and Slocum 2009). In any case, the decisions of each leader are considered as the criteria for evaluating his potentials for supporting the growth of his organization (Goldsmith et al. 2010). The problem is, in many cases, the effects of these decisions are not revealed in the short term, but their results may be clear after a long period of time (Grant and Neupert 2003). At this point, it would be critical for leaders to have the support of their environment, meaning especially the employees in all organizational sectors (Patching 2007). The criteria used for the evaluation of the effectiveness of leaders in the modern market can vary: most commonly the level of success of the leaders’ decisions is considered as critical for evaluating the potentials of the specific leader to contribute in the increase of his organization’s profitability (Lussier and Achua 2009). Also, other characteristics of the organization’s internal environment, such as the quality of cooperation/ communication and the level of employee motivation are used for evaluating the value of a leader. Richard Branson can be characterized as a charismatic leader, at least as revealed through the performance of his organization (Dyck and Neubert 2008). A charismatic leader is ready to take initiatives, often without taking into consideration the relevant risk, so that the needs of his organization are addressed. The difference between a charismatic leader and a common leader is that the former decides accepting the risk while the former tries to avoid risk. The former, most commonly, is proved to have right. The leadership style of Richard Branson, as related to the success of his organization is analytically evaluated in section 2.6 below. 2.3 Business Unit As already noted above, Virgin operates in many different industries. More specifically, the firm operates in ‘leisure, travel, tourism, mobile, broadband, TV, radio, music, finance, and health in Asia, Europe, North America, Africa, and Australia’ (Bloomberg Business Week 2012). Richard Branson directs all these units, at least in regard to their strategic framework. The evaluation of the leadership style of Richard Branson as the leader of the above organization would require the reference to the organization, as an entity, i.e. including all its units. It is on the performance of the Group, as presented above, that the effectiveness of the leadership style of Branson will be based. 2.4 External Analysis The external environment of the organization can be analysed using a well-known framework; the Porter’s Five Forces model on industry competition. In the context of the above theory, while operating in the global market the organization is expected to face a series of challenges, such as: a) Competitors; Virgin Group is a multinational organization. Its position in the global market is well established, meaning that the rivals cannot threaten the performance of the organization. Virgin Group operates in different industries. When having to evaluate the level of the competition that the organization faces, it is necessary to take into consideration the power of the firm’s competitors in each one of the sectors in which the firm operates. The current status of the organization among other multinationals can be characterized as quite satisfactory; the leader of the organization should keep following the same rules when developing key organizational decisions. Risk may be a threat for a firm’s financial status. However, when there is no other option available, i.e. under terms of high competition, risk is unavoidable. Due to the turbulences in economies worldwide, the entrance in the international market of new multinationals is rather difficult. b) Industry; the simultaneous involvement of the organization in many different sectors can be considered as both positive and negative. More specifically, by expanding its operations in different industries, the firm has managed to increase its market share internationally. However, such initiatives also increase the risk involved, referring especially to the operational expenses but also the research and development costs of the organization in each industry, c) Substitute products; the firm’s services are of high quality; in fact, the firm’s name in the market has been related to the provision of services of high standards. From this point of view, the appearance of substitute products would not particularly threaten the firm’s operations, d) Suppliers; the firm’s services are of a high range, since the firm operates in many different industries. This means that the network of suppliers of the organization is significant. On the other hand, the sectors in which the organization operates, for example, the airline industry, the music industry and so on, are quite common globally, meaning that the organization would be able to change its suppliers anytime. In this context, the suppliers cannot cause turbulences in the firm’s environment by increasing their prices; the firm could easily retrieve alternative suppliers for covering its operational needs, e) Customers; as already explained above, the firm is well established in the global market. Indeed, the brand name of the organization is quite popular; customers trust the quality of the firm’s services and seem to be loyal towards the organization, at least as revealed through the figures representing the performance of the firm. In this context, customers would not a threat for the organization. The firm’s existing customer base is significant, as revealed through the organizational performance. However, it is clear that the firm needs to take measures in order to secure its position in the market; the organization’s current leadership strategy would be partially changed, as suggested below, so that any potential threats in regards to the limitation of the firm’s customer base to be eliminated. Another framework for examining an organization’s external environment is the PESTEL analysis. Using the specific framework, the firm’s environment could be analyzed as follows: a) Political; the organization is headquartered in London. The political conditions there can be characterized as stable; no severe political or social conflicts exist in Britain, a fact that is considered as quite positive for businesses in all industries. Therefore, the organization’s political environment would not be able to threaten the organizational performance, b) Economic; The condition of the British economy can be characterized as satisfactory; despite the pressures from the international and, especially, the European market, Britain has managed to keep its economy independent from foreign economic crises. Therefore, the economic life of the country is not threatened by severe turbulences; the firm’s leader would not have to worry, at least up for now, for potential pressures by turbulences in the national economy, c) Social; social values and ethics in Britain are quite supportive towards entrepreneurial activities; moreover, Virgin has a quite strong brand name in the British market. The country’s social environment would not threaten the operations of the organization, either in the form of social conflicts or in the form of limitation of customer loyalty, d) Technological; the investment on innovation is one of the key elements of Virgin’s culture; the technology is highly involved in the firm’s operations. In Britain, the technology available for the development of business and scientific activities is significant. The leader of the organization would not worry for potential gaps in the technological environment of the organization. e) Environmental; Virgin has aligned its activities with the principles of sustainability; this means that the effects of the firm’s operations on the environment are effectively controlled, meeting the rules set by the relevant laws and ethics. The environmental challenges that the firm has to meet as it is based in Britain would not be a reason for delays in the completion of organizational tasks, f) Legal; in Britain, business activities are highly promoted. In fact, the country’s legal framework is quite supportive to organizations of all sizes. It is for this reason that Britain is considered one of the most powerful financial centers globally. In this context, the legal environment would not threaten the development of the organization; in opposition, the expansion of the company could be highly supported, as proved through the growth of the company up today. 2.5 Internal Analysis The analysis of the organization’s internal environment should be based on the SWOT analysis. In the context of the specific model, the internal environment of organizations is considered as being reflected in four elements: a) Strengths; the organization is already well established in the global market; it cannot be threatened by new entrants or from potential substitute services. On the other hand, customer loyalty in Virgin is high, meaning that the customers of the organization would avoid using the services of a competitor; b) Weaknesses; the firm is not supported by the state – as potentially other multinationals; this means that the firm’s leader need to ensure that funds will be available for covering all the needs of the organization so that turbulences are avoided in the firm’s daily operations; at the next level, the managers of the organization should be given additional power so that they would feel as contributing in the decision making process of the organization; the low self-esteem of managers and other employees could lead to the limitation of employee performance, c) Opportunities, the firm operates in many industries; also, there are certain markets, as for instance, the Indian and the Chinese market, in which the firm could further expand its operations, d) Threats; people seem to prefer products of primary need; due to the limitation of income the sales in services as those provided by the organization have been decreased; this is a problem not controllable by the organization’s leader. 2.6 Evaluation of the strategy One of the key characteristics of leadership in Virgin is the continuous emphasis on new markets and industries. In fact, the strategic decisions of Branson in regard to the development of the firm’s activities worldwide, lead to the following assumption: the growth of Virgin has not been based on the standardization of its performance. Rather, the research for markets and sectors, which can offer to the firm, a strategic advantage has been set as a priority in regard to the organization’s aims. The evaluation of the leadership style of Branson should be combined with the views of the literature, as related to the specific subject. The mode of leadership that Branson uses has become a common issue in the academic literature. The reason is that the approaches that Branson employs for handling daily organizational problems are unique. In regard to the leadership style of Branson, the following issues should be highlighted: a) Branson emphasizes on the participation of employees in business decisions but up to a level; this means that employees are urged to take initiatives but their power to intervene in critical organizational issues is limited. Branson sets the criteria on which the strategy of the organization is based. Employees can make suggestions as to which method they consider as the most appropriate for realizing the organization’s strategy (Bowerman and Van Wart 2011), b) the decisions of Branson in regard to the organization’s key plans are not based on specific events or views; rather, they are developed in accordance with the above leader’s personal perceptions and experience. This practice has been partially criticized as reflecting poor communication and cooperation within the organization (Conger and Kanungo 1998). However, if the organization’s operations and culture are reviewed carefully it is made clear that communication and cooperation are highly promoted within the organization; otherwise, it would be quite difficult for Branson to realize its plans in regard to the expansion of the organization worldwide, c) Branson does not rely too much on strategic alliances. The organization has already developed a network of strategic partners globally but these partners – mostly firms operating in similar sectors – support specific organizational needs rather than replacing the organization. This means that Virgin Group can be characterized as an autonomous firm, much like its leader; its cooperation with other organizations has been based on the rule that the power of the firm to define its targets and priorities within each market is not reduced (Puccio et al. 2010), d) the practice of Branson to take initiatives without estimating carefully the relevant risk and without checking thoroughly the consequences for the organization, either in the short or the long term, has been characterized differently by researchers and entrepreneurs worldwide. Others tend to support the practice of Branson as reflecting the characteristics of a strong and charismatic leader (Steer et al. 2010, Schermerhorn 2011). Others do not agree with the specific methodology of action; their argument is based on the fact that in the context of a high turbulent global market taking risky initiatives, on a continuous basis, can lead to severe failures (Harrison and StJohn 2009). The review of the literature published in the particular subject has proved that risk is a key element of business initiatives. In most cases, it is suggested to leaders to avoid risk. However, it is only through risk that significant profits can be achieved. On the other hand, not all businesses are involved in risky projects. In fact, most organizations are likely to avoid such projects. Firms that do not avoid risk can have access to market areas where other firms may not enter, especially because of their practice to avoid risk. 3.Conclusions and recommendations The performance of Virgin Group in the area of leadership can be characterized as significant. In fact, the practices of the firm’s leader have been extensively analyzed in the literature, aiming probably to understand the elements of the relationship between the leadership style of Branson and the firm’s growth. In general, it could be noted that the strategic framework of Virgin has been similar to other organizations; emphasis is given on the expansion in the global market while efforts are made for the continuous increase of the firm’s alliances in industries worldwide. However, there is a point that differentiates the leadership practices of Branson from those of other leaders internationally: the level of the risk taken. On the other hand, reference should be also made to the following fact: the development of the firm worldwide has been continuous but carefully planned. This means that the growth of the organization has been gradual, a fact that has positively affected the organization’s operations in the following way: customers who already knew Virgin, as they were using its services in regard to a particular industrial sector, they would easily decide to prefer the firm’s services in regard to other sectors also. In this way, each brand of the organization is used for supporting the organization’s next strategic choice, a technique that has been proved quite effective in strengthening the position of the organization towards its rivals. On the other hand, the review of the organization’s strategic initiatives has proved that the organizational growth is mostly related to the leadership style of Branson. Indeed, the success of Virgin should be considered as an achievement of its leader who tends to continuously need for new markets, meaning that he examines the case of the expansion of the organization in new and prospective markets. In other words, the performance of the organization globally has been attributed to Branson who was able to identify early all industrial activities in which the firm could be involved (Daft and Marcic 2010). By identifying new industries and markets, Branson has been able to secure the performance of the organization despite the global market crisis. However, it seems that the performance of the organization in the future is not standardized. As revealed through the firm’s financial reports, the performance of the organization during the last years is not standardized. Turbulences can be identified periodically. At a first level, this problem cannot be related to the leadership style of Branson; in fact, Branson has followed the same rules and practices since the establishment of the organization. Rather, it is a problem related to the increase of competition in the global market. Because of the increase of competition, firms operating globally need to continuously update their strategies so that their responses to the market challenges to be always appropriate (Harrison and StJohn 2009) A series of techniques could help the organization’s leadership to be improved ensuring the standardization of the firm’s performance in the international market: a) increase of the power of managers in each business unit; as explained earlier, employees in Virgin Group are given the power to develop initiatives, but this power is limited, meaning that their ideas/ suggestions would be accepted only if they are aligned with the organization’s strategic framework as set by Branson. Managers in Virgin should be given increased power to intervene and contribute in the formulation of the organization’s strategy. Only in this way, a potential differentiation in the firm’s leadership, for example if Branson would choose to leave the organization, would not severely harm the organizational performance, b) as noted earlier, Virgin Group avoids developing strategic alliances globally; its strategic choices in regard to the cooperation with other organizations focusing on the exchange of knowledge required for specific operational activities and on the acquisition of access to specific market; under the current market turbulences only those firms that are able to cooperate effectively with their rivals, referring to the development of strategic alliances, would manage to survive, c) the decision – making process in Virgin is highly based on Branson. As analyzed above, Branson is a charismatic leader and most of his decisions in regard to the firm’s operations have been proved quite successful; however, markets worldwide have been changed – referring especially to the post – crisis period, i.e. in the years 2008 onwards. In current market conditions, no standards can be set regarding the potential perspectives of organizations in a specific market. Branson would be possibly review its criteria for decision making, having in mind that the chances for failures in business initiatives have been significantly increased; accepting the risk, as Branson used to do up today, may be no more wise since business failures are no more an exceptional case, but the rule. References Bowerman, K., and Van Wart, M. 2011. The Business of Leadership: An Introduction. New York: M.E. Sharpe. Conger, J., Kanungo, R. 1998. Charismatic leadership in organizations. London: SAGE. Daft, R., and Marcic, D. 2010. Understanding Management. Belmont: Cengage Learning. Dyck, B., and Neubert, M. 2008. Management: Current Practices and New Directions. Belmont: Cengage Learning. Goldsmith, M., Baldoni, J., and McArthur, S. 2010. The AMA handbook of leadership. New York: AMACOM Division American Management Association. Grant, R., and Neupert, K. 2003. Cases in contemporary strategy analysis. Oxford: Wiley-Blackwell. Harrison, J., and St.John, C. 2009. Foundations in Strategic Management. Belmont: Cengage Learning. Hellriegel, D., and Slocum, J. 2009. Organizational Behavior. Belmont: Cengage Learning. Lussier, R., Achua, C. 2009. Leadership: Theory, Application, & Skill Development. Belmont: Cengage Learning. Mills, A., Mills, J., Bratton, J., and Forshaw, C. 2006. Organizational Behaviour in a Global Context. Toronto: University of Toronto Press. Patching, K. 2007. Leadership, character and strategy: exploring diversity. Hampshire: Palgrave Macmillan. Puccio, G., Murdock, M., and Mance, M. 2010. Creative Leadership: Skills That Drive Change. London: SAGE. Schermerhorn, J. 2011. Organizational Behavior. John Wiley and Sons. Steers, R., Sanchez-Runde, C., and Nardon, L. 2010. Management Across Cultures: Challenges and Strategies. Cambridge: Cambridge University Press. Appendix Figure 1 – Financial results of Virgin America for 2010-2011 (Source: Virgin America 2012) Figure 2 – Share price of Virgin Media from March 2011 up today (Source: http://uk.finance.yahoo.com/q/bc?s=VMED) Read More