A Critical Analysis and Evaluation of Virgin Companies - Essay Example

Virgin – Evaluation of corporate strategy and performance Question One In order to evaluate the company’s ment regarding its culture, we should primarily present a series of relevant theories which are useful in order to understand the structure of the corporate strategy as well as the application of commercial principles throughout the corporate activities. At a next level, these theoretical views could be used in order to identify possible problems in the firm’s strategic management and propose appropriate solutions that could help towards the increase of the firm’s performance in the future. The comparison with the past will take place through the presentation of a series of events related with the company’s operation mostly the last years while the support of relevant figures (presenting the firm’s performance in numerical format) will be proved to be valuable for the successful completion of this task (identification of corporate strategy – proposals for restructuring, if considered necessary). One of the most important elements of the Virgin’s corporate strategy is, in accordance with the company’s statement, innovation. For this specific issue Kesler (2000, 26) stated that ‘innovation should be divided in four major categories, an example of which could be the following: 1. Finance, 2. Process, 3. Offering and 4. Delivery’. On the other hand, Parnell (2003, 16) found that ‘in many respects, the evidence for the existence of a strategy can permeate an organization; its customers appreciate knowing what a company is attempting to accomplish and prospective investors tend to hesitate when they do not have a clear grasp of the firms position and future priorities; sharing strategic information with lower-level managers and employees may enhance both job comprehension and organizational commitment; hence, the arguments for a "public" strategy are intuitively obvious’. In other words, even in case that a company applies innovative techniques in the design and application of its strategy, if it fails to communicate effectively with its customers, i.e. to satisfy them in accordance with its sector of activities and the quality of the products/ services offered, then its performance will be decreased and this outcome would not be easy to be reversed even if the firm has achieved a high level of performance in the past. At this point, it should be noticed that the content of the managerial schemes and the type of measures taken in order to communicate both with the external and internal environment, are not the exclusive requirements for a successful corporate strategy. It is very important that the above strategy is evaluated continuously in order to meet the demands of the modern commercial market – which is characterized by continuous and severe turbulences. In this context, we can refer to the work of Nattermann (2000) who studied specifically ‘benchmarking’ – an innovative tool of strategic analysis. The above researcher after examined thoroughly the terms of application of benchmarking stated that ‘Best-practice benchmarking--the measurement and implementation of the most successful operational standard or strategy available in an industry--can be one of the most effective tools for increasing a corporations efficiency, productivity, and, ultimately, earnings; broadly speaking, strategic decision making occurs along three dimensions: product characteristics, price, and market opportunity’. The existence of the above management tool cannot guarantee however that the evaluation of the corporate strategy can be succeeded at the highest level of accuracy as there are always elements of differentiations among the firms operating in a specific commercial market while the conditions of each market are also an issue that should be examined thoroughly before any relevant effort. Threat of New Entrants Bargaining Power of Suppliers The Industry: Jockeying for position among Rivals Bargaining Power of Customers Threat of Substitute Products or Services Table 1 - Porter’s Five Forces of Industry Competition (Porter et al., 1985) The above table presents a well known ‘strategy’ of strategic analysis. According to this theory, a company has to operate under the pressure of five forces (as explained in the table above) which tend to differentiate continuously but which retain their power of influence over the corporate activities in any commercial market regardless the existence of particular factors that may differentiate the specific market from similar ones in other states. As in the case of benchmarking, the five-forces model of Porter can be applied in almost all types of enterprises, however in many cases the particular rules that a company has developed in its internal or external environment (employees, customers, supply chain, shareholders etc.) may create obstacles towards the effective application of any strategic tool of analysis (including the above proposed ones). Table 2 - Framework of organizational innovation (Baker, 2002, 2) In table 2, the organizational innovation is presented through a graph in order to show the relations and influences between the particular elements of the corporate activity. Other important elements of corporate strategy – as presented in Virgin’s statement – are culture, diversity and human resource management. Particular for culture, Soutar, Grainger and Hedges (1999, 203) accepted that ‘culture is an important idea as it deals with the way people live and approach problem solving in a social and organizational context’. On the other hand, Mathews (1998, 175) who studied the issue of diversity in the corporate environment found that ‘before diversity strategies are implemented, the organizations cultural environment, management and evaluation systems should be examined to ascertain if existing personnel/human resources processes will support or hinder diversity in the organization; Then, appropriate strategies can be designed to develop and manage diversity based on these findings’. Human resources management has been also considered to be a primary element of any corporate strategy – Virgin’s statement also highlights its importance for the development of the corporate performance. In this context, Eldson et al. (1999, 41) studied the ‘connections between employee alignment with fulfilling work, employee satisfaction, employee retention and business performance based on data characterizing business unit financial performance; human resource demographics, resources committed and transfers and promotions; Career Services activity; employee satisfaction; terminations and retention; and links among these elements’. In this context, Summers et al. (1997, 18) refers to a tool of strategic analysis which is connected with the human resource management, the strategic skills analysis. Regarding the above managerial tool the above researchers stated that ‘for those organizations seeking a competitive advantage through innovative human resource activity, strategic skills analysis (SSA) represents a means to link business strategy with human resource strategy’ (Summers et al., 1997, 18). Taking into account the above presented theories, we could evaluate Virgin’s statement as being innovative with appropriate reference to the firm’s stakeholders (customers, employees etc.) keeping at the same time the standards set by UK’s commercial market (ethics similar with the ones held in most markets around the world). The participation of customers in the planning procedure of the corporate strategy (through the monitoring of the customer feedback in most sectors of corporate activities) is a crucial issue for the ‘reservation’ of the firm’s clients throughout the years (as it can be assumed by the firm’s performance since its appearance in the British market). At this point, it would be useful to refer to the study of Grant (2005, 309) which found that ‘by early 2004, the financial situation of the Virgin Group had stabilized – due mainly to the improving health of Virgin Atlantic and the proceeds from Virgin Blue’s IPO’. The effort of the firm to approach its stakeholders seems that it started to produce the required results. Moreover, the difficulties that the rather ‘unusual’ structure of the firm (Grant, 2005, 323) caused in the past have been faced effectively – judging from the firm’s significant financial performance the last three years. Question Two One of the most important elements for the success of a corporate strategy is the character and the attitude of the corporate leader. In this context, Ackroyd (2000) noticed that ’the leadership style has a direct influence to the methods that the leader use in order to apply a specific strategy’. On the other hand, Bielski (2005, 26) found that successful CEO’s have the following attributes: ‘a) they value managing and leading people, i.e., getting work done through others; b) they are intellectually curious, c) they ‘walk the talk’; d) they are comfortable with their authority e) they understand that to deliver full value, every aspect of the leadership system must be aligned with strategy: structure, processes, people, and human resource systems’. The above assumptions are in accordance with the findings of O’Neill’s study regarding the elements of a successful leadership. More specifically, O’Neill (2002, 15) found that ‘in order to ensure organizational reform, the leadership must answer the following questions: a) what were the critical success factors in previous successful change efforts? b) what caused other efforts to fail? Are you prepared to take on the obstacles? c) who can veto? Can anyone say yes? d) what is the organizations risk profile? e) what has created a window of opportunity? How long might it last? f) what is the up side for stakeholders? g) what Have We Learned?’ From a similar point of view, Kim (2002, 236) tried to explore ‘how managers’ use of a participative management style, use of participative strategic planning processes, and effective supervisory communications affect job satisfaction coming to the result that emphasizing participative management and fostering effective supervisory communications can enhance employee job satisfaction’. After studying especially the case of Branson as leader of a successful corporation, Lessem et al. (1999, 224) found that ‘ Branson diverted himself towards selling records by mail-order; What turned out to be the last edition of Student contained the first advert for Virgin records; Richard Branson, at 19, was the senior partner and his friend Nick Powell the junior one; He was also joined in the business by another of his friends, Steve Lewis, who had a passion for pop music, and managed to combine his undergraduate studies with working in the business; After three years moreover Branson came to realize that if he could make money by selling records, he should be able to make even more by manufacturing them’. The above events present in fact the first steps of Branson in the commercial market. Moreover, they explain up to a point the causes of the entrepreneurial decisions taken by Branson throughout Virgin’s governance. In this context, Campling et al. (2000, 93) assures that ‘few people would disagree that Richard Branson is an entrepreneur and a self-made multi-millionaire; His company, the Virgin Group, has one of the strongest brand images in the world and Branson himself has, for many, entered popular culture as a modern day hero while he is also perceived by many as a genuine man of the people despite having personal wealth of around £1.5 billion and as an adventurer who constantly pushed himself beyond conventional limits; Over the past 18 months Virgins brand has been stretched into rail, cosmetics, pensions and banking’. The study of Campling et al. although mention certain elements of Branson’s decisions regarding Virgin’s commercial activities, it is however limited as of the criteria on which the development of Virgin was based. It is not explained moreover if the corporate development was an issue of temporary positive commercial ‘circumstances’ or a result of a successful corporate strategy. Towards specifically this direction, a relevant study [2] reveals that the secret to Branson’s success ‘has been his ability to make a strong recovery as more than perhaps any other entrepreneur in the 20th century, Branson has been able to successfully move from one venture to the next even after experiencing bitter disappointment; Virgin Vodka, launched in 1994, did not find commercial success, largely because it lacked brand added value; Whereas Virgin Atlantic had such unique features as on-board massages and free ice cream going for it, Virgin Vodka could not stand up to its competition; Similarly, despite being priced 20% below Coke, Virgin Cola only achieved a 3% market share in the UK; These companies have since virtually disappeared off the market while Branson was also forced to sell Virgin Cinemas and Virgin Cars, two ventures that he could just not make profitable’. As it can be assumed from the above events, Branson is mainly differentiated from other leaders in the commercial market to the point that he does not leave the negative outcomes of a specific corporate effort to ‘damage’ the whole corporate operation but he tries and manages - as the survival of the company and its performance throughout the years shows – to retain the performance of Virgin at a stable level while any period of negative performance is followed by a successful recovery. A recent initiative of Branson that could be characterized as very successful for his company’s performance is the investment of ‘$3 billion dollars over the next decade to fight global warming while all profits from his travel-related companies (like airline Virgin Atlantic and Virgin Trains) will be invested in initiatives to develop new renewable energy technologies, both run by Virgin companies and external businesses’ [1]. The ability of Branson to recovery from severe losses has been the main subject of analysis in an article of Business Week in 1998. In the specific article it is mentioned that Branson prefers to use a strategy called branded venture capital ‘that has allowed him to launch a hodgepodge of businesses with minimal investment; Essentially, Branson manages the business and puts up the Virgin name, usually in exchange for a controlling interest, while his wealthy partners put up most of the cash’ (Business Week, 1998). Towards this direction, Rifkin (1998) stated that Branson ‘has orchestrated shrewd business deals that helped finance Virgins growth without using the companys money; For example, the recent creation in Britain of the Virgin bank, which is an operation separate from Virgin Direct, was financed to the tune of $500 million by other investors, and Virgin retained a 50 percent stake without coughing up a penny’. The above strategy seems to achieve its targets, i.e. the saving of the company’s wealth in order to be prepared for a possible negative outcome or a severe turbulence of the market. In this context, Campling et al. (2000, 93) noticed that ‘Branson has the advantage of not being answerable to shareholders only interested in the bottom line; Where ventures have turned sour he has been able to dip into his own pocket to ensure that, where divorce has become necessary, it has been on friendly terms’. The ability of Branson to retain Virgin’s financial strength even during periods of severe turbulences in the market has been noticed by Grant (2005, 325) who characterizes Branson as ‘an important change agent’ meaning that his style of corporate leadership is differentiated from the ones of other entrepreneurs not only in the UK market but also in the global commercial area. The company culture as formulated in accordance with Branson’s own ‘values and management style’ has been considered by Grant (2005, 325) as the main reasons of the firm’s survival and development throughout the years. Question Three The methods that a company uses to promote its products/ services cannot be limited in specific forms. In fact the design and the presentation of a particular marketing strategy depend on the structure of the corporate entity as well as the targets set by the firm’s strategy. In the above context, Bennett (2002, 397) stated that in order to achieve a standard rate of performance a company has to apply a strategy ‘which aims to bring the business closer to the consumer through the provision of a series of measures like the ‘poverty reduction plans and business creation programs, as well as revenue-sharing schemes such as funding for foundations that support social development and environmental remediation’. Joyce et al. (2000, 22) also notices that ‘competitive success is being achieved by acquiring and leveraging intangible assets -- skills, systems, and values’. On the other hand, Kesler (2000, 26) found that ‘a business demonstrates the capability of "strategic clarity" when its strategy focuses on both short- and long-term goals, creates meaning for those inside and outside the company, translates vision into effective organizational practices, shapes employee behaviors, and differentiates the firm to customers and investors’. Bruer et al. (1996, 23) also accepted that ‘when applying change in its strategic planning or its operations a business ‘puts forward its strategic intent, it necessarily creates gap between current performance (and methods of business) and its desired goals’. Moreover, according to Higdon (2003, 64) ‘before effective change can take place, the culture of an institution--its accepted set of beliefs and standard way of doing things, normally practiced within the continuum of tradition--must be understood and addressed’. As the above theories show, the design and the application of a successful marketing strategy cannot be considered as a sufficient effort towards the achievement of an incremental rate of corporate growth. There are also other parameters, like the need for continuous and intensive change that should be taken into account when planning the strategy of a firm. On the other hand, the application of a variety of measures in order to avoid potential risks for a specific corporation cannot guarantee the survival of the company especially in a long term period. After studying the above issue Lessem et al. (1999, 227) found that ‘playful and creative enterprises, like Virgin, are inevitably messy while errors are expected, explored and welcomed; Yet simultaneity reduces the impact of any one while the space for experimentation increases as we involve more minds in the experiment, as long as they can operate independently, as is so often the case for companies within the Virgin Group. The initial marketing strategy followed by Virgin and which was based on the Virgin brand had to be differentiated and developed through the years in order to meet the market’s demands. Up to a point, in accordance with the view of Grant (2005, 328) the initial marketing strategy was successful because ‘the differentiation that the Virgin brand offered was linked to the innovation and offbeat marketing approach that characterized the different Virgin start-ups’. However, the above strategy, which was followed since the company’s appearance in the 1970s, had to be re-examined and evaluated during the 1990s as there was the risk that the brand had become ‘overextended’ (Grant, 2005, 328). This change in the firm’s marketing strategy is considered to be continued for the years that will follow as the firm had already faced periods of severe financial pressures and for this reason the need for restructuring has been imposed as necessary. To a general evaluation of Virgin’s strategic direction throughout the years, it could be stated that the company prefers to keep its initial characteristics (dynamic character, continuous innovation, changeable but ethical culture) stable adding certain elements that have been considered as useful towards the survival of the company in the future (like the expansion in new markets, the introduction of advanced technologies, the application of innovative managerial techniques). An overall assumption of the firm’s efforts throughout its existence it could be that its development seems to be guaranteed as long as the communication with the internal and external environment is kept to the appropriate level. On the other hand, the evaluation of the pitfalls of the past has to be continuous in order to ensure that the company will not face similar turbulences in the future. In this case, as Greeve (1998, 58) accepted ‘a central assumption in learning perspectives on organizations is that organizations learn from their experience by making the probability of changes conditional on their history’. References Ackroyd, S., Fleetwood, S. (2000). Realist Perspectives on Management and Organisations. Routledge, London Baker, K. (2002). Innovation http://www.au.af.mil/au/awc/awcgate/doe/benchmark/ch14.pdf Bennett, J. (2002). ‘Multinational Corporations, Social Responsibility and Conflict’ Journal of International Affairs, 55(2): 393-402 Bielski, L. (2005). 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Governments Change-Management Challenge: Key Questions to Which Government Leaders Should Find Answers as They Embark on Systemwide Reform. The Public Manager, 31(1): 15 Parnell, J.A. (2003). Five Critical Challenges in Strategy Making. SAM Advanced Management Journal, 68(2): 15-25 Porter, M.E., Millar, V.E., 1985, ‘How Information gives you competitive advantage’, Harvard Business Review, July-August Rifkin, G. (1998) ‘How Richard Branson works magic’, Strategy and Business, available at http://www.hrh.ch/whoiswho/bransonr/br_page5.html Soutar, G.N., Grainger, R., Hedges, P. (1999), ‘Australian and Japanese value stereotypes: a two country study’ Journal of International Business Studies 30(1): 203-211 Summers, S.B., Summers, T.P. 1997. Strategic Skills Analysis for Selection and Development. Human Resource Planning, 20(3): 14-19 http://www.treehugger.com/files/2006/09/branson_to_inve.php [1] http://www.evancarmichael.com/Famous-Entrepreneurs/592/Lesson-3-Keep-Flying-High.html [2] Read More