Virgin Mobile UK - Report Example

Business Analysis Report on Virgin Media – Focus on Virgin Mobile UK 0 Introduction This paper is a business analysis research work of Virgin Mobile, UK. It involves the application of important elements of strategic management to the organizations present system. In order to attain this end, the research will involve four main steps. In the first phase of the research, there would be an examination of the leadership and management of Virgin Mobil. This will give an understanding of the core concepts that keep the business going. There would be an examination of the vision and mission and the rational for leadership. The second phase of the report will examine the internal systems and structures of Virgin Mobile. This will involve the examination of the culture, structures and systems of the company. The dominant theory to be used is the McKinseys 7S. The report would then proceed to examine the important tools for external and environmental analysis used by the leadership of Virgin mobile to undertake these analyses. This would involve a discussion of different methods of environmental analysis and how they can be used by the management to undertake market research and integrate emergent issues as well as measure important changes. The fourth stage of the report involves an examination of the current external environment of Virgin Mobile. This would involve the use of tools like SWOT analysis, PEST and Porters Five Forces. The culmination of these findings would give room for the diagnosis of challenges in the companys systems. This would be followed by recommendations on how to get the best result. 2.0 Leadership and Management Challenge In 1999, Virgin Mobile was the first virtual mobile network operator to commence activities in the UK (Hotline, 2006). As a virtual operator, it did not have a network of its own. It run its mobile brand through contracts with other mobile phone companies. Virgin Mobile is a subsidiary of Virgin Media which is also a subsidiary of the Virgin Group headed by the famous British entrepreneur, Richard Branson. Virgin Media has four important wings, known as the quadruple play which involves fixed lines, mobile telephones, broadband internet and television (Billings, 2012). 2.1 Mission The mission of Virgin Media is to provide high quality services in four main media services: Broadband, Mobile Phone, Home Phone service and Television (Virgin Media, 2012). Virgin Mobile specialises in mobile telephone services. It does this through contracts and subscription services. Virgin Mobile is a subsidiary of Virgin Media. Virgin Groups acquisition of Telewest in 2006 led to the merger of Virgin Mobile into the Virgin Media Group (Virgin Media Group, 2011). 2.2 Vision The vision of Virgin Media is to make use of the high technology, people and resources available to her to attain optimum and best results for customers and attain the highest returns on investment whilst observing all the necessary social and legal expectations of stakeholders (Virgin Media Group, 2011). Virgin Media uses the investments made by the group into high speed communication systems and facilities like the fibre optics network which connects the entire British Isles to provide the best in high speed and high quality information interchange. This is done through the different systems and structures which include Virgin Mobiles use of this system for mobile communications. 2.3 Rationale for Leadership Virgin Mobile is led by Sir Richard Branson and Graeme Oxby who work together to attain the strategic leadership requirements of the company. The Virgin Media Group is funded by the Virgin Media Investment Holding which sunk funds into the acquisition of the systems and structures that are used by the four main units of the company (Virgin Media Group, 2011). Virgin Media Group aims to optimise returns from their investments into hi-tech equipment and systems as well as innovation to remain competitive and satisfy the best needs of consumers throughout the UK. They do this by ensuring that they produce faster and more convenient services for consumers in different parts of the country. The leadership of Richard Branson and Graeme Oxby is supported by a Board of Directors. The Board is made up of 12 members who head four main committees responsible for the governance of Virgin Media. The committees include: 1. Audit Committee 2. Business Operating & Technology Committee 3. Compensation Committee 4. Nominating and Governance Committee (Virgin Media Group, 2011) The committees are responsible for various aspects of governance. They decide on things and activities that occur in the day-to-day running of the media company. This ensures that things are decided democratically and critically. Also, the board authorize important activities and ensure that risks are minimized as the company proceeds to attain its vision and mission. 3.0 Internal Analysis of Virgin Mobile McKinseys 7S model describes the main elements that come together to define an organization (Karlof, 2011 163). The seven elements include the following: 1. Strategy: Action for change and attainment of mission and vision by the business. 2. Structure: Division of tasks and activities. 3. Systems: Processes and procedures. 4. Style: Perception of senior management. 5. Staff: Interaction of employees and people within the organisation. 6. Skills: Core competency of the organisation. 7. Shared values: Common beliefs and goals. According to Neil Berkett, the companys CEO, Virgin Media and Virgin Mobiles strategy is to focus on customers who want more from the digital world (BBC, 2012). The strategy is steeped in innovation and the satisfaction of consumer needs and expectation. Thus, the idea is to provide the best for the companys consumers and also provide a wide diversity of products to consumers in different parts of the UK. The structure of Virgin Media is connected to its position in the Virgin Groups hierarchy. This is because the companys units are strongly interlinked, and yet autonomous in every way and form. The 2011 Annual Reports indicated the companys organogram as follows: From the structure of Virgin Holdings Inc, it appears that it is an agglomeration of several independent companies. Most of the companies are designed to be financing entities that support investment into the media and mobile companies. These financing entities provide the necessary infrastructure which the various communication companies in the Virgin group can make the best use of. They systems of Virgin Media and Virgin Mobile aim at breaking down work into functional units which include Accounting & Finance, Marketing, Strategy, Research & Development, Administration, Technology and Logistics (Virgin Media, 2011). Each of the two entities have their own design that fits the requirements of their activities. The style of the senior management is to remain cautious and conservative, maintain a strong asset base and yet pursue innovation (BBC, 2012). The idea is to remain liquid through the optimisation of assets of the company in order to survive. This is done through safeguarding the firms resources and going for the most efficient and effective methods. Also, another quality of the companys strategy which is innovation is held in high esteem. The companys management ensure that they get the best services for customers by consistently monitoring the expectations of consumers and meeting them. This causes them to expand their market share. Staff members maintain a cordial atmosphere and there is an air of informality (Virgin Media, 2011). The idea is to capitalise on a consumer oriented system through the use of an emergent strategy that is supported by a very unrestricted atmosphere of interaction between employees. Also, from the 2011 Annual Reports, the average age of employees in Virgin Media and Virgin Mobile is in the 30s. This shows that youthfulness, which supports innovation, is employed by the companies. The core competency of Virgin Media is the creativity, accuracy and proactive nature of the companys strategic business units. Virgin Media has staff members who support research and development and are ready to study new trends and make adjustments to get the best from new developments. Also, the staff members pride themselves in their close connection to customers and their high degree of responsiveness. The fundamental values of the company suggests that the emergent strategy ensures that every unit of Virgin Mobile works to attain the best results by integrating new and relevant changes on a timely basis. “An emergent strategy is one that is sensitive to changes in the external environment, particularly in relation to major stakeholders like consumers” (Stevenson, 2005 p72) 4.0 Tools for Environmental Analysis Since it is identified that innovation and creativity are the fundamental philosophies that guide Virgin Media and Virgin Mobile, it is logical that they maintain the most sophisticated systems and methods of examining and monitoring changes in the external environment within which the two companies operate. According to InfoWorld, Virgin has a tradition of acquiring data and information for planning purposes from three main sources, Market Research, Benchmarking and Scenario Planning (2009). Each of these tools come with various important features that determine their efficiency and appropriateness for various planning activities. 4.1 Market Research Philip Kotler defined market research as “the systematic design, collection, analysis and reporting of data and findings relevant to a specific situation facing a company” (Blankenship et al, 1998 p7). Thus, market research can be seen as a conscious effort to study something in-depth in order to get information about something which is very much relevant to the company. Market research is important because it allows Virgin Mobile and Virgin Media to find things in reality and attempt to plan things in relation to the facts on the ground. This is because in order to have liquidity, Virgin Mobile will have to hold on to their market share and expand it. In order to do so, they have to identify what consumers want from time to time and work to attain them. Also, in order to survive, Virgin Media and Virgin Mobile would have to remain competitive. Competitiveness comes with the ability to provide something different for consumers. This would allow consumers to get better choices and remain loyal to the company. Thus, it is important to get a method of examining the business environment in order to get positive results. 4.2 Benchmarking Benchmarking is a method of comparing and matching an aspect of a business with the leaders of the industry (Havadlar, 2005 p73). This is a method of systematically identifying a framework for the comparison of the business unit with the same business unit of a competitor. In the case of Virgin Mobile, there is the need to get a benchmark in order to compete with traditional mobile brands like Vodacom and T-Mobile. This is because those brands are industrial leaders. As such, to survive and remain competitive, Virgin Mobile will have to identify areas within which these leaders in the UK mobile industry are ahead in terms of competition. Once this is identified, Virgin Mobile can identify its internal structures and systems that are similar to the area under review. Through this, they can set targets and measure their progress gradually. Through this, they can be competitive enough to remain attractive to consumers and expand their market share. 4.3 Scenario Planning The essence of scenario planning is to find ways and means of solving problems through brainstorming and the integration of different peoples views on a given matter (Van Der Heijden, 1997). The structure of scenario planning involve: 1. Decide on an area that needs to be changed. 2. Identify a framework for collective analysis 3. Produce initial scenarios. 4. Reduce to two or three scenarios 5. Write the scenarios and take contribution of team members. 6. Identify issues with each scenario 7. Select the best scenario and implement it (Mercer, 1998). Through this system, the management of Virgin Media and Virgin Mobile can identify the best ways of approaching problems and issues in the company. 5.0 Current Environmental Positioning There are different tools of strategic analysis that can be employed to scan the external environment to match up an organizations internal competencies. Through this, the organisation can plan and position itself in a way that the company can get the optimum returns in its operations. The first tool for environmental scanning is PEST which examines the political, economic, social and technological elements of the business environment (Stevenson, 2005). It provides a realistic analysis of the environment and relevant trends which helps an organization to position itself. Aside PEST, there is a tool for the examination of competitors. This is known as competitor analysis. One of the most popular and most comprehensive methods is the Porters Five Forces. This include the examination of the five key threats that compete with the business for customers because they provide similar solutions (Porter, 1980). Once the environmental conditions are diagnosed and the competitors are examined, a business can proceed to find its realistic position based on the internal resources and structures. The matching is done through SWOT analysis which includes strength, weaknesses, opportunities and threats. With this, the company can identify challenges and come up with an appropriate strategy. 5.1 PEST Analysis Virgin Mobile UK operates in the UK Market. As such, they are affected by changes in the UK economy as well as the general UK society. 5.1.1 Political The UK is a stable country with advanced structures and systems. This allows Virgin Mobile to get an assured system and method of making money and earning money. Also, the UK is a nation with rules and a strong judicial system. This allows Virgin Mobile UK to interact with other stakeholders reasonably. Secondly, the expansion of the European Union enables Virgin Mobile to gain access to the European markets. This is because more limitations between the EU and UK are disappearing. This allows Virgin Mobile to get better chances of expanding to the rest of Europe. On the other hand, Labour costs in the UK are generally high. This therefore means that the company would have to pay more in order to attain the services they need. Another aspect of UK Law includes the fact that there are more consumer protection laws. These laws give consumers rights to file law suits which could be detrimental to Virgin Mobile. Also, insurance laws exposes Virgin mobile to claims that can cripple it. 5.1.2 Economic According to The Statesman (2012) the Organization of Economic Cooperation and Development (OECD), the UK economy is set to shrink by 0.7%. This therefore means that the UK economy is going to be less profitable. Hence, Virgin Mobile stands to be quite limited in its levels of profitability. Also, the Conservative Government of the UK has announced further policies over the next seven years that are meant to combat inflation. This means that corporate entities like Virgin Mobile are open to higher taxes. 5.1.3 Social According to Nagel and Guinness, the UK population is an ageing one (2010). This means that more people are getting older and fewer people are born. This means that there is a natural shrinkage of the UK youth population. On the other hand, more and more people are migrating to the UK from other EU nations and other parts of the world. This means that a growing migrant youth population is taking over. 5.1.4 Technological Virgin Mobile continues to undertake research and development of its fibre optic infrastructure. It continues to improve its systems. However, the ease of acquiring technology from other countries like China makes it easy for new entrants to enter the UK markets. 6.0 Competitor Analysis There are various categories of competitors who seek to enter the UK market. This can be examined through Porters Five Forces. 6.1 Threat of New Entrants The threat of new entrants to Virgin Mobile lies in the fact that there are many investors and other companies who can enter the market. With the ability to easily acquire parts and raw materials from Newly Industrialized Countries (NICs) like China and India, many competitors can easily enter the market and take a significant share of the UK mobile markets. 6.2 Supplier Integration Companies like Orange and T-Mobile who have provided landed services and other mobile services to Virgin Mobile have always maintained mobile phone services. In that sense, they are competitors and would always want to compete with Virgin Mobile for market share. Any traditional mobile service that enters the UK market becomes an automatic competitor to Virgin Mobile. 6.3 Bargaining Power of Buyers Entities that subscribe to Virgin Mobiles services in large numbers have the potential of growing to become competitors. However, these smaller services like retail units and other customers will need to get extra capital to succeed as real competitors to Virgin Mobile. 6.4 Threat of Substitutes With the smartphone revolution, some people might prefer to get onto some specialised networks like Blackberry or Apple. Although some of these phones are often compatible with Virgin Mobile, there are some that have a higher degree of autonomy. Such smartphone networks become alternatives to Virgin Mobile. 6.5 Industrial Rivalry This refers to companies that have similar status as the company in question. In this case we can talk of companies like Tesco Mobile and Asda Mobile which operate on a similar virtual mobile phone system. They expand and operate on similar capacities and hence, pose a direct threat to Virgin Mobile. 7.0 Challenges In order to examine the challenges inherent in Virgin Mobile, there is the need to undertake a SWOT Analysis of the company. Strengths - Pioneer in the virtual mobile service - Control over a competent fiber optic infrastructure - Leadership in terms of market share - Established reputation and brand - Affordability of products and services - Competent staff - Innovative and research-oriented company Weaknesses - Too much focus on urbanite and youthful customers. - Ease of use and possibility of exploitation by criminals. Opportunities - Opportunity for expansion - Stability of the UKs government. - Opportunity of expansion to Europe - Growing migrant population can increase demand - Potential for improvement of fiber optics Threat - High Labour costs in the UK - Consumer protection laws and insurance claims - Contraction of UK economy - Higher taxes - Aging population - Ease of acquiring technology & easy entry. The main challenges include: 1. Raising capital to expand market share 2. Investment to improve infrastructure 3. Ability to expand into Europe 4. Attraction of migrants and older customers 5. Ability to cut down on labour costs. 6. Ability to prevent insurance fraud and legal claims. 7. Need to cut down on tax payment 8. Ability to remain competitive in light of new entrants 8.0 Recommendations In line with these issues, the following recommendations are desirable: 1. Acquisition of capital from the Virgin Media Group to fund expansion. 2. Vertical integration and acquisitions/mergers of similar companies in Europe to support further expansion into the EU. 3. Promotions in different languages to attract migrants. 4. Outsourcing of services to NICs like China and India to cut down labour costs and tax costs. 5. Institution of strong checks and controls to prevent insurance fraud. 6. Establishment of a strong legal system to prevent legal claims. 7. Continuous improvements in systems to enhance competitiveness References BBC (2012) Virgin Media Reports £4.8 in Last Quarter [Online] Available at: http://www.bbc.co.uk/news/business-16941543 [Accessed: September 7, 2012] Billings, C. (2012) Virgin Media Expands Rapps Remit [Online] Available at: http://www.uk.rapp.com/blog/2012/03/02/virgin-media-expands-rapps-remit-to-include-direct-response-acquisition/ [Accessed: September 7, 2012] Blankenship, A. Brian, G. & Dutka, A. (1998) State of the Art Marketing Research New York: McGraw Hill. Havadlar, K. K. (2005) Industrial Marketing: Text & Cases New Delhi: Tata McGraw Hill Hotline (2006) Virgin Mobile UK Plans Retail Stores [Online] Available at: http://hotline.ccsinsight.com/article/Virgin_Mobile_UK_Plans_Retail_Stores [Retrieved: 7th September, 2012] InfoWorld (2009) InfoWorld 11 September 2009 Global: InfoWorld Publishing Media. Karlof, B. (2011) Key Business Concepts: A Concise Guidance London: Routledge, Taylor & Francis Mercer, D. (1998) Marketing Strategy: The Challenge of the External Environment London: SAGE Nagel, P & Guinness N. (2010) Geography London: Hodder Education. Porter, M. (1980) Competitive Advantage New York: Free Press. Stevenson, J. (2005) Strategic Management London: Kogan Page. The Statesman (2012) UK Economic Growth Forecast cut by OECD [Online] Available at: http://www.thestatesmanonline.com/pages/news_detail.php?newsid=11582§ion=2 [Accessed: September 7, 2012] Van Der Heijden, K. (1997) Scenario: The Art of Strategic Conversation New Jersey: Wiley Virgin Media (2012) What We Do [Online] Available at: http://mediacentre.virginmedia.com/Who-we-are/About-Virgin-Media-2139.aspx [Accessed: September 7, 2012] Virgin Media Reports (2012) Annual Report: Auditors: Ernst & Young: London: Virgin Group Witcher, B. J. & Chau, V. S. (2010) Strategic Management: Principle & Practice Mason, OH: Cengage Read More