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CASE EXAMPLE
Introduction
This case was updated and revised by Aidan McQuade, University of Strathclyde Graduate School of Business, based upon
work by Urmilla Lawson.
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CHAPTER 7
Corporate rationale
In 2006 Virgin still lacked the trappings of a typical
multinational. Branson described the Virgin Group
as a branded venture capital house.3 There was
no group as such; financial results were not
consolidated either for external examination or,
so Virgin claimed, for internal use. Its website
described Virgin as a family rather than a hierarchy.
Its financial operations were managed from Geneva.
In 2006 Branson explained the basis upon which
he considered opportunities: they have to be global in
scope, enhance the brand, be worth doing and have
an expectation of a reasonable return on investment.4
Each business was ring-fenced, so that lenders to
one company had no rights over the assets of
another. The ring-fencing seems also to relate not
just to provision of financial protection, but also to
a business ethics aspect. In an interview in 2006
Branson cricitised supermarkets for selling cheap
CDs. His criticism centred on the supermarkets use
of loss leading on CDs damaging music retailers
rather than fundamentally challenging the way music
retailers do business. Branson has made it a central
feature of Virgin that it shakes up institutionalised
markets by being innovative. Loss leading is not an
innovative approach.
Virgin has evolved from being almost wholly
comprised of private companies to a group where
some of the companies are publicly listed.
more or less ran itself now,6 and hoping that his son
Sam might become more of a Virgin figurehead.7
However, while he was publicly contemplating
this withdrawal from business, Branson was also
launching his initiatives in media and fuel. Perhaps
Bransons idea of early retirement is somewhat
more active than most.
Corporate performance
By 2006 Virgin had, with mixed results, taken on one
established industry after another in an effort to shake
up fat and complacent business sectors. It had
further set its sights on the British media sector and
the global oil industry.
Airlines clearly were an enthusiasm of Bransons.
According to Branson, Virgin Atlantic, which was
49 per cent owned by Singapore Airways, was a
company that he would not sell outright: There are
some businesses you preserve, which wouldnt ever
be sold, and thats one. Despite some analysts
worries that airline success could not be sustained
given the cyclical nature of the business, Branson
maintained a strong interest in the industry, and
included airline businesses such as Virgin Express
(European), Virgin Blue (Australia) and Virgin Nigeria in
the group. Bransons engagement with the search for
greener fuels and reducing global warming had not
led him to ground his fleets. but rather to prompt a
debate on measures to reduce carbon emissions
from aeroplanes.
At the beginning of the twenty-first century the
most public problem faced by Branson was Virgin
Trains, whose Cross Country and West Coast lines
were ranked 23rd and 24th out of 25 train-operating
franchises according to the Strategic Rail Authoritys
Review in 2000. By 2002 Virgin Trains was reporting
profits and paid its first premium to the British
government.
The future
The beginning of the twenty-first century also saw
further expansion by Virgin, from airlines, spa finance
and mobile telecoms in Africa, into telecoms in
Europe, and into the USA. The public flotation of
individual businesses rather than the group as a
whole has become an intrinsic part of the juggling
of finances that underpins Virgins expansion.
Some commentators have identified a risk with
Virgins approach: The greatest threat [is] that . . .
Virgin brand . . . may become associated with failure.8
This point was emphasised by a commentator9 who
noted that a customer who has a bad enough
Questions
1 What is the corporate rationale of Virgin as a
group of companies?
2 Are there any relationships of a strategic nature
between businesses within the Virgin portfolio?
3 How does the Virgin Group, as a corporate
parent, add value to its businesses?
4 What were the main issues facing the Virgin
Group at the end of the case and how should
they be tackled?
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