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Assess Virgins corporate strategy. Does is create value? How?

A. Virgins Corporate Strategy

We believe that there are three key aspects of Virgins corporate strategy: (1) its brand, (2) its corporate structure and (3) its approach to diversification. The Virgin Brand Virgins brand revolves around the concept of people-oriented capitalism. The company views and markets itself as an anti-establishment consumer champion that pursues fun, innovative strategies which challenge convention in traditionally conservative markets. 1 Virgin combines this strategy with a belief in making a difference, 2 providing excellent value for money and empowering [its] employees to continually deliver an unbeatable customer experience.3 It is these core values that have made Virgins brand its most valuable asset.4

Virgins Corporate Structure Virgins corporate structure is equally distinctive. Although approximately 200 companies bear the Virgin name, 5 Richard Branson, Virgins CEO, views each as its own distinctive start-up company. As opposed to being one large corporate behemoth, Virgin views itself an international investment group 6 that provides equity, branding and management advice to an array of companies that further its mission. 7

Virgins Diversification Strategy Since the Virgin Group was founded in 1970, the company has entered a variety of industries. In charting the companys diversification strategy on the Ansoff matrix (see Figure 1), Virgin falls into the diversification or conglomerate diversification box. Indeed, the company has displayed a remarkable willingness to expand beyond both its existing markets and its existing products 8 by entering industries including airlines, media, banking, telecom, gaming and food and beverage. 9

Robert Grant (2008), Richard Branson and the Virgin Group of Companies in Contemporary Strategy Analysis, 6th Edition. p.812 2 Source: http://www.virgin.com/about-us 3 Id. 4 Grant, note 1, at 811. 5 Id. at 807 6 Source: http://www.virgin.com/about-us 7 Grant, note 1, at 817. 8 Jerry Johnson, et al. (2011). Exploring strategy, 9th Ed. p. 9 9 Source: http://www.virgin.com/company

Figure 1 10

B. Does Virgins Strategy Create Value?

Defining Value Creation Based on a definition provided by Michael Goold and Kathleen Luchs,11 we believe that a corporate strategy adds value if portfolio companies are better off under the management of the parent than they would be as standalone entities. Moreover, when assessing a companys corporate strategy, we also believe that it is important to bear the companys own goals in mind. In Virgins case, these goals center on growth and challenging establishment players. When taking these goals into account, we believe that Virgin has been highly successful in creating value for its portfolio companies. Virgins Value-Adding Activities Virgin is able to successfully add value by providing three key resources to portfolio companies: (1) financing, (2) strategic vision and management advice and (3) the Virgin brand.
Johnson, note 8, at 232 Michael Goold and Kathleen Luchs (1993), Why diversify? Four decades of managerial thinking. Academy of Management Executive , 7(3): 22.
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Financing - Virgin provides important capital without which many of its portfolio companies would have been unable to get off the ground.

Strategic Vision and Management Advice Virgin is an interesting example of a company that applies its dominant logic 12 to add value to portfolio companies. The majority of Virgins portfolio companies fit a specific strategic profile as innovative, entrepreneurial businesses in industries marked by conservatism. Through Virgin Management Ltd., Virgin is able to supply managerial advice to its portfolio companies while helping them cultivate the Virgin image.

The Virgin brand The Virgin brand is an important asset for portfolio companies because it immediately links them with a hip, value-driven brand.

Virgins Value-Destroying Activities Virgins unique corporate structure allows it to avoid a number of value-destroying activities that have plagued many conglomerates. Virgins small corporate center allows it to reduce management costs and overhead. Likewise, Virgin avoids significant bureaucratic complexity because of the independence of many portfolio companies. Lastly, although Virgins structure does obscure its overall financial performance, the fact that it is a private entity mitigates this issue to a significant degree.

Virgin as a Portfolio Manager and Parental Developer In assessing Virgins value-adding activities, we believe that it is a hybrid between a portfolio manager and parental developer (see figure 2).

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Id. at 19.

Figure 2 13

On one hand, Virgin possesses the qualities of a portfolio manager because it invests in a wide range of companies, keeps a small corporate staff and allows individual businesses to operate with a high degree of autonomy. On the other hand, Virgin also possesses qualities of a parental developer because it shares its valuable brand and strategic focus with portfolio companies.

C. Conclusion
Ultimately, we believe that the majority of the companies in Virgins portfolio are more valuable under its management than they would be as standalone entities. Given Virgins focus on growth over profits, Virgins consistent expansion over the past four decades and its ability to enter a diverse array of industries are a testament to its success.

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Johnson, note 8, at 247.