The virgin group in 2012




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THE VIRGIN GROUP IN 2012

At the beginning of 2012, Richard Branson was 61 years old and his Virgin Group of companies had been in business for 43 years. Yet neither Branson nor his business activities showed much sign of lacking entrepreneurial vigor. In financial services, Virgin Money was in the process of a major expansion of its UK retail presence through acquiring the government-owned Northern Rock with its 75 branches, 2100 employees, and one million account holders. In health clubs, Virgin was using its acquisition of Assura to established itself in primary healthcare services in the UK. In communications Virgin’s initiatives included the launch of Virgin Mobile in Chile, Colombia, Brazil, Poland, and Oman and cloud computing services for corporate customers in the UK. It was also rumored that Virgin was planning to enter concert promotion and that its first event would be a series of concerts by the Rolling Stones. Meanwhile, in the travel business, Virgin continued to be a pioneer: the Virgin Galactic spaceship service was undergoing test flights and selling seats at $200,000 each.

Yet despite Branson prominence as Britain’s best-known entrepreneur and one of its richest individuals, his Virgin group of companies remained a mystery to most observers (and to many insiders as well). At the beginning of 2012, there were 228 Virgin companies registered at Britain’s Companies House (68 of which were identified as “removed” or “recently dissolved”). In addition, there were Virgin companies registered in 25 companies. These companies were linked through a complex network of parent-subsidiary relations involving a number of companies identified as “holding companies.” For most of the Virgin companies the ultimate parent was identified as Virgin Group Holdings Ltd, which was registered in the British Virgin Islands.

The complexity of Virgin’s legal and ownership structure meant that its financial condition was opaque. Doubts had frequently been expressed about the overall financial health of the group. Branson was dismissive of such speculation, claiming that analysts and journalists misunderstood his business empire. Each Virgin company, he argued, was financed on a stand-alone basis and attempts to consolidate the sized that the financial performance goals of a private company were different from a public corporation. Public companies needed to demonstrate strong short-term earnings performance. For private companies it was better to avoid short-term profits in order to limit tax liabilities; long-term growth in the value of the business was the key for a business to incur losses for many years. Cash flow and capital value rather than accounting profits were Branson’s preferred performance indicators.

Underlying questions about financial performance were concerns over the strategic rationale and the manageability of the Virgin group. The group comprised around 300 separate companies (in addition to over 160 UK-registered companies there were many Virgin companies registered in overseas countries), these companies covered a wide range of businesses. In an era of corporate refocusing, when most conglomerate companies had either divested their diversified businesses or broken up altogether, the Virgin group was anomaly. A major concern was the need to maintain coordination, accountability, and strategic control of this dispersed business empire. A key vulnerability was the Virgin brand: with such broad business coverage it risked becoming overextended and its integrity damaged.

Despite a new management structure involving the appointment of co-CEO’s in July 2011, Branson remained the inspiration and unifying force within the group. As he became less involved in Virgin’s business activities and more involved in Virgin’s environmental and charity activities, would Virgin need to replace its informal, freewheeling management style with a more formalized control structure? Or should it even consider break-up with the sale or floatation of its individual businesses?



Development of the Virgin Group, 1968-2012

Richard Branson’s business career began while he was a student at Stowe, a private boarding school. His startup magazine, student, was first published on January 26, 1968. The magazine displayed features that would characterize many of Branson’s subsequent entrepreneurial initiative. It targeted the baby-boomer generation, appealing to its optimism, irreverence, and anti-authoritarianism, and its interest in fashion, popular music, and avant-garde culture. And it filled a “gaping hole in the market.” The early success of the magazine encouraged Branson to leave school at the age of 17, before taking final exams.



Virgin Records

Branson’s next venture was mail-order records. With almost no fixed investment and little working capital, Branson could easily undercut the established retail chains. The name “Virgin” was suggested by one of his associates who saw the name as proclaiming their commercial innocence. In 1971, Virgin Records opened its first retail store, on London’s busy Oxford Street.

Entry into record publishing resulted from a meeting with an unknown musician, Mike Oldfield. Branson installed a recording studio in his Oxforshire home and the resulting album, Tubular Bells, released in 1973, was an instant hit, eventually selling over five million copies worldwide. The Virgin record label then went on to sign up bands, several of whom, such as the Sex Pistols, had been shunned by the major record companies. During the 1980’s Virgin Records grew rapidly, with the signing of Phil Collins, Human League, Simple Minds, and Boy George’s Culture Club.

Virgin Atlantic Airways

Virgin Atlantic began with a phone call from Randolph Fields, a Californian lawyer who propped founding a transatlantic, cut-price airline. To the horror of his colleagues at Virgin Records, Branson was enthralled with the idea. On June 24, 1984, Branson appeared in a First World War flying outfit to celebrate the inaugural flight of Virgin Atlantic in a second-hand 747 bought from Aereolineas Argentinas. Unlike Branson’s other businesses, the airline business was highly capital-intensive and heavily regulated; it also required a completely new set of business skills, such as the need to collaborate with governments, banks, and aircraft manufacturers.

Virgin Atlantic’s huge financing needs encouraged Branson to seek an initial public offering for most of Virgin’s businesses other than Virgin Atlantic. In 1985, 35% of Virgin Group PLC was listed on the London and NASDAQ stock markets.

Branson’s experience as chairman of a public corporation was frustrating: the financial community’s expectations of the role and responsibilities of a chairman of a public corporation were incompatible with his personality and lifestyle. Following the October 1987 stock market crash, Branson took the opportunity to raise 200 million to buy out external shareholders.



Virgin Everywhere!

As a private company, Virgin continued to expand, using both internals cash flows, mainly from Virgin Atlantic Airways, and external financing. Between 1988 and 2011, Virgin launched a near-continuous stream of new businesses (see the timeline in the Appendix). These new businesses were concentrated around a few main areas of opportunity:



  • Travel: The success of Virgin Atlantic, which extended its route network and won many customer service awards, encouraged Branson to launch other airlines. These followed the business model of the low-cost carriers, but with the addition of Virgin’s distinctive approach to differentiating its in-flight experience. New airlines included the Brussels-based Virgin Express (later merged into Brussels Airlines), Vintage Air Tours flying restored DC-3s between Orlando and Key West, Virgin Blue in Australia, Virgin America in the US, Pacific Blue in New Zealand, and V Australia with services between Sydney and Los Angeles. Other aviation ventures included Virgin Lightships, offering airship advertising; Virgin Galactic; and Virgin Balloons.

  • Holidays: Linked to Virgin’s airline interests were investments in hotels and vacation services, including a lodge and wildlife park in South Africa.

  • Retailing: Virgin’s record stores provided a platform for internationally expanding retail interests. The Our Price chain of UK record stores was a joint venture between Virgin and WHSmith. Virgin Megastores pioneered “experience-based retailing” not just in the UK but also in Japan, the US, Australia, and Europe. Virgin Bride was a UK chain of bridal stores.

  • Information and communication technology: The developments in digital technologies created a new field of opportunity for Branson. The advent of the internet allowed Virgin to expand its retail interests into the online retailing of a number of products, including automobiles, wine, and music downloads. The most successful of these was Virgin Direct (later renamed Virgin Money), a joint venture with Norwich Union, offering credit cards and other personal financial products. The start of cellular communication encouraged the launch of Virgin Mobile, a joint venture with Deustche Telekom, which pioneered the “virtual network operator” model of wireless service (Virgin Mobile purchased network access from other providers). The Virgin Mobile strategy was then replicated in the US, Australia, South Africa, and South East Asia. Virgin.net, an internet service provider, was a joint venture with cable operator NTL. NTL subsequently acquired both Virgin.net and Virgin Mobile UK to create Virgin Media Inc., the UK’s first “quadruple play” provider offering TV, broadband internet, mobile, and fixed-line phone services. Virgin Group held a 10.6% shareholding in Virgin Media and licensed the Virgin brand to it.

  • Deregulation and privatization: Virgin’s cell phone business was only possible because of the deregulation of telecommunications in Britain and other countries. The wave of privatization and deregulation of the 1980s and 1990s offered other entrepreneurial opportunities for Branson to exploit the Virgin brand and its flair for innovative customer service. Virgin acquired two passenger rail franchises that were combined to form Virgin Rail, a joint venture with Stagecoach, a transportation specialist. Deregulation in Australia permitted the launch of Virgin Blue. Virgin also bid, unsuccessfully, to operate the British National Lottery.

  • International expansion: During 1998-2011, much of Virgin’s growth was outside the UK. This involved replicating successful Virgin ventures overseas, such as Virgin Mobile, Virgin Active, Virgin Money, and Virgin’s airline interests. Virgin’s international expansion concentrated on North America, Australia, and South Africa.

Other new ventures launched by Virgin defied categorization; they were the result of opportunism and Branson’s whims. These included health clubs (Virgin Active), biofuels (Virgin Fuels, Virgin Bioverda), video games (Virgin Interactive), drinks (Virgin Drinks, Virgin Cola), clothing and cosmetics (Victory Corporation), and Virgin Health Bank, where parents could store the blood stem cells from their newly born babies.

Focusing the Group, 2005-2011

Throughout its history, Virgin has divested some of its ventures either wholly or partially. Some of these divestments were to tap sources of investment funding (e.g., the sale of 49% of Virgin Atlantic to Singapore Airlines in 1999 and the floating of Virgin Blue). In other cases it was because Branson wished to release equity to fund more attractive businesses (e.g., the sales of Virgin Records, Virgin Megastores, and Virgin Mobile UK). During recent years, the pace of divestment by Virgin increased as it sought to eliminate financially unsuccessful businesses. These included, among others, Virgin Vie, Virgin Cosmetics, Virgin Cars, Virgin Bikes, Virgin Brides, Virgin Drinks, Virgin Mobile Singapore, and Virgin Money USA.



The Virgin Group of Companies in 2012

On its corporate website, Virgin describes itself as follows:

Virgin is a leading branded venture capital organization and is one of the world’s most recognized and respected brands. Conceived in 1970 by Sir Richard Branson,

the Virgin Group has gone on to grow very successful businesses in sectors ranging from mobile telephony to transportation, travel, financial services, media, music and fitness.

Virgin has created more than 300 branded companies worldwide, employing approximately 50,000 people, in 30 countries. Global branded revenues in 2009 exceeded £11.5 billion (approx. US $18 billion).

We believe in making a difference. Virgin stands for value for money, quality, innovation, fun and a sense of competitive challenge. We deliver a quality service by empowering our employees and we facilitate and monitor customers’ feedback to continually improve the customer’s experience through innovation.

Most of the business activities of the Virgin Group are conducted through the 49 companies listed on the Virgin website. These companies are grouped into six categories plus Virgin Entrepreneur, Virgin’s business start-up function.

The Virgin Brand

The Virgin Brand was the group’s greatest single asset. It was unusual in terms of the range of products in encompassed. Could a brand that extended from rail travel to recorded music have any meaningful identity? The Virgin website offers the following explanation:

All the markets in which Virgin operated tend to have features in common: they are typically markets where the customers have been ripped off or under-served, where there is confusion and/or where the competition is complacent. In these markets, Virgin is able to break into the market and shake it up. Our role is to be the consumer champion, and we do this by delivering to our brand values, which are;


  • Value for Money: Simple, honest and transparent pricing-not necessarily the cheapest on the market.

  • Good Quality: High standards, attention to detail, being honest and delivering on promises.

  • Brilliant Customer Service: Friendly, human and relaxed; professional but not corporate.

  • Innovative: Challenging convention with big and little product/service ideas; innovative, modern and stylish design.

  • Competitively Challenging: Sticking two fingers up to the establishment and fighting the big boys-usually with a bit of humor.

  • Fun: Every company in the world takes itself seriously so we think it’s important that we provide the public and our customers with a bit of entertainment-as well as making Virgin a nice place for our people to work.

These attributes were conveyed to customers through Virgin’s approach to differentiating its offerings. Virgin Atlantic pioneered a range of innovative customer services (principally for its business class passengers). These included inflight massages, hair stylists, aroma therapists, and limousine and motorcycle airport transportation services. In 1998, it introduced a speedboat service along the Thames from Heathrow to the City of London, allowing financiers to dodge London traffic jams. British Airways-huge, stodgy, and bureaucratic-provided itself. When British Airways was experiencing problems erecting its giant Ferris wheel, the London Eye, Virgin positioned a blimp above the site bearing the message “BA Can’t Get it UP!”

Some of Branson’s ventures seemed to be inspired more by a sense of fun and eagerness to “stick it to the big boys” than by commercial logic. When Virgin Cola was introduced in 1994 (packaged in a “Pammy” bottle modeled on the body of Baywatch star Pamela Anderson), the goal, according to Branson, was to “drive Coke out of the States.” By 1997, Virgin Cola was losing £5 million on revenues of £30 million.

Virgin’s ability to extend its brand so widely pointed to the broad appeal of Virgin’s values and business principles. Much of this appeal was linked with Richard Branson’s persona and style. The values and characteristics that the Virgin brand communicated are inseparable from Richard Branson as entrepreneur, joker, and “acceptable face of capitalism.”

By identifying with Branson’s personality and values, the Virgin brand allowed Virgin companies to position themselves as distinctive alternatives to established market leaders. Thus, the difference between Virgin Atlantic and BA, between Virgin Cola and Coca Cola, and between Virgin Money and the major banks was not primarily about products; it was more about the companies’ identity and how they related to their customers.

The affection of the British public for Branson, and the appeal of the Virgin brand, reflected the alignment between Branson’s values and sense of fair play with some of the traditional values that defined the British character. In battling huge, anonymous corporations, Branson recalled the heroes of yesteryear who fought against tyranny and evil. King Arthur, Robin Hood, and St. George. His willingness to appear in outlandish attire reflected a British propensity for eccentric dressing-up, whether for fancy-dress parties, Morris dancing, or the House of Lords. But this distinctiveness also raised questions as to the appeal of the Virgin brand outside of Britain. It was unclear whether Branson and the Virgin brand could achieve the same rapport with consumers in other countries as they did in Britain.

A key risk was overextension of the Virgin brand. The head of brand identity at Landor Associates commented: “ He’s still way too unfocused. He should get out of businesses that don’t fit the Virgin/Branson personality, such as beverages, cosmetics, certainly financial services, or come up with another brand name for them. If source of risk was Virgin Rail: the structural problems of Britain’s congested rail infrastructure made it difficult to provide a reliable, punctual service.

Despite his renown, Branson as flight attendant, Branson in a wedding dress, Branson with different world leaders, and Branson’s hot-air ballooning stunts, the public might tire of his exploits?

RICHARD BRANSON AND THE VIRGIN BUSINESS DEVELOPMENT MODEL

Almost all of the Virgin businesses were new start-ups. From the founding of Student magazine through to the formation of Virgin Galactic, Branson’s strength as a businessman was in conceiving and implementing new business ideas, not that Branson was the source of all of Virgin’s new business ideas: he acted as a magnet for would be entrepreneurs from both inside and outside the Virgin group. The idea for Virgin Bride had originated with a Virgin Atlantic employee dismayed by the products and services offered by existing UK bridal stores. Virgin Active South Africa resulted from Nelson Mandela’s request that Branson acquire a South African health club chain that had gone bankrupt putting thousands of jobs at risk. Virgin encourages the submission of new business ideas to its corporate development offices in London, Sydney, and New York.

Virgin’s approach to business start-ups reflected Branson’s values of innocence, innovation, and irreverence for authority. His business ventures, “just live life” attitude and a “bigger the challenge, greater the fun” belief. He was particularly drawn to markets where conservatism and lack of imagination by incumbent firms resulted in underserved customers a better alternative. Financial services were on sector where Branson hoped to bring a breath of fresh air. However, by 2012, Virgin business development initiatives were more about systems that about Branson’s entrepreneurial intuition:

When we start a new venture, we based it on hard and analyses. Typically, we review the industry and put ourselves in the customer’s shoes to see what could make it better. We ask fundamental questions; Is the customer’s focused on badly served? Is this an opportunity for restructuring a matter and creating competitive advantage? What are the competitors doing? Is this an opportunity for building the Virgin brand? Can we add value? Will it interact with our other businesses? Is there an appropriate trade-office between risk and reward?

We are also able to draw on talented people from throughout the Group. New ventures are often steered by people seconded from other parts of Virgin, who bring with them the trademark management style, skills and experience. We frequently create partnerships with others to combine industry specific skills, knowledge, and operational expertise.

Contrary to what some people may think, our constantly expanding and eclectic empire is neither random nor reckless. Each successive venture demonstrates our devotion to picking the right market and the right opportunity.

Once a Virgin company is up and running, several factors contribute to making it a success. The power of the Virgin Brand; Richard Branson’s personal reputation; our unrivalled network of friends, contacts and partners; the Virgin management style; the way talent is empowered to flourish within the group. To some traditionalists, these may not seem hard headed enough. To them, the fact that Virgin has minimal management layers, no bureaucracy, a tiny board and no massive global HQ is an anathema. But it works for us! The proof of our success is real and tangible.

Our companies are part of a family rather than a hierarchy. They are empowered to run their own affairs, yet the companies help one another, and solutions to problems often come from within the group somewhere. In a sense we are a commonwealth, with shared ideas, values, interests and goals.



The Virgin Group’s Management Structure and Style

As already noted, the legal and ownership structure of the Virgin group was, and still is, highly complex. A number of holding companies own, either wholly or partially, the equity of Virgin’s many operating companies. For example:



  • Virgin Money Ltd was the main UK operating company of Virgin Money; however, its activities were contracted out to Virgin Money Management Services Ltd. It was a subsidiary of Virgin Money Holdings (UK) Ltd, which was a subsidiary of Virgin Financial Services UK Holdings Ltd.

  • West Coast Trains Ltd, Virgin’s main UK rail franchise, was owned by Virgin Rail Group, which was owned by Virgin Rail Group Holdings Ltd, the majority of which was owned by Virgin Holdings Ltd, which was a subsidiary of Virgin Wings Ltd.

These holding companies were, for the most part, ultimately owned by Virgin Group Holdings Limited, a private company registered in the British Virgin Islands and owned by Richard Branson and a series of family trusts.

This financial and legal structure reflected Branson’s wariness of the financial community and his unconventional ideas about business. Virgin’s intricate structure involving offshore private companies and holding companies which disguised the identity of minority shareholders through the use of bearer shares clocked the Virgin Empire in a thick veil of secrecy. However, it also allowed Virgin to retain the entrepreneurial dynamism of a collection of mostly medium-sized companies which were able to draw upon the enthusiasm and commitment of their employees.

Branson’s approach to management reflected his values and personality. Informality and disrespect for convention were central to Branson’s way of business. His dislike of office building s and the usual symbols of corporate success was reflected in the absence of a corporate head office and his willingness to do business from his family homes, whether a houseboat in Maida Vale of his Necker Island Caribbean retreat. This lack of separation between work, family, and leisure—indicated by the involvement of cousins, aunts, childhood friends, and dinner-party acquaintances in business relationships—reflected a view of business as part of life which, like life, should involve excitement, creativity, and fun. His hands-off approach to his business empire was based upon giving autonomy and incentives to talented managers that he trusted. Once a new Virgin business was up and running, it was handed over to a trusted managing director and financial controller. The top management team were provided with equity stakes or options and expected to develop the company. A large number of Virgin managers have become millionaires.

Branson’s management approach also reflected the social changes during his formative years. To many of his generation he embodied the spirit of “New Britain.” In a country where business leaders were members of the establishment and identified with the existing social structure, Branson had the ability to transcend the social classes that traditionally divided British society and segmented consumer markets. As such, he was part of a movement that sought to escape the Old Britain of fading empire, class antagonism, Victorian values, and stiff-upper lip hypocrisy.

Branson’s antipathy toward authority and convention was reflected in his disrespect for conventional business principles. He argued that Virgin’s network of small companies combined “small is beautiful” with “strength through unity.” In a speech to the Institute of Directors in 1993, he explained the business maims that he believed to be necessary for success: “Staff first, then customers and shareholders” should be the chairman’s priority if the goal is better performance. Other guiding principles included: “Shape the business around the people”; “Build don’t buy”; “Be best, not biggest”; “Pioneer, don’t follow the leader”; “Capture every fleeting idea”; and “Drive for change.”

Since the beginning of the 21st century, the management of the Virgin group has become more formalized. In particular:



  • Virgin Management Ltd is the source of management leadership to the group. As the website explains:

At the Centre, Virgin Management Ltd (VML) provides advisory and managerial support to all of the different Virgin companies and our specialist Sector teams around the world. Our people in London, New York and Sydney offer regional support and between us and the Sector teams we manage Virgin’s interests across the whole of the Virgin Group.

  • Sector teams, each headed by a managing partner, provide oversight to companies within a particular area of business: “These bigwigs look after interest in aviation, media & telecom, financial services, health & wellness, leisure, and Green (clean technology) investments. The specialists keep our companies on their toes and ensure we keep developing better experiences and world beating products.

  • Virgin Enterprises Ltd owns and manages the Virgin brand. Neil Hobbs, intellectual property lawyer for Virgin Enterprises, explained: “Our role is both to optimize and enhance the value of the brand and to protect that by ensuring that that value is not diminished through infringement by third parties. Virgin Enterprises licenses companies both within and outside the Virgin Group to use the Virgin brand.” During the year to end-March 2011, royalties from licensing the Virgin brand to members of the group and to other companies amounted to just under 35 million.

In July 2011, Virgin underwent significant management reorganization with the appointment of two co-chief executives to head Virgin Group Holdings Ltd: David Baxby, head of both Virgin Asia-Pacific and the aviation business, and Josh Bayliss, general counsel.

The company described the move as part of a long-term plan devised by Peter Norris, chairman, and Mr. Murphy. “The aim now is to stick our heads above the parapet and look at the Far East, look at South America, look more at North America. We look to establish bridgeheads into new markets and then bring in partners,” said spokesman Nick Fox.

Mr. Baxby, 37, a former Goldman Sachs banker, and Mr. Bayliss, 38, would be based in London and Geneva, as part of a small senior team of managers. Virgin’s chief financial officer, Mark Poole—who spent 20 years at the company—would also step down, to be replaced by an internal candidate. The new co-chiefs would oversee all the company’s investments, which included operations in telecoms and media, banking, rail, aerospace, health and renewable energy.

Nevertheless, formal structures and process formed a minor part of the Virgin management system. At the heart were two critical components of the system: culture and personal relations.

The Virgin culture was the organizational embodiment of Branson’s eccentricity, sense of fun, and disrespect for hierarchy, informality, commitment to employees and consumers, and belief in hard work and individual responsibility. While the working environment was informal, anti-corporate, and defined by the popular culture of its era, expectations were high in terms of commitment, acceptance of personal responsibility, and long hours of work when needed, and striving to meet performance goals.

In terms of personal relationships, Virgin’s ability to launch so many new businesses and prevent its business empire falling to chaos depended critically upon Branson and his core of long-term associates who formed the senior management team of the Virgin Group and occupied key executive positions within individual operating companies.

Key executives at Virgin Group during the first decade of this century included:


  • Will Whitehorn was Branson’s right-hand man for two decades. In 2011, he retired as CEO of Virgin Galactic.

  • Gordon McCallum joined Virgin in 1997 as group strategy director from McKinsy & Company. He pioneered Virgin’s entry into telecom and since September 2005 was CEO of Virgin Management Ltd.

  • Stephen Murphy had a career in finance with Mars, Unilever, and Quaker Oats. At Virgin he headed Virgin’s airline businesses before becoming CEO of Virgin Group Holdings Ltd, a position he relinquished at the end of 2011.

  • David Baxby was head of Virgin Asia-Pacific and the aviation business; from January 2012 he took over as co-CEO of Virgin Group Holdings.

  • Josh Bayliss was Virgin’s general counsel before being appointed co-CEO of Virgin Group Holdings together with David Baxby.

  • Patrick McCall was formerly an investment banker at UBS Warburg before becoming a member of the top management team at Virgin Management Ltd and a broad member of several Virgin companies.

  • Rowan Gormley led several Virgin start-ups, including Virgin Money and Virgin Wine, before leaving Virgin in 2008

  • Frances Farrow joined Virgin Atlantic from the law firm Binder Hamlyn and became CEO of Virgin USA, Inc.

  • Peter Norris was head of Barings Bank; after several years as strategy adviser to Virgin, he became chairman of Virgin Group Holdings Ltd.

  • Carla Stent was COO of Virgin Management Ltd. She previously held senior positions at Barclays Bank and Thomas Cook.

Virgin’s Financial Performance

Financial reporting by the Virgin companies was fragmented, hard to locate, and difficult to interpret. No consolidated accounts existed for the group as a whole. In addition to the many operating companies, ownership of these companies lay with a number of holding companies and intermediate holding companies. Tracking financial results over time was difficult because investments in Virgin operating companies were frequently transferred between group companies. UK-registered Virgin companies submitted audited financial statements to Companies House (a government agency). Table 1 shows financial results for some of the Virgin’s major subsidiaries.

Virgin’s financial management emphasized maximizing the returns to Virgin equity through high financial leverage and the use of equity partners to finance Virgin’s business ventures. Typically, Virgin was able to use the Virgin brand and Branson’s celebrity status to obtain 51% or more of the equity of new ventures while contributing a minority of the equity capital. For example, Virgin’s stake in Virgin Direct required an initial outlay of only 15 million; its partner, AMP, put 450 million into the joint venture. Branson put only 2,000 into Virgin Clothing and Virgin Vie; equal partner, Victory Corporation, invested 20 million. At Virgin Blue, Branson’s initial investment was a mere A$12 million. Virgin’s joint-venture partners included Singapore Airlines (owned 49% of Virgin Atlantic), Stagecoach PLC

(49% owner of Virgin Rail), Citicorp (co-owner of Virgin Money Australia), and Tata Group (co-owner of Virgin Mobile India).



Looking to the Future

The management changes of 2010-2011—and notably the appointment of co-CEOs and the creation of a sector management structure to achieve coordination among Virgin companies within related businesses—suggested a move toward greater centralization in the management of Virgin’s sprawling empire. These management changes reflected changes in Virgin’s strategy. The rate at which Virgin was launching new businesses was much lower during 2000-2011 than during the previous two decades. Virgin was showing a greater willingness to divest businesses where there were eager acquirers and close businesses that lacked profitability or growth potential. Virgin was even willing to enter new businesses by acquisition rather than start-up.

But establishing a strategic direction for Virgin was confounded by the different views within the group as to the nature of Virgin’s business model. The preponderance of finance experts and former investment bankers among its senior management encouraged many to think of Virgin as a private equity fund. Yet, private equity companies (such as Blackstone, Carlyle, and Kohlberg Kravis Roberts) were engaged creating them from scratch. Others viewed Virgin as a conglomerate; yet, although highly diversified, conglomerates too were in the business of acquiring established businesses. Branson had likened Virgin to a Japanese keiretsu: there were clear parallels in terms of equity linkages, interlocking directorships, collaboration between referred to Virgin as a “branded venture capital organization”; however, venture capital firms were engaged in financing other people’s start-ups: Virgin created its own businesses, typically using other people’s money.

Clearly, the strategy and structure of the Virgin group did not fit within any existing category of business enterprise. A more relevant question for Virgin was what should its business model be? If Virgin’s core resource was its brand, did it need to own the businesses that bore its name: could it simply operate as a brand franchising organization licensing its brand to other companies (as it did with Virgin Records and Virgin Media)? If the core of its business was creating new businesses, then perhaps it should organize itself as an incubator of new start-ups. This would also imply divesting businesses once they were up and running.



Whichever strategic model Virgin followed, it seemed likely that it would need to continue to make changes to its structure and management system. The informal, collaborative approach that had allowed the Virgin group to survive and develop despite a turbulent economic environment had depended greatly upon Richard Branson and his personal leadership. Inevitably, his role within the group would diminish over time.







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