VIRGIN GROUP Resource: Exploring Corporate Strategy
Introduction The Virgin Group is one of the UK's largest private companies, with an annual turnover estimated at £3bn per annum by 2000. Virgin's highest-profile business was Virgin Atlantic, which had developed to be a major force in the international airline business. However, the group spanned over 200 businesses from financial services through to railways; from entertainment mega stores and soft drinks to cosmetics and condoms. (Figure 1 shows the breadth of the group's activities.) Its name was instantly recognizable. Research showed that the Virgin name was associated with words such as 'fun', 'innovative', 'daring' and ...view middle of the document...
There was little sense of management hierarchy and there seemed to be a minimum of corporate bureaucracy. There was no 'group' as such; financial results were not consolidated either for external examination or, so Virgin claimed, for internal use. Its financial operations were managed from Geneva.
Each business or group of businesses ran its own affairs but they were tied together through a degree of shared ownership and shared values. Some argued that Virgin's ownership structure enabled it to take long-term views, free from investors' fixation with short-term returns. Indeed, Branson argued that, as he expanded, he would rather sacrifice short-term profits for long-term growth and the capital value of the various businesses. Others argued that financing purely through equity slowed the group's ability to expand. Still others suggested that the complex web of businesses, with ownership in offshore trusts in the Channel Islands and the British Virgin Islands, did little to support Branson's image of honesty and openness.
Corporate structure The structure of Virgin Group was so opaque that the true financial position of Virgin Group was unclear. Due to its status as a private company, the complex group structure, and unavailability of consolidated accounts, it was difficult to arrive at accurate figures for the Group's collective turnover and profit. Companies within the group did not even share a common accounting year-end.
The Group has been described as a 'keiretsu' organization - a structure of loosely linked autonomous units run by self-managed teams that use a family brand name. Branson's philosophy was that if a business got to a certain size, he would spin off a new business from the existing one. Branson has argued that, as Virgin almost wholly comprised private companies, the running of the Group must be fundamentally different from that of a public limited company, which must keep shareholders, stakeholders and analysts happy, and must pay attention to short-term goals of high taxable profits and healthy dividends. The advantage of a private conglomerate was that the owners can ignore short-term objectives and concentrate on long-term profits, reinvesting for this purpose.
Historically, the Virgin Group had been controlled mainly by Branson and his trusted lieutenants, many of whom had stayed with him for more than twenty years. The approach to management was one that decentralized decision making, with an emphasis on autonomous business-level decision making and responsibility for their own development.
In 2000 the head office consisted of about 30 people. Senior staff had often had successful careers in large, multinational corporations. With businesses scattered across a wide range of industries and
markets, the approach was hands-off, and until he was needed to finalize big deals or to settle strategy, Branson ruled with a loose rein by delegating to managers and giving them leeway to use their initiative....