The Virgin Group in 2012

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Mainly between 2005 and 2011 the divestment pace increased significantly. They started eliminating the financially unsuccessful businesses. Some examples are Virgin Cosmetics, Virgin Cars, Virgin Brides, Virgin Drinks, Virgin Money USA and many others.

Of course Virgin as a group is profitable, the Global brand revenues in 2009 exceeded £11.5 billion. But if one Virgin business underperformed, it might contaminate the entire brand.

That’s the reason why we think that Branson should divest businesses that don´t fit with Virgin personality and image. He should close businesses that lacked profitability or growth potential and divest in the ones that were mere eager acquires.

By observing TABLE 1 of the case we can see that some Virgin Companies had negative net profits between 2010 and 2011. So in that way we think that maybe it’s a good idea to divest in Virgin Active Group Ltd, as well as in Virgin Media Inc. So he should manly divest in businesses related with Lifestyle and Media and Mobile.

The Virgin Rail was also a source of risk because the structural problems of Britain´s congested rail infrastructure made it difficult to provide a punctual and reliable service.

But as seen in FIGURE 1 Virgin has so many different businesses, some of them that don’t contribute for sure for the companies revenues and that have little to see with the brand image for instance Virgin Wines, Virgin Games, Virgin HealthMiles, Virgin Experience Days, etc.

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III. What criteria should Branson apply in deciding what new diversification to pursue?

The Virgin Group has been acquiring and investing in different kinds of businesses which allow them to have a much more diversified portfolio. In that way they were able to expand the brand name that is, nowadays its main asset.

Despite that, some of their businesses have become unprofitable what lead to a divest movement from the group, in order to eliminate those unsuccessful businesses.

Before deciding entering into a new market and business they analyze the market potential to growth and if it fits within the philosophy of the company. However, the most important aspect they analyze is the customer`s satisfaction. This is their main concern. They place themselves in the customers` shoes to see if theirs needs are being well served or not. Then, if they realize that the competitors are being complacent and that there is an opportunity to create competitive advantage by offering a better service than the other to customers they will likely penetrate that market.

The Virgin Group tends to penetrate into market which they know nothing about. So they usually rely on partnerships when they want to start a new business. As it was mentioned before, the brand name is their biggest asset. It has a lot of reputation what makes it easy to find partners to cooperate with them on a new business. By partnership they are able to use the knowledge and the resources of theirs partners and take advantage of their innovative way of work and of the power that their brand possesses.

In Richard Branson’s point of view it’s better to priories investments with long term expected growth rather than short-term profits. As matter of fact Branson has created a lot of start-ups that at the beginning weren´t that profitable. He doesn´t matter having losses in the short-run if that means that he is creating value in the long-run. That may become a problem. The company must plan the future. However it must survive the present.

In conclusion, we believe that The Virgin Group must continue diversifying in markets that have room to growth and that the customers are being badly served. However, they should put more effort in their short-run results and investing in other businesses. By doing this they may cut loose the most unprofitable businesses or the ones that are giving negative results.

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IV. What changes in the financial structure, organizational structure, and management systems of the Virgin group would you recommend?

We would recommend virgin to focus on redirecting their business strategy, they need to choose firmly which type of business they want, weather they want to go abroad which they clearly did, or to focus more on UK. If they want to go abroad they need to have a more strict coordination and make decisions where to invest or divest more wisely, until now decisions were based too much on “free spirit” and “bigger the challenge, greater the fun”, it seems like Branson doesn’t make decisions based on facts and numbers, he seems to do whatever it seems right, in result, virgin is now an huge company spread all over the world and having an hard time to maintain control, accountability and strategic control, there is a very real risk of overextending and damaging their integrity. Virgin is now in 30 countries with 300 companies and more than 50.000 workers.

Also it seems like they are not focusing on short term results, all they focus on is long term growth, but it creates doubts on people outside of the company weather the company is profitable or not, short term earnings are as important as long term, it signals that the firm is healthy, creating many opportunities of investors. So they definitely need to show some signals of financial health early by per example paying out dividends.

We feel that the company needs to slow down the growth and start solidifying what they have built so far.

Virgin should put more efforts in their short-run results. Furthermore they should choose on focusing on bringing the brand together for all different businesses, or letting the different businesses function autonomously with Virgin Group as the parent and supervisor.

- What are the advantages and disadvantages of having an umbrella name for all companies of the Virgin group?

An umbrella name means that I arrange several brand names under a single corporate name. This allows products to distinguish themselves with their own brand name, but gives them an association with a larger group of products.

Many successful companies usually use this strategy and Virgin is a good example of it. Virgin sells a huge variety of products but all have a connection with the company name.

Having an umbrella name for all companies of the Virgin group has advantages and disadvantages.

Let´s start with the advantages. A umbrella name allows companies to create synergies