Strategic Formulation And Business Environment Of Virgin Group

Position of Virgin in the market and competencies

In the present business environment it has become essential for the companies to manage its business in a proper way (Achtenhagen,  Melin & Naldi, 2013). For doing so they have to gather resources, makes effective plans and develop strategies. This helps in having edge over others. It is essential for the Companies of the scale of Virgin. Any strategic formulation must be based on the business environment it is surrounded by as well as competencies of the company. It is essential that company understands its position within the company and takes measures accordingly so as to ensure sustainable growth in the industry. It is the role of the leader to ensure that business is managed in a proper way. They have to take strategic decisions focusing on their plan for development.

Virgin group is one of the biggest organisations that have many kinds of businesses (Ball, Geringer, Minor & McNett, 2012). It is basically British multinational corporation venture capital conglomerate. Its business products includes banking, books, commercial spaceflight, films, health care, internet, commercial airlines, internet, mobile phones, retail, jewellery, music, travel etc. It is having large employee strength of around 71000.

This report highlights position of virgin in market as well as the competencies that group is using for ensuring their sustainable growth. This report also underlines the generic strategies that are used by the company for making its position in the market. Apart from this it also throws lights on internal and external environment in which company is operating.

There are many companies that come under the Virgin Group. One of the company in this regard is Virgin Atlantic. It is the British airlines company and has been successful over the years in their business operations. It is essential for the company to understand its external environment which helps it to make decisions accordingly. For this purpose PESTLE analysis can be highly beneficial.

• Political: There have been many kinds of changes in the political scenarios all over the world which has affected the business of Airlines industry. Many of the political ties have made and broken and hence Visa rules have also changed (Bereznoi, 2015). This has the severe impact on the operations of the firm. Decisions such as Brexit have completely changed the scenario for the Virgin Atlantic and negotiations between British Government and EU will decide free trade and movement rules. Apart from this there are many kinds of policy changes that is done by the Government and the increase in Taxes has reduced the profit margins of the company.
• Economic: There have been many kinds of economic hiccups which have been noticed in several parts of the globe (Campbell, Edgar & Stonehouse, 2011). This economic instability has reduced the profit margins of the firm as people do not want to spend lot on luxury services like Traveling. Decreasing pound value and slowdown in the American economy has reduced the revenue of the firm. On the other hand pound has been on the lowest value in last 30 years. Fuel prices have gone up in last few years which are a serious challenge for the whole industry. It is been notice that there was loss to the company that accounts to around 50 million pounds.
• Social: Society is changing all around the world and so is their need (Chun & Lee, 2013). This change in the demand of the society has affected on the business of the firm. People are demanding for high quality services at lower rates which is a challenge for the company in the growing financial distress. On the positive side there have been increase in the number of people that are opting for travelling across the borders; this is the positive sign for Virgin Atlantic. Increasing Per capita income of the people in many parts of the world has supported the Airlines industry. Virgin Atlantic need to make travel plans according to the requirement of the people so as to succeed in the industry.
• Technological: One of the most significant changes that are noticed is in technology that is used in the Airlines industry (Franz & Kirchmer, 2012). Aircrafts have become more automated. These type of technological changes need to be continuously adopted inside the firm so as to make sure that they do not lag behind in the competition. These technologies have reduced the cost of operations as well as have increased the efficiency of the overall firm. Since the changes in the technology is too rapid and hence company need to invest a considerable part in such kind of advancements. Virgin airlines investing a lot in the IT based passenger service system like Apps.
• Legal: There are various types of legalities that is involved in the Airlines industry (Galbraith, 2014). Since Virgin Atlantic is a multinational firm and hence it has to comply will all the rule changes in every country it is operational in. Most significant changes are noticed in labour related laws which if not followed by Virgin Atlantis then there can be strikes in firm. Apart from this if company do not follow rules and regulations then company has to face penalties in many of the market. Consumer related laws have also changed which needs to be properly taken care of so that Virgin Airlines do not face any kind of legal difficulties.
• Environment: Since governments have become very strict over the rules related to the environmental norms and hence Virgin Airlines have to comply with all the rules made by the government regarding environment pollution. This company need to adopt environment policy that helps in reduction of carbon emission from the operations of Virgin Atlantic. This company has also faced many cancellations of flights due to natural disasters all around the world which had significant impact on the performance of the company.

It is important for the company of the size of Virgin Atlantic to understand their environment in which they are operational. Porters five force analysis helps in understanding the business environment for the company.

• Threat of new entrants: This kind of threat is on the lower side as the investment that is needed for entering into this industry is very high. There are lot of costly planes that a company needs to buy for various roots. Apart from them any new entrants have to ensure that there are larger number of people that are attracted towards the services which cannot be possible be without becoming a brand name hence initial profits are not ensure. Apart from this fuel prices are increasing which is further reducing chances of generating high revenues (Ghosal, 2015). At the same time workers under this industry are highly paid and hence a large amount of revenue is required. But there is a chance that companies may enter into the market with by forming an alliance.
• Bargaining power of Buyers: Due to enhanced competition in the market where many companies that are operated by the government are offering services at lower cost. This has raised the bargaining power of buyers since they have many options to choose from. Consumers are demanding for the extra services at lower cost (Heracleous & Wirtz, 2012). There are many small enterprises that are also entering into the industry which have further raised the competition. Such kind of cut throat competition has raised the bargaining power of suppliers.
• Bargaining power of suppliers: There are lot of suppliers in the market which has enhanced the competition which resulted in the decrease in power of suppliers (Here’s a breakdown of the philosophy Richard Branson used to start over 400 companies in the Virgin Group, 2018). It suppliers include the companies that are providing the support staff as well as the companies that are making these aircrafts. This company makes very stronger bonds with its suppliers the one who are supplying crude oils. It helps the in lowering down their fares while ensuring considerable profits from its business. Due to emergence of many new suppliers that are offering new kinds of technology in the industry bargaining power of theirs have reduced.
• Threat of substitutes: The region of the world where Virgin Atlantic is operating has mainly those people who prefer flights over other mediums. There are no reasonable substitutes for the Airlines in the cross border travelling. Apart from this a considerable amount of threat is posed by cruise ship which is offering a luxury travelling. Advancements in communication technology like teleconferencing has somehow affected business of company since people can take meetings on these Apps only and they do not require travelling far across the distance.
• Threat of competitors: There are large numbers of competitors of Virgin Atlantic in the market. All these firms have higher amount of resources which they can use to influence the industry. There are many kinds of local companies that have come up in the industry. There are many kinds of competitors that have emerged in the industry which have come up using the strategy of merger. Some of the biggest competitor of Virgin Atlantic is British Airways, Emirates Airlines etc. These are making competition cut throat. The price wars have reduced the profit margins to lowest of levels and the concern for future expansion is increasing day by day.

It is also essential for any company to understand their internal environment of the organisation. For doing so one of the best tool is SWOT analysis. SWOT analysis for Virgin Atlantic is as follows:

Strength:

• Virgin Atlantic has a strong foundation in the market as it has been serving for many years with their efficient services (Johannesson, 2011).
• Virgin Atlantic has a large numbers of customers as their base consumers who are highly satisfied with the offerings of the company.
• It is carrying 5 million consumers in a financial year.
• It is serving its services in more than 35 destinations all around the globe which makes its one of the biggest Airlines Company in Britain.
• This company is known for its innovative marketing and branded advertisements.
• Highly performing management helps company in making quick and innovative decisions which is helping them to resolve issues present in the business on regular basis.
• This company has large number of employees who are highly skilled and are trained for providing services to the passengers in an ambient environment.

Weakness

• Strategic failures in many contexts have reduced the speed of growth for the company. This has restricted company from expanding its market.
• It is having lesser amount of presence in the emerging economies like south East Asian Countries.
• Lesser presence in the domestic Airlines of the developed countries which can be a greater source for generating revenues.
• Not very much into research which other competitors are focusing on.

Opportunities

• This company has to focus on the domestic markets as it has higher scope for generating profits.
• Company has lot of scope in many of the emerging economies like South Asian and South American economies.
• Can come into many new destinations apart from where it is operating right now.

Threat

• Rising cost of Aviation fuel as well as changing aviation tax rules.
• Labour cost has increased considerably which is affecting the revenues of Virgin Atlantic firm.
• Competition in the market have become cut throat.
• Financial glitches in the economies of many parts of the Europe and slowdown in American economy has affected on the revenue of Virgin Atlantic.

Their business has remained proactive as they have taken many decisions that gave them strategic advantage before their other competitors. Their business activities have been organised in a planned manner where decision making has mostly lied in the hands of management only (Kirkman,  Mathieu, Cordery, Rosen & Kukenberger, 2011).

Generic strategies used by the company

This company has been able to respond to all the conditions, situations and issues arisen in front of them over the years (Khojastehpour, Ferdous & Polonsky, 2015). The have an excellent ability to respond to various kinds of situations.

This company has evolved in past years from making management based decisions to decision making process that includes more number of employees in it (Kowalkowski, Kindström & Brehmer, 2011). In most of the ventures of Virgin group there is some or the other partner whom they have included to form decisions. From the example of Virgin rail it is clear that the company takes decisions are programmed as it was made after accessing the condition and resources of the firm. Apart from this it is also clear from the study that most of the decisions are made by understanding the decisions that is made by the rivals this helps in gaining competitive edge over others.

Branson himself keeps a closed look at the decisions made by the company. He was highly disappointed with the decisions that are made without properly understanding the rival bids capability. This resulted in the loss to the company in terms of franchise allocation to its rival First Group for which they have also bided.

From Virgin rail example it can be seen that their dependency of decision mainly lies with what its competitors have planned. Apart from this Branson himself gets involved in the decision making process which can be seen by the example of franchise bid related decisions of Virgin rail.

Virgin group has been worldwide known for its strategic decisions that helped them in growing at such speed that today it is almost in every kind of market and is operating with more than 400 companies all around the world in various kinds of industries. This company supports both kind of emergent as well as planned strategy (Lindgardt & Ayers, 2014). They have made a perfect balance between the two. For the use of resources they have mainly focused upon planned strategy and for the issues that come up while its operations it is taking decisions that have emergent view.

Most of its strategy is based on emergent view which helped the company in making extensive reach in the market. The case study has revealed that company has been pursuing such kind of opportunistic strategy. Their main aim was to find opportunities in the market and develop strategies accordingly so that they can grow at a sustainable pace. There trial and error process of finding a solution to the business problem is emergent rather than being prescriptive. Many a times it has faced many kinds of failures but it has ensured long term development for the company (Muthusamy & Dass, 2014). The reason for choosing such kind of strategy is that it has a larger scope of growing at faster rate. According to the leader Branson who summarises their business logic in the statement that says “Business opportunities are lie buses…There is always another coming along (Virgin Corporate Strategy, 2018).” They have always looking for the opportunities in the sector or market where people are not satisfied with the products and services they are receiving. This company believes in its brand name for coming into any new business. For example it was successful when company decided to take its mobile telephones to other countries beyond its UK base.

Internal and external environment of the company

As the company believes in opportunity based marketing and hence company has focused on many kinds of strategies which might be explained through porter generic strategies.

• Cost leadership: This is one such kind of strategy that is used by the company for attracting most of its consumers (Virgin Group Holdings Ltd – Environmental Reporting, 2018). This company have chosen mid and low fare price range for its products according to the seasons and what they feels to be more appealing. Costing depends on the business and the market in which it is operating.
• Differentiation: One of the widely used strategies among various companies under Virgin group. According to the need of the market as well as consumer their most of the products are designed (VIRGIN STRATEGIC MANAGEMENT ANALYSIS INTERNATIONAL BUSINESS, 2018). This helped company in increasing the satisfaction level of the consumers. They have differentiated their product with that of their competitors.
• Focus: This group has focused on entering into niche market by understanding the dynamics of its. It has been continuously researching market and the trends present in them (Waring, 2011). It has helped company in becoming leader in the market. But it does not work alone and hence they have used it with the other two strategies.

There are many kinds of issues that come in front of the company while they carry on with their operations and various kinds of issues it will be going to face in the coming years (Whyte, Prideaux & Sakata, 2012). Virgin Atlantic needs to evaluate these beforehand so that effective plans can be made regarding resolving it. Some of them are as follows:

• Limitation of resources: In future one of the biggest problems that this company is going to face is that there will be requirement that company arranges new set of resources. It helps to ensure that there is no kind of interruptions in their operations. Since after 20 years from now there will be unavailability of aviation fuel and hence companies need to move towards using alternative fuels (Scholes, 2015).
• Over flooding of companies: There are large numbers of competitors that are present in the market and the numbers are increasing day by day. This will result in excess amount of companies in the market where demand of the products and services of the company can get reduced.
• Economic instabilities: Economical instabilities in various parts of the world estimated to be increased in the coming years (Wild, Wild & Han, 2014). Virgin group need to properly make plans in this regard and better develop effective strategies related to it.
• Government policies: Considerable amount of changes in the laws related to business will be noticed in the future especially regarding the cost of raw materials (Winkler, 2011). This needs to be proper taken care off.

Conclusion

From the above based report it can be concluded that Virgin group is having many kinds of business and hence it has to make numerous kind of strategies. It is essential for Virgin Group to understand its internal and external environment of its. This helps in enhancing the chances of success for the company. There are large numbers of companies that are competing with this organisation and hence survival has become difficult. This company believes in the strategy that is more emergent or according to the opportunity. Company is using generic strategies like Focus, differentiation and cost leadership for its growth. This report also suggests about various kinds of issues that are going to be coming to the company in future and Virgin group has to be prepared for it.

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