Case Study

Topics: Virgin Group, Richard Branson, Virgin Atlantic Airways Pages: 69 (8867 words) Published: November 20, 2010
Tutorial Questions
* What are the common resources and capabilities that link companies within the Virgin Group? * وما هي الموارد والقدرات المشتركة التي تربط بين الشركات داخل مجموعة فرجن ؟ * Which businesses should Virgin divest?

* الأعمال التجارية التي ينبغي أن تعرى وتجرد فرجن؟ * What should be the criteria for new diversification within the Group? * ماذا ينبغي أن تكون المعايير لتنويع جديد داخل المجموعة ؟

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| | Richard Branson and the Virgin Group of Companies in 2007*| | | |
| Despite celebrating his 57th birthday, Richard Branson showed no signs of flagging energy or loss of entrepreneurial vigor. During the last two weeks of January 2007, Virgin announced a slew of new initiatives. These included the creation of Virgin Bioverda—a joint venture to develop ethanol plants in the U.S.—a bid for a vacation company (First Choice) and a proposal to take over rail services between London and Edinburgh. At the same time, Branson was negotiating an alliance with Tata Group to establish Virgin Mobile in India and preparing to buy 50 acres of land in Macau to build a $3 billion casino and leisure complex. Meanwhile, Virgin America—Branson's San Francisco-based low-cost airline—was struggling to get approval from the U.S. Department of Transportation. Some believed that Virgin Galactic—Branson's passenger spaceship service—might be first into the air.Yet despite being lauded for his entrepreneurship, eccentricity and embodiment of “the friendly face of capitalism,” his Virgin group of companies remained a mystery to most outsiders—and to many insiders as well. At the beginning of 2007 there were 215 Virgin companies registered at Britain's Companies House, of which 20 are identified as recently dissolved. However, most operations are conducted through the 36 companies listed on the Virgin web site (see the Appendix). While a number are Virgin companies identified as “holding companies”—they exist only to own and manage other Virgin companies—there is no overall parent company for the group.The opacity of Virgin's structure and finances encouraged frequent speculation about the overall performance of the group. During the late 1990s, there was consistent evidence that the group as a whole was not performing well. The Economist observed that: “Virgin Travel is the only one of Virgin's businesses to make a large profit… The rest of Mr. Branson's firms lost money in total.”1 TheFinancial Times pointed to a net cash outflow and a negative economic value added for the group as a whole.2 During recent years, overall financial performance was strengthened by profit growth at Virgin's wireless telecommunications businesses and the post-2002 recovery in the airline industry. Nevertheless, several Virgin companies continued to generate losses.As ever, Branson was dismissive of outside criticism, claiming that analysts and financial journalists misunderstood his business empire. Each Virgin company, he argued, was financed on a stand-alone basis; hence attempts to consolidate the income and assets of the companies were irrelevant and misleading. Moreover, Branson had little regard for accounting profits, preferring cash flow and capital value as the critical performance indicators. Thus, most of the Virgin companies were growing businesses that were increasing in their real value and long-term cash-generating potential, even if accounting profits were negative: | | The approach to running a group of private companies is fundamentally different to that of running public companies. Short-term taxable profits with good dividends are a prerequisite of public life. Avoiding short-term taxable profits and seeking long-term capital growth is the best approach to growing private companies.3| |

Apart from questions about financial performance, outside observers also pondered the strategic direction of this motley collection of over 200 separate companies. The Virgin group...
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