Virgin Atlantic
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Virgin Atlantic started its operations in 1984 with a single Boeing aircraft 747-200 flying the London-New York route. Richard Branson has managed to lead Virgin Atlantic with great success and has helped it grow into Britain's second largest transatlantic carrier. Virgin Atlantic aimed in offering three classes of service, namely, Economy, Premium Economy, and Upper Class, which include free in-flight drinks and meals, often including ice cream, and seat back personal TVs, which was firstly introduced by Virgin. In flight entertainment is the key aspect of their strategy along with the quality of service. The airline has spa lounges in its core airports complete with showers, offering haircuts, massages and manicures. In addition, Virgin was the first airline that offered more than two choices of meals in its economy class. In a few words, Virgin Atlantic offers a first-class experience at business-class prices. This is proven by the fact that Virgin Atlantic is a four star airline according to Skytrax Rankings [1] . Branson has managed to transform airline industry not only in UK but in all over the world. He has managed to enter Heathrow airport and even threat British Airways and make it use unethical ways aiming at “beating” Virgin Atlantic but fortunately with no success. The press hit red on the “Virgin’s tip-off and the BA probe” case. Of course all these worked in favour of Branson’s company brand image and increased further customer loyalty. Richard Branson is the leader of Virgin Group of companies and has managed to build an empire of companies with unrelated diversification, by having only its poor high school educational background, but a great charisma in terms of leading people and anticipating opportunities that many other would have anticipated as threats. He has managed to establish the brand image and the unique identity of Virgin Company in various market segments in the market. But all this success was not based on pure lack because as we will see in the analysis below, Branson had to take some major decisions at different cases, decisions that had been proven to be correct based on the context. More specifically, to keep his airline company running, Branson cancelled the contract of the Pistols and sold the Virgin Music label to EMI in 1992, which is a more conservatively minded company. Another wise decision taken by Branson was to sell 49% of Virgin Atlantic to Singapore Airline, the market leader in quality of service and efficiency, thus adding more value to the firm’s core competencies that feet firm’s strategy success. It is worth mentioning that Singapore Airline has been awarded with the “Best Cabin Staff Award”. The decision to sell such a big percentage to an airline that excels in quality of service was fully compatible with the Virgin Atlantic strategy. This shows the excellent charisma Richard Branson has as a leader and more specifically in Strategic Leadership and Innovation.
What are the Key Features of Virgin Atlantic’s Industry?Based on the detailed analysis of the airlines industry we have made in class as part of the Ryanair and Michael O’Leary analysis we have seen that the specific industry is having one of the lowest positions in terms of performance. In addition, the comparison between Invested Capital vs. Cost of Capital results in very disappointing figures, especially in US [2] . For further details please refer to Appendix 9.2 – Airline Industry Analysis. Strategic LeadershipBut what are the key tasks of strategic leadership? And in what degree has Richard Branson utilised or implemented these tasks? Is there any space for improvement in some of these aspects? Maintain a Helicopter View of the IndustryThe two main concepts involved in maintaining a helicopter view of the industry are those of Strategic Thinking and Strategic Planning. Strategic Thinking: The purpose of Strategic Thinking is to discover novel, imaginative strategies which can re-write the rules of the game [3] . Strategic Planning: The purpose of Strategic Planning is to operationalise the strategies developed through strategic thinking [4] . Richard Branson, having as basis of its instinct in anticipating opportunities his own lifestyle and character, identified a gap in transatlantic airlines industry and that was creating fun in transatlantic flights. Branson said, “While a passenger was stuck on a metal tube for seven hours, why not serve better meals; offer more entertainment; have smiling, enthusiastic flight crews, and create fun” [5] . This has been proven to be a success and his company is continuously working on making its product offering even better in this direction. Ensuring Strategic Alignment and Addressing MisalignmentsThe Virgin Atlantic’s model of Strategy is aiming at serving specific target market at an exceptional way that competitors cannot compete. By this way the Virgin Atlantic is throwing competition away while at the same time is able to target at higher profit margins. This section will be analysed in more detailed below. Building Winning Company CompetenciesVirgin Atlantic Airline and Virgin Group in general have managed to build the key competencies of excellent service, excellent product offering and very strong brand name – brand quality. These competencies have been further empowered by the synergies with Singapore Airline that is the best in terms of quality of service offered by the cabin staff. These competencies are the key to success in an unattractive industry like the one of airlines. Developing a High-Performance Organizational CultureRichard Branson through his very competent work force and the fact that employees are always coming first, have resulted in developing a high-performance organizational structure. The business model he has developed is giving high emphasis in motivating and rewarding the employees. This approach works as the fuel for an engine. The more and the better the quality of the fuel is, the better the engine performance. For instance, he once invited a housekeeper, a switchboard operator, a reservations clerk and a pilot to his private island for their excellent performance at work. Branson is spending a lot of his time in his public relations with his employees. This not only is a high motivation tool for a firm’s workforce, but it also provides him with great quality feedback as a leader can learn a lot form his employees.
Attracting, Developing and Retaining the Best TalentVirgin Group has developed such a strong brand name and has so good employment terms that all the best talents would feel honoured working for Virgin. Branson for example has given every Virgin employee a Virgin Card that provides big discounts on every Virgin Company products. It is also worth noting that Branson is usually highly involved the stage of setting a new business and he then steps back, leaving its competent managers do the work the way they know. Of course he is always there watching them, requiring and providing feedback, and support them whenever they need support. He lets them do mistakes and learn by those mistakes because as he claims this is how he became a successful leader – by learning from his own and from other people’s mistakes. Of course this is allowed and accepted up to a point that would not harm the firm in a high degree. This is a very successful strategy in workforce development. Developing Global Strategy and Corresponding Organizational MindsetIf we judge Richard Branson in leading Virgin Atlantic only, he is certainly doing an excellent job in terms of developing a global strategy among the firm and corresponding organizational mindset. However, if we judge Richard Branson as a leader of the whole Virgin Group, there is some space of improvement in this area as the Virgin Group is moving in becoming a conglomerate with so many unrelated companies that some of them are cash generators whereas others are losing money. Richard Branson needs to sit down and consider whether this successful business model is not “successful” in the same degree in all Virgin’s Group businesses and consider whether they should move out of some industries (e.g. Virgin Rail) that do not fit in this model. This would allow Virgin protect its strong brand name. Of course Richard Branson has stated many times that he sees as a separate entity each Virgin Group firm and this is the basis on which every decision is taken. Promoting Ethical and Responsible PracticesVirgin is considered to be implementing Ethical and Responsible practices. One example that proves the concept is the incident with Virgin Atlantic that accused British Airways for price fixing. In this way the Virgin Atlantic not only protected its shareholders by empowering further the Virgin brand name, but it protected the society as well from the tricky games that British Airways was playing. Evaluation of Virgin Atlantic’s Strategic AlignmentENVIRONMENTDemanding Customers in terms of service excellence vs. price; Environmental Concerns; High Transparency due to Information Technology and Internet; Fluctuating Cost of Oil incurring high risk; High Competition; STRATEGYService Excellence; Product Differentiation by making transatlantic flights fun => Kicking off Competition and allow for higher profit margins; Service Excellence; Product Differentiation; Innovation; Strong Brand; ORGANIZATIONExploiting Information Technology and Internet Technologies; Aggressive and Innovative Marketing (through Richard Branson’s own world records, through his own dressing on special purpose events, Skinner Direct-to-desktop Virgin Alerts Service – All these are cost free and very effective); Operating from central airports like Heathrow on routes like London-New York, South Africa, Asia; Employees come first – Motivation and Rewarding for best performers; focus in service excellence and customer satisfaction; Based on the Strategic Alignment analysis of Virgin Atlantic someone may see how the environment, the strategy, the core competencies and the organization fit together. The strategy chosen by the leader of the company Richard Branson has been the right one for this highly competitive environment, allowing the company to enjoy higher profit margins and making organization more profitable. In addition we see how the organization set-up supports the company’s core competencies and how these competencies support the strategy chosen by the leader of the company. It is worth noting that the 49% of Virgin Atlantic is owned by the Singapore Airlines which is by far the first airline in terms of quality of service and is awarded with the “Best Cabin Staff Award” for many times. This synergy was very important as it empowered further the company’s core competencies and it was a wise decision taken by its leader Richard Branson. How Innovative is Virgin Atlantic and the Role of Richard Branson as a Leader in this ProcessVirgin Atlantic is very well known for its high levels of innovation in terms of product offering and marketing campaigns. The company has won many awards for its product and innovative marketing approaches. Some examples of firm’s innovation are listed below: Passengers of the Upper Class can request complimentary limousine service to and from the airport and have access to the airline's Clubhouse Lounge at London's Heathrow Airport, where massage, manicures and grooming services can be offered Virgin Atlantic was also the first to put-seat back videos on every seat of its planes Virgin Atlantic was looking for an innovative and cost effective way to get marketing campaigns and promotions to its customers, and Skinkers gave them this way via their direct-to-desktop event notification and content delivery solution. This is a light software and can be used for communicating and distributing information directly to user’s desktop, and more specifically, putting the fare offer directly in front of the user as quickly as possible. Virgin Atlantic was the first airline to use this service/product that is called “Virgin Atlantic Alerts”. Users only need to download this lightweight software via Virgin Atlantic’s Web Site on their PCs, and once downloaded, the user is kept informed on company’s offers on a periodic basis. It is a cheap and effective way of marketing. Virgin Atlantic was the first airline that volunteered a Boeing 747 for a test of bio-fuels. In his aim to promote the Virgin Atlantic, Richard Branson became involved in a number of high-publicity record-breaking attempts throughout the 1980s and 1990s, such as crossing the Atlantic Ocean on a boat - Virgin Atlantic Challenger II, and crossing the Pacific from Japan to Canada on a balloon. Strategic Innovation in the Airline IndustryStrategic Innovation DimensionsDominant AnswerNew AnswerWhat?(product-service)Full Service Air Travel Full Service Air Travel What?(positioning)Differentiation, service levels Variety of meal choices, entertainment, other services (spa, manicure, etc) Who?All Segments All Segments How?(channels-delivery)Air and Ground Infrastructure Air and Ground Infrastructure How?(internal architecture)Flag Carriers, focus on quality / innovation Focus on Quality of Service and Entertainment Virgin Atlantic and High Performance CultureIs Widely Shared in the OrganizationMIs Aligned with Environment and Strategy / Outward OrientedHIs adaptive / responsive over timeMLinks Rewards to PerformanceHIs Flexible and EmpoweringM/HProvides Clear, Challenging GoalsHCreates a Sense of CommunityHBut how did Richard Branson managed to shape this high performance culture? The answer is simple: via his own business role model. Branson as a person had failed and then succeeded as a businessman. He has always been trying to learn not only from his own mistakes, but from other people mistakes, as well. He has also believed that the persons that succeeded after a failure were usually emerging with successful business models and strategies. Richard Branson tried to pass this theory through all Group companies’ employees through effective leadership. And this message was verified by the Group’s Reward and Motivation scheme. Evaluation of Richard Branson as a LeaderPlease refer to Appendix 9.3. Recommendations to Richard Branson and Virgin Group of CompaniesVirgin Group of companies should be more careful while selecting aggressive marketing campaigns as a mistake in this area could harm not only the specific firm’s image, but the strong brand name of the whole group – “Virgin”. Such an example is the event of Virgin Mobile’s advertisement in Canada that displayed nurses in short skirts which irritated Ontario nurses as this was considered as an embarrassment to their profession. The protection of the strong brand name of “Virgin” Group is an issue of high importance and should be considered in an analogous weight. In addition, the issue of succession of Virgin Group has been food for thought and debate for many analysts. Richard Branson has built a very strong and capable management team. We do not know if he has chosen his successor for orchestrating the companies of the Virgin Conglomerate, but if he hasn’t, he needs to start thinking about it as he is already 59 years old. The sure thing is that there are capable managers in the Group. Now whether they have the same charisma with Branson in leading people and companies or not, only time will show. Finally, the Virgin Group of companies is such a huge conglomerate with so high degree of unrelated diversification that I feel that there is a lot of space for improvement in terms of changing organization’s structure aiming at full utilization of synergies among group’s firms. If the Group improves that part, then the efficiency and therefore profits should be accelerated further. They should also cease existence of firms that may harm Group’s image and profitability like the example of Virgin Rail.
AppendixVirgin Atlantic Official Quality RatingsAirline Industry AnalysisBased on the detailed analysis of the airlines industry we have made in class as part of the Ryanair and Michael O’Leary analysis we have seen that the specific industry is having one of the lowest positions in terms of performance. In addition, the comparison between Invested Capital vs. Cost of Capital results in very disappointing figures, especially in US [6] . Furthermore, we have examined the Competitive Forces in the Airline industry and we have classified them as: Competitive Rivalry – High Threat of New Entrants – Medium Buyer Buying Power – High Threat of Substitutes – Low Supplier Power – Medium We realized that it is extremely difficult to make money in the airlines industry mainly due to: Intense rivalry - caused by high barriers to exit, over-capacity, mature industry, difficulty of sustaining diversification, etc High Power of Buyers – Information transparency, Low switching costs, Low levels of Loyalty, etc Several Suppliers can Squeeze Airlines [7] The amazing is that despite the unattractiveness of the industry, Branson has found the key to success and achieved bringing Virgin Atlantic up to the second position of UK transatlantic Carriers. He was continuously trying to maintain diversification in terms of enjoying transatlantic flights and building stronger and stronger brand image aiming at achieving increased customer satisfaction, thus customer loyalty. Innovation in terms of product offering and marketing approaches had a central role in this process. Richard Branson has managed to transform the industry via revolutionary changes by treating his customers as he himself wished to be treated. This success is better shown by the excellent financial results the Virgin Atlantic had for 2009. More specifically, in the year to February 2009, Virgin Atlantic carried 5.77 million passengers and made an annual profit of £68.4 million on turnover of £2,580 million [8] . Evaluation of Richard Branson as a leaderRichard Branson is a good example of a transformational leader as he has managed to transform the airline industry. Upon Branson’s entrance in the game of airline industry we see many changes in terms of additional services connected to basic industry’s products and in quality of service during a flight. Branson is also an authentic leader as he has managed to transfer his personal life style and needs into his business as a role model and into the product/services the Virgin Group is offering. Branson has always been spending a lot of his time in talking with employees and he has always had employees on top priority. Thus, he was very good as regards the relationship orientation. But at the same time he has always been task oriented, as well. Consequently, someone may say that Branson is a Team Manager. Now, based on the 5 Levels Leadership approach, I classify Richard Branson as a certainly Level 4 Leader, i.e. Effective Leader, with the element of professional will of Level 5 Leader – Executive. Richard Branson lacks the element of personal humility as his lifestyle and personality is quite different. Finally, regarding the action logic Richard Branson does, he can be classified as a Strategist, since his major strength is that of being effective as a transformational leader. Richard Branson has many commonalities with Steeve Jobs. Firstly they both love what they are doing and they do it for fun and not for the money as such. Secondly, despite the fact that they both lack academic background, due to their charisma have managed to develop a successful strategy that very few have managed to do until today. Another common thing I can see in those two is that their personal life style matches their leadership style, thus making them both being authentic leaders. Financial Performance of Virgin Atlantic in Comparison with its Main CompetitorsBritish Airways and FTSE 100 Index of London Stock ExchangeAmerican Airlines and S&P 500 Index of New York Stock ExchangeVirgin Atlantic FinancialsThere are no financial statements of Virgin Atlantic Airways available as it is a private company but we also know that in the year to February 2009, Virgin Atlantic carried 5.77 million passengers and made an annual profit of £68.4 million on turnover of £2,580 million. Based on all the above data it is clear that during the years 2009 and 2009 – years of global financial recession – Virgin Atlantic has managed to make profits whereas the other two main competitors – American Airlines and British Airways – were incurring huge losses. This proves that Virgin Atlantic and more specifically Richard Branson has managed to develop a successful business model that allows company to enjoy a sustainable competitive advantage among competition. 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