Competitive Environment and Business Level Strategy: Virgin Group - Case Study Example

Competitive Environment and Business Level Strategy: Virgin Group Name Institution Course Date Competitive Environment and Business Level Strategy: Virgin Group Corporation Identification Businesses play a critical role in the development of an economy. However, there are different forms of businesses that entrepreneurs can form, including sole proprietorship, partnerships and corporations. Fontana (2010, p. 7) defines a corporation as a legal entity that is separate from its members. A corporation is formed by twenty or more members. A corporation as a legal entity that is distinct from its owners has the right to enter into a contract in its own name, sue and be sued by the members of the public. Virgin Group is an example of a corporation. Virgin Group is British multinational conglomerate founded in 1970 by Sir Richard Branson and Nik Powell. The company has grown over the years to become a global brand (Virgin Atlantic 2015). The London-based conglomerate has a variety of product and service portfolio. Hill and Jones (2009, p. 11) define a product portfolio as a collection of products and services that a firm provides. In other words, product or service portfolio refers to a collection of services and products that are offered by a company. Virgin Group has a large product and service portfolio that includes banking, books, commercial aviation, films, health care, music, radio, Internet, jewelry, commercial spaceflight, consumer electronics, mobile phones and retail (Virgin Atlantic 2016). Business Unit Research Virgin Group has a variety of strategic business units that are that acts as profit centers. Flouris and Oswald (2006, p. 156) define a strategic business unit as a fully-functioning autonomous business unit that follows its own vision and strategic direction. A typical strategic business unit though functions as a separate unit; it serves as a critical part of a company. Additionally, a typical strategic business unit functions autonomously and focuses on its target market, which is different from other segments of the business. Moreover, a strategic business unit usually has its autonomous support functions that include marketing, human resource, finance and training departments among others (Daft 2008, p. 74). According to Lewis (2006, p. 14), strategic business units work best for firms with multiple product structure. Commercial aviation (Virgin Travel) is one of the strategic business units of Virgin Group. This strategic business unit operates under the name Virgin Atlantic airline offering cargo and passenger services. This SBU was created by Virgin Group in 1984 and has grown to become an important profit center for the company. Currently, Virgin Atlantic Airline flies to more than 30 destinations across the UK and globally including Australia (Virgin Atlantic 2016). Under the Virgin Atlantic, business units are product lines. A product line refers to groups of products or services that are related by function, target customer or market (Talluri & van Ryzin 2006, p. 105). In other words, product lines consist of a group of related products or services that are provided under a single brand by the same company. Virgin Group has two main product lines that are provided under its airline brand. These include passenger and cargo services, and mail delivery services. The airline flies cargo and passengers to different destinations across the globe. In 2012, Virgin Atlantic flew more than 5.4 million passengers to more than 30 destinations around the world with the number of passengers growing every year. In addition to the passenger services, cargo delivery also forms an important part of the company’s product line (Virgin Atlantic 2016). The airline reportedly transports tons of cargo to different parts of the world daily. As part of its strategy to diversify the product line, Virgin Atlantic also delivers mail services, which forms an important revenue source for the airline. Business Unit Revenue The success of any company depends on its ability to generate enough revenue to finance the expenses. Any company that cannot generate enough revenue finance the expenses is bound to fail. Needles et al. (2010, p. 51) define revenue as the sales generated by business in the normal course of its operations. Revenue is, thus the sum total of services and products sold in the normal course of business operations. The revenue center is the department/division that is responsible for the generation of revenue in an organization. A revenue center in this case refers to the business division that generates revenue from the sale of a product or service. According to Virgin Atlantic’s 2016 annual report, the airline’s passenger business segment generated the highest revenue totaling £121 million which marked about 6% growth compared to 2015 (Virgin Atlantic 2017). The growth on profit of the passenger business segment is attributed to increase in the number of passenger flight demand promoted by low fares. As the revenue from passenger segment increased, the cargo revenue declined by up to 15% (Virgin Atlantic 2016). External Environment Analysis Any business, small or large is affected by the external environmental factors. External environmental factors are forces that are external to a business and for which the management has little or no control over. In order to succeed in the modern day globalized business environment, the management of a company must understand the external environmental factors that affect business activities and operations to ensure that threats are minimized and that opportunities created by these factors are exploited. Operating environment refers to the business atmosphere, where a company conducts its activities. The external environmental factors that affect businesses are analyzed with the help of PESTEL tool. PESTEL stands for political, economic, social, technology, environment and legal factors that affect business activities. Political Factors Political factors have a huge impact on business operations. Political factors denote the degree to which the government intervenes in an economy. The political factors that affect businesses include government policies, foreign trade policies, taxation, state of political stability or instability, labor and environmental laws, corruption and trade restrictions (Witcher & Chau 2010, p. 69). These political factors can create opportunities and threats to a business and managers are advised to be on the lookout to these political factors. Virgin Atlantic’s operations are affected by the political environment of the airline industry. The liberalization of the airline industry “Open Skies” agreement of 2007 has created favorable business environment for the airline (Mouawad 2015). Additionally, political stability in Britain and European markets provides favorable climate for operation of airline services. However, the threat of terrorism that has resulted in the enactment of anti-terrorism laws that Virgin is expected to comply with affects its business. Additionally, the recent Brexit referendum has created uncertainty in the airline industry and the move threatens the success of Virgin Atlantic Airways (Gerrad B 2017). Economic Factors The economic environment in which a company operates is another macro-environmental factor with a huge impact on company operations. The economic factors denote the states of the economy of a country, domestic and international that a company operates (Mercer 1998, p. 152). The economic factors that affect business operations include dross domestic products (GDP) growth rate, state of unemployment, interest rates and inflation among others. Virgin Atlantic’s operations are affected by the state of the economy. The 2007/2008 financial crisis that was accompanied by recession caused a huge decliner in ticket sales resulting from low demand for travels and this adversely affected the airline’s business growth. However, the global economy has been recovering so well with most economies registering positive growth, which creates attractive business environment for the airline (OECD 2017). Countries like China, Brazil, and India are recording growth of middle-income earners who have the ability to afford air tickets. However, the rising cost of global pump prices and the rising cost of labor even from the once low-cost countries like China creates tough operating climate for Virgin Atlantic Airways. Social Factors Social factors have massive impact on the operations of a business. Social factors denote the socio-cultural factors that have an impact on business, that include social trends, population structure, wealth distribution, and education levels (Mercer 1998, p. 158). Social factors greatly affect Virgin Atlantic operations. The growing aging population in developed countries, such as Britain, Australia, the U.S. and China among other countries create business opportunity for Virgin Atlantic as the majority of senior citizens have enough disposable incomes to spend on tours and vacation travels (Euromonitor International 2012). The growing wealth in the emerging economies in Southeast Asia creates opportunity for airline players like Virgin Atlantic to expand its business (PWC 2014). However, the constant changing traveler needs and preferences create an environment that is difficult to operate for airlines. Technological Factors Technological factors denote the technological developments that affect the operations of airline industry (Hitt et al. 2016, p. 53). Examples of technological factors include the Internet, computers and social networks among others. The airline industry in which Virgin Atlantic operates has been affected by technological developments such as the Internet. With the widespread access and use of the Internet, airlines, such as Virgin have been forced to adapt to the technology trend by introducing online ticketing services to be able to compete favorably in the global marketplace (Euromonitor International 2014). The Internet has also allowed Virgin to create a website and social media platforms, such as Facebook, Twitter, LinkedIn and Instagram among others that it uses to display its products and services and to promote its brand (PWC 2014). Additionally, the development of computers has enabled Virgin to automate its entire operations. Environmental Factors Environmental factors are the pressure groups that include governments and civil societies pushing for environmental sustainability. The government, for instance, can enact laws requiring companies to adhere to a given emission threshold while civil societies might protest and push firms to promote environmental sustainability. In recent years, airlines such as Virgin Atlantic have been under pressure from governments and civil societies to minimize noise and air pollution (Euromonitor International 2012). Airline industry is regarded as one of the major emitters of greenhouse gases and these seen governments across the globe enacting tough lows requiring airlines to reduce the level of their carbon footprints, which implies that they have to invest in R&D so as to develop the right technology to help them reduce their emissions, which can be costly. Besides, airlines like Virgin Atlantic risk being fined by the governments in case of noncompliance with the environmental laws and regulations. Legal Factors Legal factors refer to the laws, regulations and policies that guide the conducts of businesses. These include laws such as health and safety laws and regulations, labor laws, taxation and licensing among others. In the airline industry, firms like Virgin Atlantic are required by the aviation authorities to meet certain health and safety standards to operate (Euromonitor International 2012). At the same time, Virgin Atlantic Airways has to ensure compliance with minimum labor laws and flight regulations and this affects its activity. Source of Sustainable Competitive Advantage The 21st century business environment is becoming increasingly competitive. Globalization coupled with technological developments has created a global business environment, where domestic companies not only have to compete among themselves, but also with foreign firms. Therefore, to succeed in the modern business environment, firms must ensure that there have internal resources and capabilities that can enable achieve a sustainable competitive advantage (Moon 2010, p. 36). However, whether or not the internal resources and capabilities of a firm’s resources can help a firm build a sustainable competitive advantage depends on the ability of the resources to meet the VRIO criteria. VRIO framework is a strategic analysis tool used to evaluate whether the internal resources and capabilities of a firm can help in the achievement of sustainable competitive advantage (Chaston 2012, p. 21). According to McGrath (2013, p. 184), for a firm to achieve a sustainable competitive advantage, its resources and capabilities must meet the criteria of being valuable, rate, inimitable and organized to capture value. Valuable means that the resources and capabilities must be able to add value to a company by enabling an organization exploit opportunities or depend against threats (Moon 2010, p. 42). Rarity means that the resources and capabilities are owned by one or few firms in the industry while inimitability means the resources are difficult or expensive to copy. Lastly, organized to capture value implies that a company needs to have an organized management system, policies, processes, strong organizational culture and structure to enjoy valuable, rarity and inimitability of its resources and capabilities (Kumar 2016, p. 57). Virgin Atlantic Airways has resources that meet the VRIO criteria, thus acting as its sources of competitive advantage. Regarding valuable criterion, Virgin Atlantic offers innovative and stylish flying experience at low cost, which is a valuable competency because it helps the airline gain customers (SITA 2014). Virgin also has strong management team headed by Sir Richard Branson and highly skilled engineers, cabin crews, pilots and subordinate staff that act as valuable resources. Regarding rarity, Virgin Atlantic being a relatively new airline has fleets of new airplanes, comprising of both Boeing and Airbus jet, which is a rare resource. Additionally, the airline offers unique mood lighting for the cabin, live TV, video games, free internet, MP3 library, leather seats and on-demand drinks and meals, which are rare (Virgin Atlantic 2016). Besides, the airline provides friendly environment and customer service, which are rare. Regarding inimitability, the new airplanes that Virgin Atlantic flies are just inimitable. Additionally, the airline offers unique mood lighting for the cabin, live TV, video games, free internet, MP3 library, leather seats and on-demand drinks and meals, which are rare (NewsCred 2014). Additionally, Virgin is the only airline flying Boeing 777’s and this is a competency that is inimitable. Additionally, the resources of the airline are organized to capture value as the airline has a strong culture of innovation, processes, policies and organizational structure that ensures value delivery to customers (Virgin Atlantic 2015). Accordingly, Virgin resources meet the VRIO resources, thus helping the airline achieve a sustainable competitive advantage. Strategic Direction Understanding the strategic direction to pursue is important for achieving success. Strategic direction refers to the actions taken by the management of an organization to enable an organization achieve its goals (Harrison & St. John 2013, p. 63). In other words, strategic direction defines what actions a company intends to take now to enable it realize its vision for the future. Porter’s generic strategy is a good framework that can be used to define Virgin Atlantic’s strategic direction. Porter’s generic strategy maintains that there are three strategies that a company can pursue to achieve a competitive advantage, which includes cost leadership, differentiation and cost focus (Kossowski 2007, p. 47). At present, Virgin pursues cost leadership as it flying low-cost airlines. However, to achieve a competitive advantage, the airline needs to consider adopting differentiation strategy as well. In this regard, the airline needs to differentiate in terms of product quality, and prices to make it become more unique and appealing to customers. At the same time, the airline needs to consider adopting focus strategy, especially expanding its low-cost airlines to low-income countries, such as Africa that are largely ignored despite growth in economies of most of these countries. References Chaston, I 2012, Strategy for sustainable competitive advantage: Surviving declining demand and China's global development. Routledge, Los Angeles. 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