Case Study – The Virgin Group: Structure, leadership and motivation
This essay analyses organizational structuring of the Virgin Group, with a view to understanding the dynamics that have helped create a global conglomerate. A critical assessment is undertaken on three areas: the hierarchical form of the company, the style of leadership exhibited by Sir Richard Branson, and the approach adopted by management to motivate employees.
Firstly, a comparative argument is made on whether the Virgin Group can be classified as a centralised or decentralised organization. These terms refer to division of power, capital, technical procedures and control in various units of a business. A centralised organization allows for minimal delegation to managers, with the chief executive retaining power over majority of the decisions. On the other end, a decentralised organization makes it possible for managers to exercise control without ownership oversight at each stage, provided goals and targets are met (Buchanan & Huczynski, 2007).
Secondly, the essay aims to determine the leadership style practiced by Sir Richard Branson, Virgin Group’s chief executive officer (CEO). Two styles of leadership are used as reference point: transactional and transformational. According to Bass & Bass (2009), transactional leaders work within the organizational culture as it exists, with an awareness of the link between effort and reward. They motivate their employees by setting goals, and enforce control through the use of punishment and sanctions. Transformational leaders change the organizational culture, arouse emotions in the workers, are proactive and set goals that are beyond self-interest.
The third area of discussion is the method initiated by company management to motivate employees. According to Forster (2005), motivation refers to processes that increase or decrease an individual’s desire and commitment to personal and organizational targets. Different theories put forward various reasons for the factors that motivate workers in an organizational environment. Fredrick Taylor attributed pay as the vital driving force in having a satisfied workforce, while Elton Mayo indicated the meeting of social needs as a better motivator, and the work of Abraham Maslow and Fredrick Herzberg focused on psychological needs of employees (Forster, 2005). Overall, the theories recognise that recognition and reward for performance create the foundation for motivating employees.
The Virgin Group
From humble beginnings as a publishing venture in 1968, the Virgin Group has expanded into a global corporate entity with diverse interests. Products and services carrying the Virgin brand range from airlines to financial services to soft drinks (Grant, 2008). The key to the successful expansion of the group lies in founding a strong identity for the brand name, thereby creating interest from the onset of any business initiative.
Organizational Structure
Grant (2008) characterises the Virgin Group’s organizational hierarchy to simulate an amalgamation between a brand franchising operation and the Japanese keiretsu system.
Brand franchising is synonymous with the business strategies of McDonalds, Subway and various other organizations, especially in the fast moving consumer goods (FMCG) sector. The term refers to the process of a single corporation using its identity as a purchasable asset, due to the strong recognition that the brand holds among consumers (Buchanan & Huczynski, 2007). Where the brand’s franchise value is high, its name becomes a substitute for the product category name itself in people’s conversations. The main benefit that brand franchising offers business owners is the opportunity to raise the price of their products, allowing more freedom from price wars with competitors. The other obvious benefit of strong brand value is ease in extending the business or diversifying into other sectors and products. But more importantly, high value of a brand franchise empowers a business with a strong marketing tool, with a high return on investment (Buchanan & Huczynski, 2007).
Keiretsu is a prototypical type of business group that is strongly illustrated in the Japanese business system (Whitley, 1992). It refers to the interlocking business relationship and shareholdings that exist between a set of companies. Each company holds some form of ownership in the other, thereby ensuring a direct effect of performance on each other. The business relationship can be that of supplier and buyer, with each company also having management control or supervisory overview. The common structure of a keiretsu centres on a bank which lends money to all companies in that group, in return for equity, a monitoring entity and the right of control. This creates a sense of reliance among the companies of the group on each other, and the reduction of any form of acquisition or takeover by competing firms. Examples of such a business in Japan include Mitsubishi, Mitsui and Fuyo, while outside Japan, UK’s Virgin Group and India’s Tata Group display similarities with the structure and business relationship (Whitley, 1992).
The Virgin Group comprises of around 150 units, or what Branson refers to as 150 small companies (Grant, 2008). While a shroud of secrecy is maintained over the financial and legal structure of the group through the intricate network of offshore-owned private holding companies, the operational structure remains loose and people-oriented. The employees of each company hold a stake in the success of the business, with the requirement that each company be self-sufficient. While each company carries the Virgin identity, the employee is responsible for the success of the business entity they are employed by. This means that while they are under the big umbrella of Virgin, they are one in fifty or one in a hundred of the employee count based on which entity they are employed by (Grant, 2008).
With responsibility and control delegated to the management of each unit, the general impression of the organizational structure exhibited by the Virgin Group is decentralised. However, an in-depth analysis reveals the structure to be more an unorthodox version of centralised. This is evident from the role that the senior executives play in the group, according to Grant (2008), and the methods in which interactions take place.
First and foremost, the majority of senior management with the Virgin Group are associates, friends or relatives of Richard Branson, and possess a business relationship with him due to their position within the organization. Secondly, while each member has complete control over the decision-making process and daily running of the unit they are heading, they also play an advisory role in Branson’s strategy planning, idea assessment and new appointment management team (Grant, 2008). Hence, while there is no formal structure assigned by the Virgin Group for the organization’s management, the long-term direction for the business and financial control of the group remains centralised with the CEO and his team of advisors and executives.
Leadership Style
In the modern business world, leaders need to be understanding of team work, as without any followers there will be no leader. It is no longer the case of total authoritative control by a single figurehead, but a case of the member of an organization who is in the best position to make the decision. The flexibility and openness that are the need of present day organizational networks, requires accomplished communication skills to express a relation with all groups of the corporate entity (Bass & Bass, 2009).
Richard Branson is normally referred to as the “hippie entrepreneur” (Grant, 2008). The creator of Virgin and its corporate culture, his informal approach and a general disregard for conventional processes have become the hallmark of his business dealings. Seen as a change agent in the Victorian values of the British society according to Grant (2008), Branson holds the ideology of work being fun and employees gaining pleasure from their roles as well as a sense of fulfilment from contributing towards a larger goal. In each of Virgin’s business ventures, Branson made it a philosophy to be involved in all the ins and outs, so as to gain a thorough understanding of all dimension, before handing over to a good managing director and financial controller.
A deep analysis of Branson’s leadership traits shows that it can be characterised as more transformational than transactional. A grounding factor to ascertain this determination is the actions displayed by Richard Branson in relation to Virgin employees.
Transactional leaders set up the organizational culture with a core focus on reward and punishment, especially in context to workers completing tasks. They believe in motivating members of the organization to achieve the goals and expectations of the leadership by offering incentives like salary increases or bonuses, while threatening failure with demotion and termination. On the other hand, the weapons at the disposal of transformational leadership are charisma and a collective vision for putting the organization ahead of self-interests. Such leaders are out to form a bond with the members of their organization, to use their vision to ensure that focus from the goals does not deviate, and that a better future is achieved for the organization (Kippenberger, 2002).
According to Grant (2008), Branson has experienced very few problems with Virgin employees, irrespective of paying modest salaries. His dislike for symbols of corporate success has resulted in an absence of a corporate head office, with him doing business from his family homes. His open approach and creation of a free culture within the Virgin Group has been to make employees feel at home, and establish a sense of belonging between them and the organization. With irreverence for authority, he has drawn heavily on the ideas and innovations from within the organization, being prepared to invest in new start-ups irrespective of market competition. His belief and attitude to business ventures is summed up is summed up by him with the following reflection “bigger the challenge, greater the fun” (Grant, 2008). A key example of internal idea that ended as a Virgin business venture is Virgin Bride. Suggested by a Virgin Atlantic employee, Branson used his marketing skills to launch the unit in what is considered an under-served consumer market.
The charisma and communication skills, coupled with his spirit of showmanship, and the desire to make all work as much as possible, has allowed Richard Branson to lead the Virgin Group from a single publishing venture to a desired brand, distinguishable through a variety of products and services. His ability to share his vision for each venture with all Virgin members, and motivate them to succeed as a collective family-unit, has helped foster strong sentiments of loyalty and dedication among the employees. It is evidence of a transformation of the traditional prestige of corporate culture and the breakdown of segmented consumer markets (Judge & Piccolo, 2004).
Approach to Employee Motivation
The hunger for achievement is captured in the following anecdote: “A Microsoft manager returned from a trade show and joyously sent out an email to his team, announcing their product had won nine out of ten possible awards. Within a day he had received forty emails back asking which award they had not won and why” (Forster, 2005). The need to satisfy one’s needs requires management of organizations to discover ways of motivating their employees, in order to be successful and reach goals.
Forster (2005) describes three of the more common theories of motivation, which can be evidenced in various organizations globally. These are: Fredrick Taylor’s theory of Scientific Management, Elton Mayo’s Human Relation School of thought, and Abraham Maslow’s & Frederick Herzberg’s Neo-Human Relations School.
According to Forster (2005), the crux of Taylor’s theory revolved around businesses offering higher pay as an incentive for employees to work harder and be more productive. But this approach was more linked to an autocratic management style, with its inception in the manufacturing sector. As it offered little to employees on the mental level of satisfaction, it became disliked among employees and resulted in numerous strikes. Mayo brought the idea that money should not be used as the only factor in motivating employees. Rather, management should have more involvement in the working lives of employees, introduce the concept of teamwork and improve the communication path. Maslow highlighted the need for a structured approach to the needs of employees, with each need being fulfilled in turn. The key idea behind this was to recognise the fact that all workers are not motivated in the same way, and hence require different set of incentive to help them achieve satisfaction and complete goals. Herzberg elaborated on this by introducing a two-factor theory, which labelled factors that directly motivated employees as motivators and those that would result in de-motivation due to their absence as hygiene factors. The underlying argument was to give workers interesting tasks that provided a sense of achievement, and delegate power to make decisions (Forster, 2005).
The Virgin Group embodies the theory proposed by Maslow and Herzberg. Employees are involved in the decision-making process, are motivated to achieve the goals and vision by being provided a sense of belonging. That, coupled with a charismatic and communicative leadership, open to ideas and innovation, has helped the Virgin Group motivate its employee by fulfilling their psychological needs like recognition and a thirst for success (Forster, 2005).
Final View
This essay has assessed the Virgin Group on three key areas of organizational behaviour: the structure, the leadership and the management style towards motivation of employees. The argument that has resulted from the analysis undertaken is that an organization by employing a flexible structure, with a dynamic culture and charismatic leadership, and an understanding of employee needs can face up to challenges and grow to a great degree.
Richard Branson has instilled an open culture within the Virgin Group, differentiating it from the traditional image of a British corporation. With his flair for communication and belief in the products and services offered, he has been able to market more than the offerings; he has managed to create, market and sell a brand. The ability to acknowledge ideas from all corners of the organization has resulted in the Virgin name possessing a diverse portfolio, with management motivation allowing workers to have a sense of belonging with the company and thereby, achieving satisfaction through the success of the various units of the Virgin Group (Forster, 2005).
An interlocked network of the various units of the group reflects the unorthodox centralisation structure, giving decision-making power at various levels to unit management, while retaining overall group vision and strategy planning with the CEO and his advisors. The CEO’s personal interest in each venture portrays an interest in understanding the functionalities that staff would be dealing with on an everyday basis, and provides the workers with a strong sense of value in the tasks they undertake.
The Virgin Group is one of the few conglomerates in the world that has achieved success in diversifying its portfolio to a great degree in a short span of time, and possessed the ability in its workforce and processes to compete with more established competitors in various market sectors.
References
Bass, B. & Bass, R. (2009) The Bass Handbook of Leadership: Theory, Research and Managerial Applications, Free Press.
Buchanan, D. & Huczynski, A. (2007) Organisational Behaviour: An Introductory Text, Financial Times Prentice Hall.
Forster, N. (2005) Maximum Performance: a practical guide to leading and managing people at work, Edward Elgar Pub.
Grant, R. (2008) ‘The Virgin Group’, Contemporary Strategy Analysis.
Judge, T. & Piccolo, R. (2004) Transformational and Transactional Leadership: a Meta-Analytic Test of their Relative Validity, Journal of Applied Psychology, 755 – 768.
Kippenberger, T. (2002) Leadership Styles, Capstone.
Whitley, R. (1992) Business Systems in East Asia: firms, markets and societies, SAGE.