Associate To:

School Of Business and Law

Business strategy in global environment

lecturer:

prof. mervyn sookun

STUDENT of FINANCE DEPARTMENT

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RAJIB BHATTACHARJEE

ID: B 0284 SISI 0410

Contents
Page
A Brief history of virgin trains 2
Strategy paradox 2
The design school of thought 3
The Entrprenurial school of thought 4
The environmental school of thought 5
The learning school of thought 6
The culture school of thought 7

B Porter’s five forces of competitive position 8

Bargaining powers of suppliers in virgin trains 9
Bargaining power of buyers in virgin trains 9
Threat of substitutes in virgin trains 10
Threat of new entrants 10
Competitive rivalry between existing players 10
Analysis of five forces 11
Possible challenges of five forces 11

C Mckinsey 7’s model 13

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Stretegy 13
Structure 14
Systems 14
Staff 14
Style 15
Shared values 15
Skills 15

Comments 15
Bibilography and References 16

answer-a

Brief history of Virgin Trains

Virgin trains is operating as a part of Virgin group with a group share of 51%. It
started in mid 1990s while British Rail giving out the opportunity of privatization. At
the beginning the group was successful with two franchises, InterCity West Coast
and InterCity Cross Country.

In 1997 Virgin invested about £1 billion for InterCity West Coast in Pendolino Tilting
Trains which can run 140 mph but West Coast Main Line needed refurbishment due
to signalling problem with the high speed of new trains. This refurbishment
programme ran more than 3 years costing twice than estimated and finally the
budget was reduced and that lead Pendolins’ original speed to be un-utilized and
running at a maximum of 125 mph.

Between 2001 and 2006, Virgin trains suffered to tackle their poor puncuality
problem because of ageing and backdated infrastructure published on official
statistics from the Office of Rail Regulation. This caused them further criticism by
the press for several times during those years. Later, Chris Green as a Chief
Executive took some steps to complete some major projects on infrastructure for
improving the reliability of their customers and punctuality of Virgin Trains. Soon
the performance gradually became better.

In 2003, Tony Collins replacing the position of CEO, set a new vision for the
company in order to transform its operations which involves the reponsibility and
ownership of staff’s performance in the group. Their main aim was to differentiate
themselves from other rail competitors and decentralized the regional structure in
order to increase customer satisfaction. Overall their main strategy was to focus on
customers.
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Strategy paradoxes:
Critical incidents in any company can lead managers to engage in planning
corporate strategies. Some companies believe that senior managers are most
responsible to select the most viable options and strategies to face any critical
incident. In company like Virgin Trains, strategies are fixed through Board of
directors or CEO who again involve each level of management to implement any
strategic readjustment. Virgin trains focuses on involving everyone in the strategy
planning and implementation that helps more effectively to adapt with new
environment successfully.

Since Virgin Trains started the business, it faced many problems in its life. But the
company overcomed by analysing, evaluating, selecting and implementing the
suitable strategies to protect themselves and survive. I would like to discuss here
some famous strategy paradoxes designed by Minzberg and others that are
adopted and implemented in Virgin trains in some extent.

The Design School of thought:

This school sees strategy formation as a process of conception. Design School

Strategies are unique and formulated in a deliberate process. This strategy focuses
on the internal situation (Strengths and weaknesses)of the organization that
matched to the external situation (threats and opportunities). Its purely a mental
process.

To explain the process of execution of the School in Virgin Trains, I drawn a

Mintzberg’s diagram:

Internal Virgin Trains External appraisal

appraisal

Internal Capabilities External

possibilities
Evaluation

Choice? Choice of strategy

Choice?
Formulation
Implementation
Distinctive Key success factors
competencies
figure a : A diagram of design school in Virgin trains. (after Mintzberg
1998) Imagination

Focusing on the diagram, Virgin trains

Managerial set of
Creation a simple two stageSocial
approach:
Values strategy responsibility
♦ Examination of current situation of the company and determine the
company’s internal capabilities and and its external possibilities.
⇒ Strengths: Capital to invest in high speed trians, a quality management
team.
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⇒ Weakness: Poor infrastructure to cope with contemporary speed.
⇒ Opprtunities: Customers’ commitment, a clear vision of the company
⇒ Thereats: Competitors and Governemnt policy.
⇒
♦ ‘Establish fit’ between external and internal aspects.

Though the refurbishment took long time to take place, Virgin Trains’ initiatives to
utilize their maximum effort to enhance their capability to match with high speed
come into play after Chris Green strategic plan. Chris Green realized the importance
of completing major infrastructure renewal on time to get the customers’
satisfaction back on Virgin Trains. For the reason, he designed a stategy that
valued managers views (for and against)and social responsibility (positive and
negative knowledges)to choose and exucute the right plan (after successful
formation of ‘establish fit’ through negotiate and argue) in time.

Entrepreneurial school of thought:

This school of strategy sees strategy formation as a visionary process which can be
led by founder of the organization or charismatic leader of an organization. It
stresses the people who have extra-ordinary nature of mental states including
intuition, judgement, wisdom, experience, and insight.

In Virgin Trains, CEO, Tony Collins in 2003, is the architect of the decentralization of
responsibilities and authorities of the workforce in relevant field of the company and
helped the company to sail cohesively many struggling years of difficulties. The CEO
of the Virgin trains set a significant strategy for the company which includes:
♦ Dialectic knowledge
♦ Current obsession and past trends (data) in business.
♦ Investments into specific uncertainties for instance: obsession.
♦ Myths, legends and stories stripped out from the strategy
♦ Focusing on the future strategy to deal with future problems.

Present problem
(Obsession)
Feedback Inspiratio
n

Facts (Business data) Ideas (Vision)

Inertia
Performance

Historical
Future
Mysteries
Problems
(Myths)
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Figure b: A diagram of Virgin Train’s entrepreneurial schools
This school have a great influence on its staff and helped the company to change
the situation of long time customer dissatisfaction.

The environmental school of thought:

The approach of this strategy is to response to the challenges that are forced by the
external environment. Virgin Trains after having difficulties in early years of
operation changed their vision strategy to suit the current environment to help
recovering the reputation amongst customers. This school sees the strategy
formation as a reactive process. Tony Collins set a clear strategy of sharing vision
and values with staffs to ensure a first class service for the customers.
Consequently, he turned the traditional viewpoint of the company upside down and
put the customers of Virgin Trains in first place. However the final vision of Virgin
trains is: ‘to become the most safe, consistent, reliable, and profitable of the train
operating franchises in a climate that respects different views and people need not
be Assistance
afraid to be open and honest’. Repetition
Laws (Control)

Managers Customers

Front line employees

Employees

Customers Managers

Traditional way of working

Virgin trains way of working
(top down)
(Empowering customer-facing employees)

Figure c: A diagram of Environmental School in Virgin Trains

According to Tony Collins, a vision helps a company to move ahead with clarity. It
create a relationship between business’ specific objectives and targets with core
values. As a CEO of Virgin Trains, he achieved the required success in later years
upon forming a perfect strategy to cope and response to current environment. Now
the employees of Virgin Trains focusing on customers rather than ever before. It
changed the regional structure that enables employees to contribute and shape the
business strategy having direct contact with customers. They can set the priorities
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upon feedback from customers, for instance; ticketing options in stations, menu
options in trains, kind of music, and internet facilities while customers on board.
And overall it develops a good relationship between customers and employees.

The learning school of thought:

The rail industry is too competitive to allow a strategy to be implemented in one
time. This school perceives that a strategy formation in a company is a developing
process. Virgin Trains paid high attention to look for any difference over time on
what is working or what is not. Then they incorporated these experiences into the
definite plan of exploitation.

Virgin Trains, focusing on this school of thought:

♦ Deal with change and always welcome new change if required

♦ Challenge ideas from others in an appropriate way.
♦ Develop relationship between organizational and human resources and
monitor how each element of these is working in real field.

Present
problems

Consequence
Diffusion Acting Learning
s

Past Controls Future

Myths Mysteries Problems
Competencies
How things work
Human
Organizational
Resource
Resources
s

Figure d: a diagram of learning school in Virgin Trains

The company also influence employees to share their views in workplace. For
instance;

♦ Employees have the opportunity to give and receive feedback from others.
♦ Employees of different levels can discuss about changes needed
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♦ Employees can discuss how the company’s objective and vision relates to his
or her personal values
♦ Employees can also discuss the support they need from the company

Overall the process of sharing ideas between senior managers and lower level
managers help Virgin Trains to alter, change or develop a new strategy. This
process can be called ‘lessons learned’.

The culture school of thought:

The Cultural school sees strategy formation as a fundamentally collective and

cooperative process. It involves each and every groups and depertments to reflect
the corporate cuture of the organization. Activities of each depertment helps to
shape the culture within the company.

Regional
Performance Vision focus
devt. Workshops (local
(appraisal
decision)
process)
making)

Changed Priorities
Behaviours
culture of Setting
virgin trains
Learning and
Recruitment development
(front-line (coaching &
staff leadership)
involved) Reward and Charity work
recognition supporting
(feel good causes in Uk
awards) and overseas

Figure e: a diagram of cultural school in Virgin Trains

Virgin Trains encourages new behaviours in the organization. They like to listen to
others (customers, employees , goverenment bodies, legal advice and others) and
take positive approach to any challenges. As the recent culture change in Virgin
Trains they promote charitable work in partnership with CLIC (fund raising charity
for children and cancer). The overall behaviour of the company helps to create a
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caring approach to staff and customers. Even enhance customer involvemnet and
desire to use their service.

The key benefits comes from the changed cuture are:

♦ Reduced sickness level

♦ Lowered the rate of staff turnover
♦ Improved the rate of customer satisfaction
♦ Reduced the complaint letters from customers

Answer B:

Development of strategies for a company is crucial. In 2003, Virgin Trains

introduced a vision strategy for its staffs. Staffs of this company are now more
engaged with customers. Moreever, relations among its employees are stronger
than ever before. These can lead the company to make high profit. But to compete
in the market like other companies Virgin Trains should have to develop some key
strategies to expand its business. More specifically Porter’s five forces model will
help the company in achieving its strategic aspirations.

Porter’s five forces of competitive position:

Michael E Porter in 1980 introduced Five Forces model in his book ‘Competitive
Strategy’. Since then it is been used as an important tool to analyse the structure of
an organization. This framework helps to shape every industry and market. It helps
to enhance the opportunities in the business and build a competitive strategy to
prevent threats.

Threat of New
market entrants

Bargain power Competitive Rivalry

Of suppliers Bargain power of
buyers

Threat of
substitutes
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Figure f: a diagram of Porter’s five forces model

Bargaining Power of suppliers of Virgin Trains:

The term supplier is a source of providing all inputs to offer services. Virgin Trains
is one the largest company in rail industry and suppliers market of this industry is
not fragmented. Only few suppliers are dominating the Rail Industry. Because
manufacturing the major apparatus of this industry are time consuming and most
expensive, and more importantly major supplies are for 20-25 year time. Therefore
suppliers should be more reliable than in other industry.

i. Bargaining power of Virgin Trains’ suppliers is likely to be high while they

have some major buyers like National rails and First Capital Connect.

ii. Competition in this industry is moderate; because only few train companies
are operating on the same route.

iii. There is high switching cost to change suppliers. Because licensing, tender
and face to face meetings needed to finalize the deal. And most of the major
suppliers are likely to be from different countries.

iv. The threat of integration between suppliers is low in future, because there are
very few suppliers in the market.

Even this is the situation, Virgin trains is not facing high pressure on margins from
the suppliers because of powerful relationship with its suppliers.

Bargaining Power of buyers of Virgin Trains:

Virgin trains are trying to attract more customers by providing discount for pre-
bookings and reservation. They also provide special discount on monthly or yearly
purchase of tickets. Despite this, customers’ bargaining power is likely to be
moderate in this case.

i. Commuters have very little chance to choose the service from different
companies; it is based on the time when and what time they want to travel,
and because of time pressure customers choose the first available service.

ii. The commuters are always looking for extra comfort and cheap journey; they
still can switch to another company.
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iii. Commuters are price sensitive; but they don’t know the production cost of
the service.

Threat of substitutes in Virgin Trains:

There is always threat of substitutes. Usually people like to spend lower price for
the highest comfort. Virgin Trains like other companies providing these facilities to
create brand loyal customers. . They should concentrate on two important aspects
to hold their loyal customers in future.

I. This company was facing great problem in punctuality. But it is overcome by

now in some extent. Commuters don’t like to wait for their journey, so they
should carefully look into it.

II. Commuters can enjoy music and internet (for first class reservations) in their
train. So, Virgin Trains should have to continue their facilities to avoid the
threat of substitutes.

Threat of new entrants:

The competition will increase if some other train companies enter into the market. It
will effect on the major determinants of market environment, for instance, market
shares, share prices, customer loyalty etc.. But the entries are not easy when there
are high barriers to entry. These are typically,

I. Virgin Trains providing economics of scale. They have huge number of loyal
customers and operating on major routes. These help the company spreading
the fixed cost.

II. Virgin trains is concerned about protecting intellectual property like patents,
licenses, expert staffs etc.

III. Virgin trains have close relationship with its customers due to long time
service in the market.

IV. Distribution channels are controlled by existing train companies in the

market.

Competitive rivalry between existing players:

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High competition pressures on reducing prices, margins, and profitability in the
business. Currently Virgin Trains competing against First Capital Connect and British
Rail in the market. Competition is likely to be high because:

i. All competitors have similar strategies to provide this service.

ii. Differentiation between the size of competitors and their products are low.
Therefore price competition is high.

iii. Barriers to exit from the market are also high because of expensive and
highly specialized equipment.

Analysis of Five Forces:

With the combination of PEST-analysis five forces analysis can expose the insights
of future potential attractiveness within the industry. For instance, political,
economical, socio-demographical and technological changes can play important
role to influence the five forces strategy and therefore have impact on industry
structures. Virgin trains should understand the power of competitive forces to
improve their competitive position. It can lead them to a new strategic position, for
instance, new positioning, differentiation, partnership.

With the help of this model Virgin trains can analysis it’s systematic and market
structure. But it is necessary to make sure that all relevant forces are properly
identified. After the analysis of present and future state, managers of Virgin trains
can search for options that can influence these forces significantly. But options are
determined by market’s external and internal environment. For instance, own
internal resources, competences and clear objectives also important to set options.

Possible Challenges of five forces:

Reducing the bargaining power of suppliers:

i. Partnering with other competitors like British rail.

ii. Efficient supply chain management
iii. Analysis of supplier’s cost and methods
iv. Training of supply chain

Reducing the threat of new entrants:

i. Increase minimum efficient scales of operation

ii. Create a strong brand image
iii. Protect intellectual property
iv. Strong relationship with suppliers

Reducing the bargaining power of customers:

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i. Enhance incentive packages and value added service (currently Virgin trains
is not providing any incentive package except season tickets)
ii. Less disruption in service (service interruption is high in Virgin trains)
iii. Concentration of punctuality of servicing (currently they working on it)
iv. Strong relationship with customers (vision strategy enables its staff to build
relationship with customers)
v. Increase loyalty

Reducing the threat of substitutes

i. Create switching cost (Virgin Train Customers have no switching cost, they
can make it providing privilege card)
ii. Customer surveys to know their preferences

Reducing the competitive rivalry between existing players

i. Buy out competition

ii. Focus on different segments of the market
iii. Create relationship with competitors
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Answer -c:
Mckinsey 7’s model:

Mckinsey 7’s model is a framework to evaluate the organizational development to

achieve its objectives and upgrade the performance. 7’s Model of Mckinsey can be
applied to any organization to implement the challenges in global market. It can be
used as a tool for assessing the performance of the organization. It is most
effective to identify and target the areas that need more attention and focus. The
leadership team of Virgin trains has given significant efforts to change the value of
all S’s in the company. Virgin Trains uses this model significantly to develop its
strategy. They relate the 7’s model into their Vision as inputs and performance as
outputs. The company’s vision originates the foundation of development of its
strategies, systems, structure, style, staff and skills.

Structure

Strategy System

Shared
values

Skills Style

Staff

Figure h: a diagram of Mckinsey 7’s model in Virgin Trains

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Strategy:

Strategy derives from the assessment of SWOT analysis i.e., organization’s internal
strengths and weaknesses, and external opportunities and threats. It includes
company’s distinctive competencies, company key success factors, and
environmental influences. Virgin Trains carefully analysis their current situation and
fixed the vision strategy. It helps to improve the company’s internal and external
environment and overall market position.

Structure:

Structure signifies how the company is organized to execute its strategy. Structure
can be centralized or decentralized. Virgin trains decentralized their structure to
make it different and efficient from others. Virgin trains designed their structure to
facilitate achieving corporate vision. It focuses on decentralization carefully and
empowerment of its employees. Employees are able to share their views with top
management independently.

Systems:

Virgin trains divided their systems into two categories. These are formal systems
and informal systems.

Formal systems:

i. Measurement system: This Company assess each people at recruitment to

know the skills required for the company. It attracts people who are able to
share and work with company’s vision strategy.
ii. Performance management systems: Virgin trains created a talent wheel
that identifies potential employees for promotion. It helps to highlight the
potentiality in each employee.
iii. Learning and development: Virgin Trains includes a range of internal and
external courses and training opportunities for employees. They also include
leadership program for front-line employees.

Informal systems:

i. Meeting formats: For developing employees they organize workshop and

group meeting with employees.
ii. Conflict resolution protocols: Resolving conflicts also important in
organization. They focus on individual to individual conversation to resolve
this problem.

Staff:

In virgin Trains staffing considerations includes:

i. Diversity: Staffs are of diverse qualities. The company concentrates on the

quality of its staff who can deal with maximum problems.
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ii. Selection criteria: Staffs are selected through rigorous interviewing
process.

iii. Staff development opportunities: Each potential staff has the same
opportunity to develop himself or herself in this company.

iv. Culture within the organization: Each staff should incorporate himself or
herself with the company

Style:

Style of the organization enables to interact with others in a specific way. Virgin
trains focus on the manner how leaders and employees behave internally and
externally. They create a guideline to interact with customers, suppliers,
stakeholders, regulators and government agencies. It helps them to be organized in
communication within the company and outside the company.

Shared values:

Shared values is the set of principle of the company that guide it’s style and
behaviour. Virgin trains is pro-active to define its corporate values and consistency
in behaviour of each employee and leaders. It set a desired behaviour to share
values with others and that must be embraced by other team members and
managers within the company.

Skills:

Virgin trains differentiated from others by decentralization of powers. They

designed the use of different powers according to different skills and
characteristics. Top managers are required to have core competencies to effectively
implement the company’s vision, values, goals and strategies. Key considerations
of the companies are:

i. Employees should have to earn the capabilities to contribute in real work and
in real teams.

ii. Employees will grow as company is growing with emergent responsibilities

and will be able to develop leadership capabilities.

iii. Employees should have to support cross functional effectiveness to serve its
variety of customers.

iv. Employees should have to measure themselves and track the leadership and
functional effectiveness.

v. Employees are encouraged to take initiative to resolve any problem with the
help of a team.
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Comments:
Overall ‘Virgin trains’ is customer focused. Employees who interact with customers
directly are best to be found to come up with effective thought and clear direction
for customer-focused improvement. Employees are backed by the managers to
challenge current ideas and views and suggest improvement. The culture change
program in Virgin trains became more effective through direct interaction with its
top line managers.

Bibliography:

1. Rethinking Strategy by VOLBERDA, HENK W, ELFRING, TOM, copyright

by sage publications – pages-23-65
2. The Strategy Process by MINTZBERG H, QUINN J. AND GHOSHAL S (4th
edition) chapter- 3-6
3. Exploring Corporate strategy by Johnson G. and Scholes K (2008)- page-
760, 924, 937, 979

References:

a. http://www.provenmodels.com/22/five-configurations/henry-mintzberg/ assessed on 10th

September’10
b. www.12manage.com/methods_mintzberg_ten_schools_ofthought.html

c. Case study-Implementing a new vision at Virgin Trains: www.thetimes100.co.uk

d. http://legal-dictionary.thefreedictionary.com/Collective+Bargaining+Agreement assessed
on 15th September’10

e. http://www.strategy4u.com/assessment_tools/porters_five_forces/five_forces_popup.shtml
assessed on 10th October 10

f. http://www.virgintrains.co.uk/

g. http://en.wikipedia.org/wiki/FTSE_100_Index
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