BSGE Assignmnt FINAL

8/8/2019 BSGE Assignmnt FINAL

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Associate To:

School Of Business and Law

STUDENT of FINANCE DEPARTMENT

Business strategy in global environment

lecturer:

prof. mervyn sookun


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RAJIB BHATTACHARJEE

ID: B 0284 SISI 0410

ContentsPage

A Brief history of virgin trains 2Strategy 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 Porters five forces of competitive position 8Bargaining powers of suppliers in virgin trains 9Bargaining power of buyers in virgin trains 9

Threat of substitutes in virgin trains 10 Threat of new entrants 10Competitive rivalry between existing players 10Analysis of five forces 11

Possible challenges of five forces 11

C Mckinsey 7s model 13

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Stretegy 13Structure 14Systems 14Staff 14Style 15

Shared values 15Skills 15

Comments 15Bibilography 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%. Itstarted in mid 1990s while British Rail giving out the opportunity of privatization. Atthe beginning the group was successful with two franchises, InterCity West Coastand InterCity Cross Country.

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

Between 2001 and 2006, Virgin trains suffered to tackle their poor puncualityproblem because of ageing and backdated infrastructure published on official

statistics from the Office of Rail Regulation. This caused them further criticism bythe press for several times during those years. Later, Chris Green as a ChiefExecutive took some steps to complete some major projects on infrastructure forimproving the reliability of their customers and punctuality of Virgin Trains. Soonthe performance gradually became better.

In 2003, Tony Collins replacing the position of CEO, set a new vision for thecompany in order to transform its operations which involves the reponsibility andownership of staffs performance in the group. Their main aim was to differentiatethemselves from other rail competitors and decentralized the regional structure inorder 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 planningcorporate strategies. Some companies believe that senior managers are mostresponsible to select the most viable options and strategies to face any criticalincident. In company like Virgin Trains, strategies are fixed through Board of

directors or CEO who again involve each level of management to implement anystrategic readjustment. Virgin trains focuses on involving everyone in the strategyplanning and implementation that helps more effectively to adapt with newenvironment successfully.

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

The Design School of thought:

This school sees strategy formation as a process of conception. Design SchoolStrategies are unique and formulated in a deliberate process. This strategy focuseson the internal situation (Strengths and weaknesses)of the organization thatmatched 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 aMintzbergs diagram:

Formulation

Implementation

figure a : A diagram of design school in Virgin trains. (after Mintzberg1998)

Focusing on the diagram, Virgin trains set a simple two stage approach:

Examination of current situation of the company and determine thecompanys internal capabilities and and its external possibilities.

Strengths: Capital to invest in high speed trians, a quality managementteam.

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Virgin Trains

Choice of strategy

Socialresponsibility

Creation ofstrategy

ManagerialValues

Key success factorsDistinctivecompetencies

Externalpossibilities

Internal Capabilities

External appraisalInternal

appraisal

Imagination

Choice?Choice?

Evaluation


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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 toutilize their maximum effort to enhance their capability to match with high speedcome into play after Chris Green strategic plan. Chris Green realized the importanceof completing major infrastructure renewal on time to get the customerssatisfaction back on Virgin Trains. For the reason, he designed a stategy thatvalued managers views (for and against)and social responsibility (positive andnegative knowledges)to choose and exucute the right plan (after successfulformation 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 beled by founder of the organization or charismatic leader of an organization. Itstresses the people who have extra-ordinary nature of mental states includingintuition, judgement, wisdom, experience, and insight.

In Virgin Trains, CEO, Tony Collins in 2003, is the architect of the decentralization ofresponsibilities and authorities of the workforce in relevant field of the company andhelped the company to sail cohesively many struggling years of difficulties. The CEOof 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)

Future

Problems

HistoricalMysteries(Myths)

Ideas (Vision)Facts (Business data)

Feedback Inspiratio

n

PerformanceInertia

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upon feedback from customers, for instance; ticketing options in stations, menuoptions 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 onetime. This school perceives that a strategy formation in a company is a developingprocess. Virgin Trains paid high attention to look for any difference over time onwhat is working or what is not. Then they incorporated these experiences into thedefinite 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 andmonitor how each element of these is working in real field.

Figure d: a diagram of learning school in Virgin Trains

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

Employees have the opportunity to give and receive feedback from others.

Employees of different levels can discuss about changes needed

Presentproblems

Future

ProblemsPastMysteries

Diffusion Acting

ControlsMyths

Competencies

Consequences

Learning

OrganizationalResources

HumanResources

How things work

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Employees can discuss how the companys objective and vision relates to hisor 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 levelmanagers 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 andcooperative process. It involves each and every groups and depertments to reflectthe corporate cuture of the organization. Activities of each depertment helps to

shape the culture within the company.

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) andtake positive approach to any challenges. As the recent culture change in VirginTrains they promote charitable work in partnership with CLIC (fund raising charityfor children and cancer). The overall behaviour of the company helps to create a

Behaviours

Recruitment(front-linestaffinvolved)

Changedculture ofvirgin trains

Learning anddevelopment(coaching &leadership)

PrioritiesSetting

Performance

devt.(appraisalprocess)

Regionalfocus(localdecision)making)

VisionWorkshops

Reward and

recognition(feel goodawards)

Charity work

supportingcauses in Ukand overseas

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caring approach to staff and customers. Even enhance customer involvemnet anddesire 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 Trainsintroduced a vision strategy for its staffs. Staffs of this company are now moreengaged with customers. Moreever, relations among its employees are stronger

than ever before. These can lead the company to make high profit. But to competein the market like other companies Virgin Trains should have to develop some keystrategies to expand its business. More specifically Porters five forces model willhelp the company in achieving its strategic aspirations.

Porters 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 ofan organization. This framework helps to shape every industry and market. It helpsto enhance the opportunities in the business and build a competitive strategy toprevent threats.

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Threat of Newmarket entrants

Threat ofsubstitutes

Competitive Rivalry Bargain power ofbuyers

Bargain powerOf suppliers


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Figure f: a diagram of Porters five forces model

Bargaining Power of suppliers of Virgin Trains:

The term supplier is a source of providing all inputs to offer services. Virgin Trainsis one the largest company in rail industry and suppliers market of this industry is

not fragmented. Only few suppliers are dominating the Rail Industry. Becausemanufacturing the major apparatus of this industry are time consuming and mostexpensive, and more importantly major supplies are for 20-25 year time. Thereforesuppliers should be more reliable than in other industry.

i. Bargaining power of Virgin Trains suppliers is likely to be high while theyhave some major buyers like National rails and First Capital Connect.

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

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

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

Even this is the situation, Virgin trains is not facing high pressure on margins fromthe 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 yearlypurchase of tickets. Despite this, customers bargaining power is likely to bemoderate in this case.

i. Commuters have very little chance to choose the service from differentcompanies; 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; theystill can switch to another company.

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iii. Commuters are price sensitive; but they dont know the production cost ofthe service.

Threat of substitutes in Virgin Trains:

There is always threat of substitutes. Usually people like to spend lower price forthe highest comfort. Virgin Trains like other companies providing these facilities tocreate 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 bynow in some extent. Commuters dont like to wait for their journey, so theyshould carefully look into it.

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

Threat of new entrants:

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

I. Virgin Trains providing economics of scale. They have huge number of loyalcustomers and operating on major routes. These help the company spreadingthe 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 timeservice in the market.

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

Competitive rivalry between existing players:

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High competition pressures on reducing prices, margins, and profitability in thebusiness. Currently Virgin Trains competing against First Capital Connect and BritishRail 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 andhighly specialized equipment.

Analysis of Five Forces:

With the combination of PEST-analysis five forces analysis can expose the insightsof 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 industrystructures. Virgin trains should understand the power of competitive forces toimprove their competitive position. It can lead them to a new strategic position, forinstance, new positioning, differentiation, partnership.

With the help of this model Virgin trains can analysis its systematic and marketstructure. But it is necessary to make sure that all relevant forces are properlyidentified. After the analysis of present and future state, managers of Virgin trainscan search for options that can influence these forces significantly. But options aredetermined by markets external and internal environment. For instance, owninternal 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 managementiii. Analysis of suppliers cost and methods

iv. Training of supply chain

Reducing the threat of new entrants:

i. Increase minimum efficient scales of operationii. Create a strong brand imageiii. Protect intellectual propertyiv. Strong relationship with suppliers

Reducing the bargaining power of customers:

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i. Enhance incentive packages and value added service (currently Virgin trainsis 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 competitionii. Focus on different segments of the marketiii. Create relationship with competitors

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Answer -c:

Mckinsey 7s model:

Mckinsey 7s model is a framework to evaluate the organizational development toachieve its objectives and upgrade the performance. 7s Model of Mckinsey can beapplied to any organization to implement the challenges in global market. It can beused as a tool for assessing the performance of the organization. It is mosteffective to identify and target the areas that need more attention and focus. Theleadership team of Virgin trains has given significant efforts to change the value ofall Ss in the company. Virgin Trains uses this model significantly to develop itsstrategy. They relate the 7s model into their Vision as inputs and performance asoutputs. The companys vision originates the foundation of development of itsstrategies, systems, structure, style, staff and skills.

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

Strategy

Staff

System

Skills

Structure

Style

Shared

values

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Strategy:

Strategy derives from the assessment of SWOT analysis i.e., organizations internalstrengths and weaknesses, and external opportunities and threats. It includescompanys distinctive competencies, company key success factors, andenvironmental influences. Virgin Trains carefully analysis their current situation andfixed the vision strategy. It helps to improve the companys internal and externalenvironment and overall market position.

Structure:

Structure signifies how the company is organized to execute its strategy. Structurecan be centralized or decentralized. Virgin trains decentralized their structure tomake it different and efficient from others. Virgin trains designed their structure tofacilitate achieving corporate vision. It focuses on decentralization carefully and

empowerment of its employees. Employees are able to share their views with topmanagement independently.

Systems:

Virgin trains divided their systems into two categories. These are formal systemsand 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 toshare and work with companys vision strategy.

ii. Performance management systems: Virgin trains created a talent wheelthat identifies potential employees for promotion. It helps to highlight thepotentiality in each employee.

iii. Learning and development: Virgin Trains includes a range of internal andexternal courses and training opportunities for employees. They also includeleadership program for front-line employees.

Informal systems:

i. Meeting formats: For developing employees they organize workshop andgroup meeting with employees.

ii. Conflict resolution protocols: Resolving conflicts also important inorganization. They focus on individual to individual conversation to resolvethis problem.

Staff:

In virgin Trains staffing considerations includes:

i. Diversity: Staffs are of diverse qualities. The company concentrates on thequality of its staff who can deal with maximum problems.

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ii. Selection criteria: Staffs are selected through rigorous interviewingprocess.

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

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

Style:

Style of the organization enables to interact with others in a specific way. Virgintrains focus on the manner how leaders and employees behave internally andexternally. They create a guideline to interact with customers, suppliers,

stakeholders, regulators and government agencies. It helps them to be organized incommunication within the company and outside the company.

Shared values:

Shared values is the set of principle of the company that guide its style andbehaviour. Virgin trains is pro-active to define its corporate values and consistencyin behaviour of each employee and leaders. It set a desired behaviour to sharevalues with others and that must be embraced by other team members andmanagers within the company.

Skills:

Virgin trains differentiated from others by decentralization of powers. Theydesigned the use of different powers according to different skills andcharacteristics. Top managers are required to have core competencies to effectivelyimplement the companys vision, values, goals and strategies. Key considerationsof 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 responsibilitiesand will be able to develop leadership capabilities.

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

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

v. Employees are encouraged to take initiative to resolve any problem with thehelp of a team.

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Comments:

Overall Virgin trains is customer focused. Employees who interact with customersdirectly are best to be found to come up with effective thought and clear directionfor customer-focused improvement. Employees are backed by the managers tochallenge current ideas and views and suggest improvement. The culture change

program in Virgin trains became more effective through direct interaction with itstop line managers.

Bibliography:

1. Rethinking Strategy by VOLBERDA, HENK W, ELFRING, TOM, copyrightby sage publications pages-23-65

2. The Strategy Process by MINTZBERG H, QUINN J. AND GHOSHAL S (4th

edition) chapter- 3-63. 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

September10

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 September10

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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http://www.provenmodels.com/22/five-configurations/henry-mintzberg/http://www.12manage.com/methods_mintzberg_ten_schools_ofthought.htmlhttp://www.thetimes100.co.uk/http://legal-dictionary.thefreedictionary.com/Collective+Bargaining+Agreementhttp://www.strategy4u.com/assessment_tools/porters_five_forces/five_forces_popup.shtmlhttp://www.virgintrains.co.uk/http://en.wikipedia.org/wiki/FTSE_100_Indexhttp://www.provenmodels.com/22/five-configurations/henry-mintzberg/http://www.12manage.com/methods_mintzberg_ten_schools_ofthought.htmlhttp://www.thetimes100.co.uk/http://legal-dictionary.thefreedictionary.com/Collective+Bargaining+Agreementhttp://www.strategy4u.com/assessment_tools/porters_five_forces/five_forces_popup.shtmlhttp://www.virgintrains.co.uk/http://en.wikipedia.org/wiki/FTSE_100_Index


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BSGE Assignmnt FINAL