Business Report on Ethical Values and Practices of Richard Bransons Virgin Brand

The other problem that will be discussed regards Virgin Atlantic during 1992; Branson sold the Virgin Records group to EMI in the hopes of maintaining his airline. This was likely due to poor controlling of the airline, which failed to make profits during the financial year. It will be illustrated how he should have been more ethical in the controlling of the airline, or this may never have taken place.

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2. Discussion

1.  Loan Problem

Within any organization, problems are bound to be encountered at some juncture during the lifetime of the business. It is thus essential to plan in advance for organization specific problems in order to be prepared for any predicament the organization might face and eliminate the margin for failure. In 1984 Branson experienced a challenging situation which could have ultimately resulted in the downfall of the entire Virgin brand.

Richard Branson has stated throughout his life that he relies “far more on gut instinct than researching huge amounts of statistics" (Branson, Losing My Virginity, 2006). This approach to business lead Branson straight into the eye of the storm of a major problem. The year of 1984, saw the year when Virgin Atlantic was about to take-off. During the initial test flight of the newly leased aircraft for the company, a number of birds had been literally ‘sucked’ into one of the engines, resulting in the complete destruction of a £600, 000 engine (Branson, 2006, pp. 229-230). Unfortunately Branson had only planned for success and thus the company was immediately placed into a financial dilemma. Correct planning would have salvaged the company from this situation immediately and prevented jeopardizing the ethical values and practices of the Virgin brand.

1. Planning Function as an Ethical Solution

Generally, the planning function of management incorporates the actions of; defining the organisation’s goals, establishing a generalized strategy to aid in attaining these goals, and developing a detailed set of plans in order to integrate as well as coordinate organisational work as averred by Robbins et al. (2009, p. 246). Planning can be either formal or informal. Sir Richard Branson adopted a more informal approach to planning – a more short-term focus on company goals, and relating only to the managers vision of the company, as he acted at the spur of the moment. This is evident when he was offered the chance to start up Virgin Atlantic, as did not hesitate to immediately seize the opportunity. Thus, Branson relied on his intuition for making the decision.

In order for an organization to attain their goals, decisions must be made when faced with a particular problem. Managers at all organizational levels make decisions between two or more alternatives to eradicate the problem at hand; however the way in which the managers come to a conclusion varies. As previously mentioned, Richard Branson generally makes a decision based on his ‘gut’ feeling. This type of decision making is referred to as intuitive decision making. This is an “unconscious process of making decisions on the basis of experience and accumulated judgement” (Robbins et al., 2009, p. 224). Due to a lack of planning Branson required £600, 000 of which he only had £300, 000 as stated by Branson himself (2006, p. 235). Coutts Bank was unwillingly to loan the company the money required as Virgin would exceed their overdraft limit. Fortunately Branson was able to retrieve the money by combining all the funds from the Virgin Records subsidiaries overseas.

As illustrated with the predicament Branson has encountered it is evident through his decision of solving the solution that he does not utilize a systematic or thorough analysis of the problem to determine the correct solution. Instead he utilizes his intuition. However this can have a negative effect. Firstly, it is not as sure a method as utilizing another decision making method, but more importantly it could have had a severe effect on the ethical values and practices of the business if Branson were unable to gain the funds needed for the new engine. This ‘irresponsible’ approach could have seen 3000 people from the Virgin enterprise lose their jobs. Customers who would have paid for the service would be let down and become frustrated and dissatisfied with the company. In addition, Virgin’s reputation was put out on the line. Had Branson not have been able to receive the funds needed to purchase a new engine, the Virgin brand would have collapsed. As can be seen, Branson did not place others at his highest priority level when it came to making decisions. In order to prevent this, the manager - Richard Branson, should have utilized the rational decision-making process.

2. The Rational Planning Process

To ensure organisational success, a business must reach its planned goals and eliminate as many problems as possible, which it could encounter along the way. Planning ahead is a major aspect that all companies should embrace. As previously stated, Sir Richard Branson utilizes a more informal approach to planning- thus dealing more with short-term goals, and personal visions of success. Unfortunately, Branson did not reserve any space for failure. He believed that Virgin Atlantic would be smooth sailing throughout its lifetime. He was mistaken. This can be shown by the loan problem he was faced with in the year of 1984. Branson should have planned for some common problems the airline might have been plunged into during its existence, such as a financial crisis. In order to plan ahead and find a solution to specific problems, the rational decision-making process should have been utilized, as opposed to the Intuitive Decision making process. This would have assisted him in determining the better choice to resolve problems the company would stumble upon, as it is a systematic approach to making a decision with clearly defined steps.

        

The rational decision-making process comprises of eight systematic steps which include, identifying a specific problem, selecting an alternative to resolve the problem, and an evaluation of the decision’s effectiveness (Robbins et al., Decision Making: The Essence of a Manager's Job, 2009, p. 216). The eight steps of this decision making process are illustrated by figure 1 (Robbins & DeCenzo, Foundations of Decision Making, p. 129). 

1. Step 1: Identifying a problem - As shown above, there are eight steps in the rational decision-making, the first being the identification of a problem. A problem is defined as a “discrepancy between an existing and a desired state of affairs” (Robbins et al., Decision Making: The Essence of a Manager's Job, 2009, p. 216). A typical problem all businesses face is that of financial debt. A financial crisis can have an adverse effect on the business. Even though Richard realized the financial problem he was in at the time it occurred, he was not sufficiently prepared for it.

2.  Step 2: Identifying decision criteria – After the realization of a problem, certain factors must be accounted for in order to make an informed decision. Branson should have calculated the general cost of a serious financial crisis, the failure rate of airline companies, and the growth potential of this type of organization. By doing so he could have determined the outcomes and effects of general problems the company would be faced with in the future, such as his loan predicament.  

3. Step 3: Allocating Weights to the Criteria – this step involves placing a value of importance to decision criteria in order of priority. Richard would have been able to determine which future problems would be most important to resolve at an earlier stage and thus assisted in maintaining the success of Virgin Atlantic.

4. Step 4: Developing Alternatives – This step pertains to listing possible alternatives in order to resolve the problem. If Branson were to have used this decision making process he would have developed the long-term options of setting aside a budget for any financial dilemmas the company would be placed in or ensuring accountants provided updated and relevant financial statements could be utilized to determine the organizations performance. In addition, a different bank could have been selected which would suit Branson’s needs better.

5. Step 5: Analysing alternatives – The analysis of each step is of utmost importance. The manager should review the strengths and weaknesses of each alternative utilizing the decision criteria from step 2, as well as the weights of these criteria from step 3. Branson would have been able to determine which choice of alternative would be most effect in preventing future problems of the airline and thus prevent any unethical behaviour.

6. Step 6: Selecting an Alternative – As previously mentioned, by analysing the various alternatives, Branson would have been able to choose the better alternative in resolving the imminent problems of the company.

7. Step 7: Implementing the Alternative – The chosen alternative from step 6 must be placed into action in order to be effective. To achieve this, the effected personnel must become aware of the decision made by the manager. Hence Richard would need to inform his colleagues of his decision.

8. Step 8: Evaluating Decision Effectiveness – This step entails the evaluation of the outcome of the decision selected in resolving the problem. It is the final step and determines whether or not the decision made by the manager was effective.

Via utilizing these steps in making a rational decision, Richard Branson would have been adequately prepared for the problems he was experiencing during the year of 1984. Having chosen the decision of budgeting for a financial crisis, the cost of replacing the engine would have been covered. In turn this would have covered the ethical values and practices of Virgin, since people would not have been put at risk by the loss of their jobs, customers would be protected from business complications, and the Virgin brand would not be threatened.

2. Virgin Atlantic Financial Problem

Another dilemma that Richard Branson has faced again occurred with his Virgin Atlantic airline brand. This time in 1992, the airline was facing major financial difficulties as the company was failing to make enough profits to cover their assets. Branson finally had to sell is Virgin Records label – his prized company that provided the momentum for his entrepreneurial success – to keep his young airline running. This was at a time when the music company was making record profits, but EMI (the new buyer) was only offering 14 percent of what the brand was actually worth (Branson, Victory, 2006, p. 462). However, as mentioned in his book, Branson used his intuition once again, and did settle and the airline was just salvaged from disaster.

The ethical problem with this situation too, is that it is not just his money that he is losing. The people who worked for his music label had to be laid off because he did not control Virgin Atlantic effectively. Even though he hired them back when he started a new record company, it was very unethical at the time to retrench the people who were doing their job because of people in the airline who did not do their work correctly.

3. Controlling Function as an Ethical Solution

All these dilemmas could have easily been avoided if Branson – as a manager – implemented proper controls over the airline while it was in operation instead of letting it run with very little supervision. This way these problems would not have grown to such a disastrous extent.

1. What is Control

As Robert J. Mockler (1968, as sited in Johnson, 1976) mentioned, managerial control can be demarcated as the role of a system that adjusts operations as needed to achieve the plan or to “maintain alterations from system objectives within allowable limits". The degree to which the manager’s control interacts with the operations depends on the nature of the organization and its objectives. Controlling keeps an organization stable, giving it the ability to maintain a pattern of output without wide fluctuations. The control’s rapidity pertains to the speed with which a manager can correct variations and return to expected output.

2. Approach to Controlling

There are three approaches to control systems: being market control, bureaucratic control and clan control. Market control utilizes external market mechanisms, like economic and political factors etc, in order to set-up control standards. A manager’s bureaucratic control on the other hand depends on rules, regulations, policies and procedures, where as the clan control approach allows for the organization’s culture to control employee behaviour and general operations (Robbins et al., 2009, p. 697).

Richard Branson used a clan approach when it came to controlling Virgin Atlantic. As he did not know the market, he let Virgin’s clan culture regulate the employee behaviour rather than being there himself. He thought, just like the rest of his companies, that it would just “run itself with just a little push like a mother bird pushing its baby out of the nest” (Branson, 2006, p. 463). This may have been the wrong choice as the airline was still a new company and did not know its competition like British Airways and birds do not always fly the first time that they are pushed.

A bureaucratic approach to control should have been used at the time; continuously regulating the operations of the company, setting policies and procedures to follow, and monitoring the financial performance. This is mainly due to the fact that an airline is far more demanding to control than the typical music label and cannot be allowed to run freely. This way Branson may have kept the company close nipped and prevented it from losing track, or he could have noticed problems and resolved them then and there.

With reference to the financial performance of the airline, a market approach should have been utilized by Branson as there is a considerable amount of price and market competition in the airline business stream like American Airways, Singapore Airline and of course their biggest competition being British Airways. He should have been focussed at making profits in the initiation of the airline, rather than just trying to be different, just to provide a stable foundation for the brand. Once that was done, then Sir Richard Branson could have utilized his more typical and unique clan culture in the management process to maintain his competitive edge.

3. The Control Process

1. Measuring Actual Performance

As illustrated in figure 2 above, to implement this more ethical bureaucratic approach in operations and market approach in finance, a process is required. The manager should measure Virgin Atlantics’ performance with statistical, oral, and written reports together with his own personal observations (Robbins et al, 2009, p. 700).

This is where a bureaucratic and even market approach to management and control is beneficial. If Branson used statistical reports for Virgin Atlantic it would have been simple to illustrate and visualize where the airline is having problems – in this case they were unethically selling tickets far above the market price, and had many delays and late arrivals in plane flights, resulting in very few sales and massive losses (Branson, Victory, 2006, p. 463) – and it would have been effective at exemplifying relationships against his competition and even the different functions (marketing, finance, operations, sales, etc).

Branson could have also employed his remarkable human skills in personally acquiring oral reports of his airline. Through this channel, he could have retrieved information very rapidly; catching the problem before it worsens. This way he could also have gotten verbal and non-verbal feedback from his employees and even his customers to understand where the exact problems lie and how people want them to be fixed.

Even written reports, which are not even Branson’s forte as he is dyslexic (Branson, 2006, p. 45), could have been used.  As explained by Robbins et al (2009, p. 700) they are very formal, comprehensive and easy to file and retrieve. They also make the company seem more ethical and provide a paper-trail that makes the organization seem above-board. This way Richard Branson could have hired people who are good at reading these reports and make decisions based on these detailed descriptions.

Going back to his excellent human skills, the best way that he could have measured his company’s performance would have been through using personal observations by attaining firsthand knowledge and unfiltered information from the people who actually make up Virgin Atlantic. He could have implemented himself into its operations – like he used to when he was running his small record label by himself – and acquired detailed and intense coverage of the working activities and been able to understand all the problems that were taking place.  

2. Comparing Actual Performance Against Standard

Branson should have then used the information attained from measuring the performance to set a standard for his airline to meet (acquired from other airlines etc) and then compare its actual performance to this standard. Once looking for market standards, Branson should have established an “acceptable range of variation” (Robbins et al, 2009, p. 701) ranged between lower and upper limits that the airline should perform within in each function of the organization. Once these unique standards are in place, it must be seen if the airline over or under performs within these standards

3. Taking Managerial Action

After that, he must finally take managerial action to try and correct Virgin Atlantic’s poor performance in areas that it performed below the set standard. In this case this would have been in the sale of tickets and the poor arrival and departure times. If Branson understood these problems, he could have lowered the prices to the industrial norms and revamped the areas that made his airline run on continuous delays. This way the operations of Virgin Atlantic would have performed more ethically and cared about the welfare of their customers. Sales would have increased and he may never have needed to sell his record company and retrench all those employees. After this, Branson should revise the standards. If the company still could not meet them, he should lower the standards slightly and if the airline did meet them he should raise the goals in order to push his company even further and then later               re-implement his clan culture into the airline to inkeep with the uniqueness of the Virgin brand and improve customer relations.

Through following this procedure, he may have managed the company far better together with the valuable assets. His customers would have felt more valued and rewarded the airline with their customer loyalty. Worst of all as mentioned earlier in the report, his entire Virgin brand suffered as it lost much of its reputation because of his airline (Branson, 2006, p. 461). If these procedures were followed, the impact of the airline on his organization may have been beneficial to the brand’s reputation.

4. Measures and Tools for Controlling Virgin Atlantics’ Performance

There are many ways in which Sir Richard Branson can control Virgin Atlantic. He could have looked at the productivity of his airline, together with its industry rankings against its competition, and even the effectiveness of its operations to control its performance (Robbins et al, 2009, pp. 707-709).

The types of control tools like feedforward controls (input), concurrent controls (process) and feedback controls (output) can be used for controlling Branson’s Virgin Airlines.

An input control that can be utilized are policies and procedures “to guide behaviours” within the organization. Policies help ensure that behaviours in the workplace conform to the laws that an airline must follow, and also to expectations of his organization. Policies are often applied to specified situations in the form of procedures. Personnel policies and procedures help ensure that employee rules are followed and minimize the “likelihood of costly litigation.” A procedure is a step-by-step list of activities required to conduct a certain task. Procedures ensure that routine tasks of Virgin Atlantic are carried out in an effective and efficient fashion (McNamara, 2008). These feedforward controls are implemented to anticipate problems and prevent them from occurring, but rely on the process and output controls to ensure they are followed.

A process type of control like delegation is a tool to get things done, in concurrence with other employees. This is where Branson probably failed in his control function as a manager as he did not delegate the correct jobs to the right people who would fix in occurring problems. Delegation is often viewed as a major means of influence and therefore is categorized as an activity in leading (rather than controlling/coordinating). Delegation generally includes assigning responsibility to an employee to complete a task, granting the employee sufficient authority to gain the resources to do the task and letting the employee decide how that task will be carried out. Typically, the person assigning the task shares accountability with the employee for ensuring the task is completed (McNamara, 2008). This is a form of concurrent control that can correct problems as they occur by delegating people to do so. If this is done correctly, then maybe the other ways and tools of control would have fallen into place.

Lastly, to complete the control process, a feedback control is needed at the output of the airlines performance. Evaluation is a great tool that Branson can utilize. It can be used for carefully collecting and analyzing information in order to make decisions. There are many types of evaluations in organizations, for example, evaluation of marketing efforts, evaluation of employee performance, program evaluations, etc. Evaluations can focus on many aspects of an organization and its processes, for example, its goals, processes, outcomes, etc (McNamara, 2008). This should be used by Branson to keep is entity on track in all functions of its performance.

At the base of his controls, he should implement traditional financial controls to keep track of the airlines exact cash flows and debt control. Once the organization has establish goals and associated strategies (or ways to reach the goals), funds are set aside for the resources and labour to the accomplish goals and tasks. As the money is spent, statements are changed to reflect what was spent, how it was spent and what it obtained. Review of financial statements is one of the more common methods to monitor the progress of programs and plans. Financial audits must be conducted regularly to ensure that financial management practices follow generally accepted standards, as well (McNamara, 2008). This way he can keep the company operating profitably until the position has stabilized. Once he has become used to this market, his clan approach can be re-engaged and maintain its unique Virgin appeal.

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3.  Conclusion

It is evident that the managerial functions of planning and controlling can lead Richard Branson’s enterprise in a forward direction for ethical success.

The two problems that occurred in the organization were discussed. Ethical planning and controlling functions are the best methods to fixing or preventing such situations from occurring in the future, but still allowing Virgin to maintain their social responsibility and have this system improved at the same time.

The rational decision making process is the most important process that Richard Branson should use in the planning for future situations within the airline. All he should do with controlling is following the control process as mention in the report to ensure that his airline never faces the financial problems that occurred in 1992.

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2. Recommendations

• Implement the rational decision-making process.
• Adopt a more formal approach in the planning style.
• Follow the correct decision-making process.
• Utilize proper policies and procedures in the feedforward controls.
• Use proper delegation in the concurrent controls.
• Implement regular evaluation of the airline’s performance in the feedback controls.

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1. Reference list

About Virgin. (2009, May 1). Retrieved May 1, 2009, from Virgin:                                         http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx

Branson, R. (2006). "You will either go to prison or become a millionaire. In Losing My                 Virginity (pp. 35-46). Virgin Books.

Branson, R. (2006). Laker's Children. In Losing My Virginity. Virgin Books.

Branson, R. (2006). Losing My Virginity. Virgin Books.

Branson, R. (2006). Victory. In Losing My Virginity (pp. 461-463). Virgin Books.

Johnson. (1976). Managerial Controls. In Management, systems, and society : an introduction         (p. 143). Pacific Palisades, California: Goodyear Publishers Co.

McNamara, C. (2008). Management Function of Coordinating/Controlling: Overview of                 Basic Methods . Retrieved May 2009, 10, from Free Management Library:                 http://managementhelp.org/cntrllng/cntrllng.htm

Robbins, & DeCenzo. Foundations of Decision Making. In Fundamentals of Management         (6 ed.). Pearson.

Robbins, Bergman, Staag, & Coulter. (2009). Foundations of Planning. In Management                 (5 ed.). Pearson.

Robbins, Bergman, Stagg, & Coulter. (2009). Decision Making: The Essence of a Manager's         Job. In Management (5 ed.). Pearson.

Robbins, Bergman, Stagg, & Coulter. (2009). Foundations of Control. In Management (5 ed.,         pp. 697-714). Pearson Education Australia.

Robbins, Bergman, Stagg, & Coulter. (2009). Social Responsibility and Managerial Ethics. In         Management (5 ed., p. 167). Pearson Education Australia.