Business model development and analysis

Organization Behavior

Business Model Development & Analysis

Virgin Galactic has planned to launch its LauncherOne aircraft which will help the Planetary Resources to explore and develop valuable resources from asteroids. The LauncherOne will have capability to make various journeys into the Space every year. Virgin Galactic has also planned to start human flights to the moon in the near future. While this strategy can give it the first mover advantage in the industry, the risks and issues present in the Space business can also pose it big challenges and affect its operational and financial performance in the long run.

The purpose of this paper is to analyze and discuss this innovative strategy of the company from different perspectives. It starts with a brief introduction to the aerospace industry, the strategic decision of Virgin Galactic, and the vision, mission, and other key attributes of this decision. The main body of the paper comprises of comprehensive industry analysis; including market dynamics, financial aspects, technological and human resource planning needs, current and potential market size, potential opportunities in the space business, risks associated with the space business, and different types of logistics issues for the company. The major focus of the paper is towards discussing the effectiveness of this innovative strategy for the long-term growth and market share of the company.

AEROSPACE INDUSTRY

The companies operating in the aerospace industry design, manufacture, sell, and maintain different types of vehicles that fly through air and space. The major customers for air and space vehicles include airline companies, aerospace research organizations, and military or defense corporations (Cadogan 2011). The airlines companies purchase aircrafts and aero planes that are used as the fastest transportation medium by the general customers while the aerospace research organizations use them for doing research in the Space and the Universe. Aerospace industry is operated by firms from both public and private sector. However, the major market share is taken by the private sector in most of the countries. Some private sector companies also operate through funding arrangements by other companies (Commission on the Future of the U.S. Aerospace Industry 2012).

Virgin Galactic is a limited liability large scale corporation mainly engaged in the manufacturing processes and maintenance services of all types of spacecrafts. It is one of the most advanced aerospace corporations in the industry that has planned to launch human flights into the Space in the future. The company has a strong customer base with some renowned space research organizations as its prime customers from the private sector. Virgin Galactic is a subsidiary of the Virgin Group and is currently headquartered in Las Cruces, United States (Virgin Galactic 2012). The LauncherOne is one of the most advanced aircrafts manufactured by Virgin Galactic which is capable of flying through Space at an astonishing speed. There are certain objectives associated with this launch which makes it a very important strategic decision by the company.

THE VISION, MISSION, AND STARTEGY OF VIRGIN GALACTIC

Through its innovative strategy and transformational technologies, Virgin Galactic aims to achieve new milestones in the aerospace industry. With the help of private sector investments and collaborative arrangements with the world's most renowned aerospace corporations, Virgin Galactic has strategized to offer the most advanced, reliable, and super fast spacecrafts in the future which will help it to become the number one aerospace corporation in the world market. Virgin Galactic has set a road map to achieve this mission through its new innovative strategy. Through this strategy, the company wants to become the very first low orbital commercial airline provider in the world. In addition, Virgin Galactic also aims to launch sub-orbital launches for small satellites for space research institutions from both public and private sector.

The vision of Virgin Galactic is to reach at the top market position in the aerospace industry of the world by providing the most demanded air and spacecrafts. The recent collaboration of Virgin Galactic with Planetary Resources will give various strategic benefits to both the firms (Virgin Galactic 2012). Virgin Galactic will launch its LauncherOne aircraft which is capable of making a number of flights every year while Planetary Resources will get a reliable aircraft to discover the unexplored secrets of the asteroids. The strategic objectives behind this launch and innovative strategy are to explore the hidden secrets of the Space with the help of advanced aircrafts and communication networks.

Potential Industry segments:

The industry segments where Virgin Galactic can play with its innovative strategy include spacecrafts for human flights, communication networks through large satellites, launch of small satellites for private businesses, and super-fast spacecrafts for Space research organizations. The most potential area for this innovative strategy is the human flights to moon which aeronautical engineers and scientists believe to be the 'Industry of the Future' (Virgin Galactic 2012). Virgin Galactic can invest a big proportion from its budget and retained revenues in this industry segment in order to develop its own market before the competitive pressures create hurdles in its way to success. It can start this line of business in the future from single flight per month at high price to frequent flights per week at affordable price for the general public.

THE FINANCIAL ASPECT

The implementation of new strategy will require a huge investment in Research and Development, technology, communication networks, logistics, human resource planning, and other operational and organizational aspects. Virgin Galactic has planned to launch its LauncherOne in the space in consortium with Planetary Resources. This new project will cost millions of dollars to both the companies. The biggest cost in this project is Research and Development. Virgin Galactic will have to conduct a full fledge analysis of the destination planet in the Space where Planetary Resources wants to mine asteroids. An extensive research is needed on both the sides in order to ensure that the investment done on LauncherOne in this project does not go waste.

The second major cost will be the implementation of advanced technological processes, software, and communication systems in order to get this assignment done in an efficient and reliable fashion (Commission on the Future of the U.S. Aerospace Industry 2012). The implementation of highly advanced communication networks and systems will also require big investment by the company. These initial costs will put a heavy financial burden on the funding company of Virgin Galactic. The initial period of launch will keep the profit margins at their lowest level, but the company will regain its high profitability after the subsequent launches of the same spacecraft in the next few months. The Space business is highly capital intensive which requires its participants to adopt growth strategies for their operations. Therefore, Virgin Galactic will also have to give an equal focus on other operational aspects of its business. For example, it cannot adopt stability strategy for its small satellite manufacturing and operations while LauncherOne operations are in process (Corallo, Laubacher, Margherita, & Turrisi 2009).

THE MARKET DYNAMICS

The aerospace industry has seen a tremendous growth during the last 3 to 5 years. There has been an addition of numerous large scale aerospace manufacturers in the industry while the competition among the existing manufacturers has significantly increased. Virgin Galactic operates in such an industry where the profit margins are very high for businesses. The new entrants, although need extensive research and market analysis, see a rapid growth in their operations. The businesses have to make collaborative arrangements with international businesses in order to improve their manufacturing capabilities and efficiency of operations. The costs of production are very high for spaceships, aero planes, rockets, and all types of aircrafts (Rossetti & Choi 2005). The market share of a company takes positive impact when it makes investment in such an advanced project.

The logistics market in the spaceships and aircraft manufacturing industry has a great potential to grow in the U.S. And European market due to the presence of a large number of aircraft manufacturers and high level of demand for space flights in the public and private sector (Corallo, Laubacher, Margherita, & Turrisi 2009). The supply chain members for this industry are also very few in number which prefer to make long-term relationships with the market leaders of the industry in order to ensure a sustainable future and get a good price for their suppliers and services. Every spaceship and aircraft manufacturing firm gives a major focus on reducing manufacturing costs, quality management, fuel consumption, time to travel, and overall operating costs. Fuel accounts for more than 50% costs for air jets and spaceship manufacturers. The rapid increase in the prices of oil and petroleum products in the world markets has been posing big threats to these aircraft manufacturers (Clear Water Corporate Finance 2010).

Business SIDES RELATED TO PEOPLE, PROCESS, AND TECHNOLOGY

Advanced Technological Processes:

Virgin Galactic, being the first mover in the spaceships manufacturing industry as a privately funded company will have to institute highly advanced technological systems in order to operate, monitor, and control the aircrafts sent in to the Space. The business processes will also need to be upgraded in a view to bring efficiency in the operations. National Aeronautics and Space Administration (NASA) has specifically designed the regulatory policies for businesses in this industry so that they meet the minimum criteria for operating in the industry and contribute towards the economy and overall Global aerospace industry.

Human Resource Planning:

The human resource needs for the company are also becoming more and more complex day by day. Whenever some new technology is introduced in the industry, Virgin Galactic has to train its present engineers and technicians so that they get equipped with the most advanced knowledge and skills in the Space Sciences. In addition, it has to recruit engineers from the outside market that are well-trained and highly skillful in the required areas. These recruitment and training costs are a major part of the operating expenditures for the company. In this new business strategy, Virgin Galactic will have to plan its human resource, processes, and technological improvement needs for both short run and long run. The innovation in business operations and improvements in current technological processes will enable it to control its costs and bring them to the minimum possible level while human resource planning will help it to ensure the most efficient spacecraft launch operations in the Space.

MARKET SIZE: POTENTIAL AND CURRENT

Virgin Galactic operates in a highly capital intensive industry. Although the aerospace industry is composed of less number of participants than other industries, but the capital requirements, Research and Development needs, and risks associated with the business are the largest among all types of industries. The aerospace industry is concentrated with manufacturers, suppliers, regulatory bodies, and customers (airlines, Space research organizations, and military and defense corporations). The industry has been showing a growing trend for the last few years which is a positive sign for the technology oriented businesses that are directly or indirectly associated with the telecommunication networks and aeronautical or space sciences (Clear Water Corporate Finance 2010).

Virgin Galactic is a well-recognized manufacturer of superior quality spaceships and air jets for all types of space research organizations. Currently, it is being operated through funding by a private organization. Keeping in view the potential of this industry, it can be anticipate that Virgin Galactic will see a tremendous growth in its business operations and excellence in its manufacturing capabilities in the future (Ryu & Pak 2010). However, the competitors of Virgin Galactic which possess the competencies to dominate the market in the near future include SpaceX, Space Adventures, SpaceDev, ARCA, EADS Astrium, Armadillo Aerospace, Bigelow Aerospace, Boeing, Blue Origin, Excalibur Almaz, Reaction Engines, Starchaser Industries, XCOR, and others. Most of these competitors are specialized in rockets, capsules, and space plane launchers. The aerospace companies which have self powered launchers can give them a competitive advantage over other companies. The largest airlines of the world like Delta Airlines, Ryanair, U.S. Airways, Lufthansa Group, British Airways, United Airlines, Emirates Airlines, etc. can also enter this space business in the future. These airline businesses will further concentrate the aerospace industry and make the competition more severe for Virgin Galactic.

MAIN PLAYERS IN THE INDUSTRY

The most important players in the aerospace industry are the aircraft manufacturers that design, manufacture, promote, sell, and maintain highly advanced and technologically superior and faster air jets, rockets, spaceships, and other types of aircrafts for their customers all over the world. The second most important player in this industry is the regulatory authorities that regulate the way these manufacturers conduct research, make investments, use technology, and manufacture their products (Corallo, Laubacher, Margherita, & Turrisi 2009). The third primary player of this industry is the customers of the aircraft and spacecraft manufacturers. The fourth and equally important player of the aerospace industry is the suppliers of raw materials, technological processes, and technical capabilities (Deloitte Development 2012).

Keeping in view the recent growth trends in this industry, it is expected that the manufactures of passenger and cargo airlines that are financially and operationally strong will also penetrate in the aerospace industry in the near future. They will be a potential player in this industry which will further get concentrated with a large number of manufacturers. This entry of new manufacturers will open new horizons for more potential participants in the form of suppliers and technical support firms (Platzer 2009).

POTENTIAL OPPORTUNITIES IN THE SPACE Business

THE FIRST MOVER ADVANTAGE

a. Human Flights:

According to aeronautical engineers and space scientists, there are numerous opportunities in the space business which are still unexploited. Virgin Galactic has planned to launch human flights to moon in the future. This will be a highly attractive opportunity for making high market share and profits. If Virgin Galactic launches these human flights as an individual line of business before any of its competitor firms do, it can get a competitive advantage over these firms and make its own identity in the tourism industry. Virgin Galactic has strategized to offer these human flights on frequent basis and make it a new way of tourism for the tourism lovers. However, these flights will initially be expensive enough to be borne by only wealthy people once in their lifetime. With the passage of time when other manufacturers will also start offering human flights, the fair charges will come down to a lower level which could be affordable by high to upper middle income groups. This step is highly attractive for the growth of Virgin Galactic in the long run. The investment made on this project will improve its market share and brand image in the eyes of its key stakeholders and will help it in beating the other industry leaders with this first mover advantage for a long period of time.

The major cost in this investment will be the fuel expenses which account for more than 50% of the total cost of travelling. In order to encounter this issue, Virgin Galactic will have to focus on introducing more advanced air jets and spacecrafts which are more fuel efficient and faster than previous craft line. The first mover advantage can become a distinctive competency for Virgin Galactic if it will focus on quality management, fuel efficiency, financial performance, and competitive strategies at the same time.

b. Satellites:

Virgin Galactic will also find great opportunities in the satellite business. It can produce more efficient, reliable, faster, and technically advanced satellites at lower costs in the future by using its manufacturing capabilities and innovative procedures. The markets size for satellite business is quite small as compared to aircraft and spacecraft manufacturing. However, Virgin Galactic can develop its name in the industry by producing large number of satellites that are customized according to the requirements of its customers. Initially, Virgin Galactic can take the services of suppliers for technical processing, maintenance, and controlling procedures for its satellites, but with the passage of time, it can become self-sufficient, more innovative, and capable of doing each and every process itself (Clear Water Corporate Finance 2010).

RISKS ASSOCIATED WITH THE SPACE Business

Space is certainly the riskiest business so far. It is because there is a huge different between what is known about the Space and what actually exists. The size of the Universe where aerospace industry tries to make discoveries is still immeasurable. Therefore, the aircrafts and spaceships which companies manufacture to explore the secrets of the Space have a limited speed, capabilities, and coverage (European Commission 2012). The risks associated with the Space business refrain them from thinking beyond a certain destination in the Space. Thus, the biggest risk in the Space business is the operational efficiency of the spacecrafts which may cease after a particular distance, making them quite non-functional, useless, and uncontrollable beyond that distance (Corallo, Laubacher, Margherita, & Turrisi 2009).

The second biggest risk or threat in the space business is the need for huge investments which may go in vein if a company fails to launch its spacecraft effectively. The Research and Development costs are also very high which put a direct negative impact on the profit margins of the company. Companies in the aerospace industry are generally exposed to high risks of technological failures. They have to expend a huge amount from the revenues on the Research and production activities so that every new air jet or spacecraft they manufacture is more advanced, faster, reliable, and efficient than all its previous aircrafts. Any minor technical failure or accident can cause billion dollar losses to the company (Clear Water Corporate Finance 2010).

Another risk in the space business is the strong rivalry and cold war among industry leaders. This rivalry often makes the less competitive firms copy the technological processes and innovative ideas of the market leaders. Once an innovative idea is stolen by a less competitive firm, it will not remain a core competency for the first mover firm any more. This risk always puts negative impacts on the market share of aerospace companies as less competitive firms get succeeded in snatching the market share by implementing the same advanced technological systems and processes in their manufacturing plants and operational units.

LOGISTICS OF SUPPLY ISSUES IN THE SPACE Business

Logistics and supplies can cause big issues to the air and spacecraft manufactures. As an independent manufacturer, Virgin Galactic has to ensure that it suppliers regularly supply the required raw material and spare parts of aircrafts without any delay. These raw material and aircraft spare parts must strictly comply with the international quality management standards (Beaudry 2001). In addition, suppliers have to ensure that they deliver their supplies to the manufacturers in perfect condition. Virgin Galactic purchases raw material and spare parts from reliable suppliers from the industry. These suppliers have good reputation and have implemented high standards of quality management at their plants. However, the price they charge from the company is comparatively higher than other small scale suppliers. Virgin Galactic also faces logistics issue when these suppliers run short of required raw material which is used in manufacturing the spare parts for air and spacecrafts (Corallo, Laubacher, Margherita, & Turrisi 2009).