“IDENTIFYING STRATEGIC BUSINESS UNITS”

DEFINITION

Strategic Business Unit or SBU is understood as a business unit within the overall corporate identity which is distinguishable from other business because it serves a defined external market where management can conduct strategic planning in relation to products and markets. The unique small business unit benefits that a firm aggressively promotes in a consistent manner. When companies become really large, they are best thought of as being composed of a number of businesses (or SBUs).

INTRODUCTION……The idea was developed by Mckinsey & Co. (Consulting Firm) & General Electric in 1971.Separate operating entities within an organization.After defining mission, a company establishes SBU’s which is self contained division, product line or product department within an organization.To be identified an SBU, an entity should,

Be a separate identifiable business Have a distinct missionHave its own competitorsHave its own executive group with profit responsibility In 1990 AT&T had 19 business units General Electric & SBU’s are electrical motors, Major appliances, Jet Engines Lighting Equipments Commercial Credit and Broadcasting.

Large companies normally manage quite different businesses, each requiring its own strategy. General Electronics classified its businesses into 49 strategic business units (SBU’s).

An SBU has three characteristics:

1) It is a single business or collection of related businesses that can be planned separately from the rest of the company.

2) It has its own set of competitors.3) It has a manager who is responsible for strategic planning

and profit performance and who controls most of the factors affecting profit.

• The purpose of identifying the company’s strategic business units is to develop separate strategic and assign appropriate funding.

• And helps the development of business level strategies since these may need to vary from one SBU to another.

The two important planning models are :

1. The Boston Consulting Group MatrixThe Boston Consulting Group Matrix identifies four types of SBU’s: Star, cash cow, problem child (question Mark) and dog.

A star is a leading SBU (high market share) is an expending industry (High growth)

A cash cow is a leading SBU (high market share) in a relatively matured or declining industry (low growth)

A problem child or question mark is an SBU that has made little impact in the market place (low market share) is an expanding industry (high growth).

Analyzing sbu’s “Boston Consulting Group Matrix”

2. The Product / Market Opportunity Matrix

It identifies four alternative marketing strategies that may be used to maintain and / or increase sales of business units and products and that are:

• Market penetration• Product development• Market development and • Diversification.

Two opposing pitfalls that needs to be avoided:

If each product & each geographical branch (and so on) is considered to be an independent SBU such immense variety of

competitive strategies for a single organization would create a lack of focus & inefficiency. This would make the development of

corporate-level strategy almost impossible.

On the other hand, the concept of the SBU is imp in reflecting the diversity of products and markets that actually exists

There are two broad criteria's which can help in avoiding these pitfalls & therefore, in identifying SBUs that are useful when developing business-level strategies:

External criteria for identifying SBUs are about the nature of the marketplace for different parts of the organization. Two parts of an org should only be regarded as the same SBU if they are targeted the same customer types, through the same sorts of channels and facing similar competitors.

Internal criteria for identifying SBUs are about the nature of an organization’s strategic capabilities its resources and competences. Two parts of an org should only be regarded as the same SBU if they have similar products/services built on similar technologies and sharing a similar set of resources and competencies.

Issues Raised By Identificationof SBU’s

A confusion of SBUs:• Since bases of competitive strategy may need to differ by

markets(or market segment)the SBUs considered need to reflect this,

• The results of subdivision of markets into segments could be unmanageable in terms of identifying compatible bases of competitive strategy. So sensible judgments need to be made about it.

Corporate complexity:• Too many SBUs can create excessive complexity in developing

corporate level strategy,

Organizational structure• -For strategy making purpose,• An organization may not actually be structured on the basis of

SBU's, so consideration needs to be given to the relationship of SBUs and organizational design.

External and Internal criteria that can help in identifying appropriate SBUs:

Market based criteria:• Different parts of an organization might be regarded as the

same SBU if they are targeting the same customer types, through the same sorts of channels and facing similar

competitors .

Capabilities based criteria:Parts of an organization should only be regarded as the same

SBU if they have similar strategic capabilities.

1) http://books.google.com.pk/books?id=uZ-qoiUiXuEC&pg=PA241&lpg=PA241&dq=identifying+strategic+business+units&source=bl&ots=-2D1iMWVBV&sig=KybCBA7Qch5BMmsZdW7WDv0pMiU&hl=en&ei=YfRmS63UJoLs7APK4Lwa&sa=X&oi=book_result&ct=result&resnum=2&ved=0CAsQ6AEwAQ#v=onepage&q=identifying%20strategic%20business%20units&f=false

2) http://en.wikipedia.org/wiki/Strategic_management3) www.scribe.com4) www.12manage.com/description_strategic_business_unit.html5) www.dictionary.bnet.com/definition/strategic+business+unit.html6) www.articlesbase.com/.../strategic-business-units-752913.html7) www.bizcovering.com8)  www.megorama.com/9) Marketing Management (12 Ed) by Philip Kotler & Kevin Lane Keller.