Strategic Business Units
A strategic business unit is a semi-autonomous corporate unit that focuses on a product offering and market segment.
LEARNING OBJECTIVES
Diagram the role and functionality of a strategic business unit (SBU)
KEY TAKEAWAYS
Key Points
- An SBU is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting.
- An SBU may be a business unit within a larger corporation or it may be a business unto itself. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability.
- Factors that determine the success of an SBU include the degree of autonomy given to each SBU manager, the degree to which an SBU shares functional programs and facilities with other SBUs, and the manner in which the corporation adopts to new changes in the market.
Key Terms
- Functional strategies: The selection of decision rules in each functional area, such as human resources or marketing.
Strategic Business Units
Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short-term and medium-term plans and is limited to the domain of each department’s functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, so to some extent their strategies are derived from broader corporate strategies.
Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have re-engineered according to processes or strategic business units (SBUs). An SBU is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting.
General Electric: General Electric is known for having strategic business units.
An SBU is a profit center which focuses on a product offering and a market segment. SBUs typically have a discrete marketing plan, analysis of competition, and marketing campaign, even though they may be part of a larger business entity. An SBU may be a business unit within a larger corporation or it may be a business unto itself. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability. General Electric is an example of a company with this sort of business organization. SBUs are able to affect most factors which influence their performance. Managed as separate businesses, they are responsible to a parent corporation. Companies today often use the word segmentation or division when referring to SBUs or an aggregation of SBUs that share such commonalities.
There are three factors that are generally seen as determining the success of an SBU:
- The degree of autonomy given to each SBU manager
- The degree to which an SBU shares functional programs and facilities with other SBUs
- The manner in which the corporation adopts to new changes in the market