Strategic business unit

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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. When companies become really large, they are best thought of as being composed of a number of businesses (or SBUs).

In the broader domain of strategic management, the phrase "Strategic Business Unit" came into use in the 1960s, largely as a result of General Electric's many units.

These organizational entities are large enough and homogeneous enough to exercise control over most strategic factors affecting their performance. They are managed as self contained planning units for which discrete business strategies can be developed. A Strategic Business Unit can encompass an entire company, or can simply be a smaller part of a company set up to perform a specific task. The SBU has its own business strategy, objectives and competitors and these will often be different from those of the parent company. Research conducted in this include the BCG Matrix.

This approach entails the creation of business units to address each market in which the company is operating. The organization of the business unit is determined by the needs of the market.

An SBU is an operating unit or planning focus that groups a distinct set of products or services, which are sold to a uniform set of customers, facing a well-defined set of competitors. The external (market) dimension of a business is the relevant perspective for the proper identification of an SBU. Therefore, an SBU should have a set of external customers and not just an internal supplier.^[1]

Companies today often use the word “Segment” or “Division” when referring to SBU’s, or an aggregation of SBU’s that share such commonalities.

Commonalities

An SBU is generally defined by what it has in common, as well as the traditional aspects defined by McKinsey, of separate competitors and a profitability bottom line. The commonalities are five in number:

Success factors

There are three factors that are generally seen as determining the success of an SBU:^{[citation needed]}

1. the degree of autonomy given to each SBU manager,
2. the degree to which an SBU shares functional programs and facilities with other SBUs, and
3. the manner in which the corporation evaluates and rewards the performance of its SBU managers.

BCG matrix

When using the Boston Consulting Group Matrix, SBUs can be shown within any of the four quadrants (Star, Question Mark, Cash Cow, Dog) as a circle whose area represents their size. With different colors, competitors may also be shown. The precise location is determined by the two axes, Industry Growth as the Y axis, Market Share as the X axis. Alternatively, changes over or two years can be shown by shading or other differences in design.^[2]

References

1. ^ Arnoldo C. Hax and Nicholas Majluff
2. ^ For an example, see Robert Cushman, "Norton's Top Down, Bottom-Up Planning Process", Planning Review 7 (6), November 1979