A Strategic Business Unit (SBU) is a separate, specialized subsystem in a large organization that acts like an independent business. Management consultants developed the concept in the late 1970s as a means to focus on product strategy and strategic planning.
An SBU operates in the marketplace as an independent entity with its own vision, mission, competitors, business model, and profit-and-loss responsibility. However, it remains part of a larger corporation and, as such, must align its strategy with the corporate-level strategy.
Typically, an SBU has the following characteristics:
- It is a separate business entity with its own set of competitors.
- It has control over its resources.
- It is led by a manager who is responsible for strategic planning and profitability.
- It operates in a distinct area of business, which could be defined by market segment, product type, geographic location, or other factors.
- It is large enough and sufficiently independent to be planned separately from the rest of the company.
The SBU structure helps large organizations manage diversity in their product portfolios and markets and provides a way to instill entrepreneurial spirit, allowing for quicker decision-making, adaptation to market changes, and innovation.
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What is typically the structure of a strategic business unit?
The structure of a Strategic Business Unit (SBU) can vary based on the specific nature of the business and the overall organization. However, there are several common elements that many SBUs share. Here is a generalized structure:
- SBU Manager or President: The head of the SBU is responsible for the unit’s strategy, operations, and financial performance. This individual often reports directly to corporate-level executives.
- Functional Departments: Each SBU will typically have its own functional departments similar to those in the larger corporation, such as marketing, sales, operations, finance, HR, and R&D. These departments will work together to achieve the strategic goals set for the SBU. The heads of these departments often report to the SBU Manager or President.
- Teams or Divisions: Depending on the size and complexity of the SBU, there may be additional subdivisions or teams within it. These could be organized around specific products, projects, geographic regions, or customer segments.
It’s important to note that while an SBU functions with a high degree of autonomy, it’s not entirely independent. Key strategic decisions, such as entering a new market or launching a new product line, are often made with corporate-level management. Additionally, some resources and functions (such as certain aspects of finance or human resources) may be shared at the corporate level.
This structure is intended to offer several benefits, including a focus on specific markets or products, increased accountability, faster decision-making, and a better alignment of resources with strategic objectives.
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Types of Strategic Business Units
Strategic Business Units (SBUs) can be categorized differently depending on the parent company’s organizational structure, strategic objectives, and industry. Here are a few common types:
- Product-Based SBUs: These units are centered around a specific product or product line. Each SBU is responsible for its designated product’s production, marketing, and profitability.
- Market-Based SBUs: These are created to focus on a specific market or customer segment. This allows the SBU to tailor its strategies to its designated market’s unique needs, preferences, and competitive dynamics.
- Geography-Based SBUs: These units are responsible for operating in a specific geographic region. This type of SBU can be useful for multinational companies that must adapt their operations and strategies to different national or regional markets.
- Process-Based SBUs: These SBUs focus on a specific process or operational area within the organization. For example, a company could have an SBU dedicated to the research and development process.
- Function-Based SBUs: These units are formed around a specific business function, such as marketing or sales.
- Hybrid SBUs: Many companies use a mix of the above categories to form their SBUs. For example, a company might have product-based SBUs for its different product lines, and within each of those, there might be geography-based SBUs for different regions.
Remember that these types are not mutually exclusive. A company might categorize its SBUs in one way and then further subdivide them in another way. The goal is to create units that can operate effectively and efficiently, with a high degree of focus on their specific strategic objectives.
What is the planning process of a strategic business unit?
The planning process of a Strategic Business Unit (SBU) typically involves several key steps. While the specific process can vary depending on the organization and the nature of the SBU, here is a generalized version of the process:
- Situational Analysis: This involves understanding the current state of the SBU, including its strengths, weaknesses, opportunities, and threats (SWOT analysis). This step might also include analyzing the competitive landscape, understanding customer needs and behaviors, and evaluating the SBU’s current performance.
- Setting Objectives: The SBU sets strategic objectives based on situational analysis. These objectives should be aligned with the overall corporate strategy and should be Specific, Measurable, Achievable, Relevant, and Time-bound (SMART).
- Developing Strategies: Once objectives are set, the SBU develops strategies to achieve them. This might involve choosing target markets, deciding on a competitive position, developing a value proposition, etc. Strategy development should consider both internal capabilities and external market conditions.
- Implementing the Strategy: This involves translating the strategy into action. It might involve developing new products, launching marketing campaigns, changing operational processes, hiring new staff, etc.
- Monitoring and Control: Once the strategy is implemented, the SBU must track its performance against its objectives. This involves collecting data on key performance indicators (KPIs), reviewing progress, and making necessary adjustments.
- Evaluation and Adjustments: The SBU evaluates its strategy based on the monitoring. If the strategy is not working as expected, the SBU may need to adjust its objectives, strategies, or implementation plans.
Remember that strategic planning is not a one-time event but an ongoing process requiring regular review and adjustment. The goal is to ensure that the SBU continues to adapt to changing market conditions and aligns with the overall corporate strategy.
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Example of a strategic business unit
A classic example of Strategic Business Units can be found in large multinational companies like Procter & Gamble (P&G).
P&G, a multinational consumer goods corporation, has several SBUs, each focusing on a different category of products. For instance, they have an SBU for Beauty, one for Grooming, one for Health Care, one for Fabric & Home Care, and one for Baby, Feminine & Family Care.
Each SBU operates like its own company, with its own brand management, product development, marketing resources, and more. However, these units are all part of the larger P&G corporation and contribute to the overall corporate strategy.
This structure allows each SBU to focus deeply on its own market segment and set of competitors while still benefitting from the resources and capabilities of the larger organization. It also helps P&G manage the complexity and diversity of its product portfolio.
