Strategic business unit

Strategic business unit
See also
Specialization Grouping of posts Development of the organization Types of strategies Holding Divisional structure Project structure Types of projects Managament of development

The strategic business unit (SBU) is a separate, specialized subsystem in the company, which acts as an independent entity. SBU concept has been applied first time by the U.S. company General Electric. Strategic business units are small businesses with a high functional and decision-making autonomy. Such units may or may not need to work closely with companies, from which they have been separated. They can be used to prepare the diversified company's strategy.

Features of strategic business units

The main features of strategic business units are:

• They are present in the organizational structure: SBUs are a distinct division or unit within a company's organizational structure, with their own specific goals and objectives. They are typically created to manage a specific product or service, market, or customer segment, and are given autonomy to make decisions and allocate resources in order to achieve their goals.
• They are organizational units without separate legal personality: SBUs are not separate legal entities and do not have their own legal status. They are a part of the parent company and operate under its legal and financial structure.
• They utilize "product-market" strategy: SBUs typically have a specific product or service offering and target market that they focus on. They are responsible for developing and implementing strategies to grow and compete in their specific market or segment.
• Type of activity performed by them is of crucial and decisive importance for the whole company: The activities and performance of an SBU are considered important for the overall success of the company. This is why SBUs are given autonomy to make decisions and allocate resources in order to achieve their goals.
• Functional and decision-making autonomy include: laboratory testing, production preparation, production, finance, accounting and marketing: This allows them to be more responsive to market conditions and to make decisions that are tailored to their specific product or service offering and target market.
• SBU has divisional structure, which is determined by the size of production, technology and research activities, financial and accounting processes, and marketing activities: This allows the SBU to be more efficient and effective in managing its specific product or service offering and target market.

Fig. 1. Strategic Business Unit structure example

Types of organizational units

Strategic business unites usually are created from following organizational units:

• Research and development,
• Manufacturing,
• Technology,
• Marketing for a homogeneous product groups.

The division of units responsible for particular groups of products are created in accordance to:

• needs of customers,
• manufacturing technologies,
• product application,
• place in company portfolio.

Above criteria are the basis for assembling homogeneous groups of products and creating their strategic organizational units. Such SBUs allows company to improve the overall efficiency.

Advantages of strategic business units

The main advantages are:

• SBU supports cooperation between the departments of the company which has a similar range of activities,
• improvement of strategic management,
• improvement of accounting operations,
• easier planning of activities.

Disadvantages of strategic business units

• difficulty with contact with higher level of management,
• may cause of internal tension due to difficult access to internal and external sources of funding,
• may be the cause of the unclear situation with regard to the management activities.

See also:

• BCG growth-share matrix

References

• Govindarajan, V. (1986).Decentralization, strategy, and effectiveness of strategic business units in multibusiness organizations. Academy of Management Review, 11(4), 844-856.
• Noori B., Prioritizing Strategic Business Units In The Face Of Innovation Performance: Combining Fuzzy AHP And BSC, „International Journal of Business and Management”, Vol. III, No. 1 / 2015
• Sterkenburg, Daniel R., Corporation with Eight Strategic Business Units (2014). Business Administration Faculty Publications. Paper 68.
• Tanya, S. B., & John, M. Strategic Business Unit. Wiley Encyclopedia of Management