Creation of Strategic Business Units (SBU)
Most companies operate several businesses, Management first step is to identify the key business making up the company. These can be called strategic business units. A strategic business unit (SBU) is a unit of the company that has a separate mission and objectives and that can be planned independently from other company businesses. It is a unit of the company that has a detach operation and objectives and that can be designed autonomously from other company businesses. So, a strategic business unit is a small organization within a larger organization tasked with building a new product or business or entering a new market. They are generally used for big enterprises operating in various fields – such as corporations operating in many markets in many countries. An SBU can be a company division, a product line within a division, or sometimes a single product or brand. Large companies normally manage quite different businesses, each requiring its own strategy. They are generally used for large enterprises operating in various fields – such as corporations operating in many markets in many countries. American General Electric Company classified its businesses into 49 strategic business units (SBUs). An SBU has three characteristics.
- It is a single business or collection of related businesses that can be planned separately from the rest of the company.
- It has its own set of competitors.
- It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profit.
Creating a strategic business unit enables companies to practice new businesses, products, markets, and technologies, without the constraints of working within a large organization. It benefits from the advantages of a startup, such as an autonomous team, but isn’t strapped for resources like most startups are. It operates separately and is focused on the target market. It is big adequate to have its own support functions such as HR, training departments, etc.
The purpose of identifying the company’s – strategic business units is to develop separate strategies and assign appropriate funding. It is a fully functional and dissimilar unit of a business that develops its own strategic vision and direction. An SBU’s appropriate objective cannot be determined solely by its position in the growth-share matrix. If additional factors are considered, the growth-share matrix can be seen as a special case of a multifactor portfolio matrix such as that pioneered by general, Electric (GE). This includes their aptitude to originate strategic ideas, develop marketing strategies, and even generate their own brand individuality.
In fact, the GE matrix is divided into nine cells, which in turn fall into three zones. The three cells in the upper-left corner indicate strong SBUs in which the company should invest or grow. The diagonal cells stretching from the lower left to the upper right indicate SBUs that are medium in overall attractiveness. The company should pursue selectivity and manage for earning in these SBUs. The three cells in the lower-right corner indicate SBUs that are low in overall attractiveness. The company should give serious thought about harvesting or divesting these companies.