Identifying Strategic Business Units

“IDENTIFYING STRATEGIC
BUSINESS UNITS”
DEFINITION
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. The unique
small business unit benefits that a firm aggressively promotes
in a consistent manner. When companies become really large, they
are best thought of as being composed of a number of businesses
(or SBUs).
INTRODUCTION……
ØThe idea was developed by Mckinsey & Co. (Consulting Firm) &
General Electric in 1971.
ØSeparate operating entities within an organization.
ØAfter defining mission, a company establishes SBU’s which is
self contained division, product line or product department
within an organization.
ØTo be identified an SBU, an entity should,
ØBe a separate identifiable business
ØHave a distinct mission

ØHave its own competitors
ØHave its own executive group with profit responsibility
In 1990 AT&T had 19 business units
ØGeneral Electric & SBU’s are electrical motors, Major
appliances, Jet Engines Lighting Equipments Commercial Credit
and Broadcasting.
Large companies normally manage quite different businesses,
each requiring its own strategy. General Electronics classified
its businesses into 49 strategic business units ( SBU ’ s ).
ØAn SBU has three characteristics :
1)It is a single business or collection of related businesses

that can be planned separately from the rest of the
company.
2)It has its own set of competitors.
3)It has a manager who is responsible for strategic planning and
profit performance and who controls most of the factors

affecting profit.
•The purpose of identifying the company’s strategic business

units is to develop separate strategic and assign
appropriate funding.
•And helps the development of business level strategies since
these may need to vary from one SBU to another.
The two important planning models
are :
1 . The Boston Consulting Group

Matrix
ØThe Boston Consulting Group Matrix identifies four types of
SBU’s: Star, cash cow, problem child (question Mark) and dog.
ØA star is a leading SBU (high market share) is an expending

industry (High growth)
ØA cash cow is a leading SBU (high market share) in a relatively

matured or declining industry (low growth)
ØA problem child or question mark is an SBU that has made little

impact in the market place (low market share) is an expanding
industry (high growth).
Analyzing sbu’s
“Boston Consulting Group Matrix”
2.The Product / Market
Opportunity Matrix
ØIt identifies four

alternative marketing
strategies that may be used
to maintain and / or increase
sales of business units and
products and that are:
• Market penetration
•Product development
•Market development and
•Diversification.
Two opposing pitfalls that needs to be
avoided:
ØIf each product & each geographical branch (and so on) is considered
to be an independent SBU such immense variety of competitive
strategies for a single organization would create a lack of focus &
inefficiency. This would make the development of corporate-level
strategy almost impossible.
Ø
Ø
ØOn the other hand, the concept of the SBU is imp in reflecting the
diversity of products and markets that actually exists
There are two broad criteria's which can help in avoiding
these pitfalls & therefore, in identifying SBUs that are
useful when developing business-level strategies:
External criteria for identifying SBUs are

about the nature of the marketplace for different
parts of the organization. Two parts of an org
should only be regarded as the same SBU if they
are targeted the same customer types, through the
same sorts of channels and facing similar
competitors.
Internal criteria for identifying SBUs are

about the nature of an organization’s strategic
capabilities its resources and competences. Two
parts of an org should only be regarded as the
same SBU if they have similar products/services
built on similar technologies and sharing a
similar set of resources and competencies.
Issues Raised By Identification
of SBU’s
ØA confusion of SBUs :
•Since bases of competitive strategy may need to differ by
markets(or market segment)the SBUs considered need to reflect
this,
•The results of subdivision of markets into segments could be
unmanageable in terms of identifying compatible bases of
competitive strategy. So sensible judgments need to be made about
it.
ØCorporate complexity :
•Too many SBUs can create excessive complexity in developing
corporate level strategy,
ØOrganizational structure
•-For strategy making purpose,
•An organization may not actually be structured on the basis of
SBU's, so consideration needs to be given to the relationship of
SBUs and organizational design.
External and Internal criteria that can help in
identifying appropriate SBUs:
ØMarket based criteria :

•Different parts of an organization might be regarded as the
same SBU if they are targeting the same customer types,
through the same sorts of channels and facing similar
competitors .
Capabilities based criteria :

Parts of an organization should only be regarded as the same SBU
if they have similar strategic capabilities.
1)http://books.google.com.pk/books?id=uZ-qoiUiXuEC&pg=PA241&lpg=PA241&dq=identif
2D1iMWVBV&sig=KybCBA7Qch5BMmsZdW7WDv0pMiU&hl=en&ei=YfRmS63UJoLs7APK4Lwa&s
2)http://en.wikipedia.org/wiki/Strategic_management
3)www.scribe.com
4)www.12manage.com/description_strategic_business_unit.html
5)www.dictionary.bnet.com/definition/strategic+business+unit.html
6)www.articlesbase.com/.../strategic-business-units-752913.html
7)www.bizcovering.com
8) www.megorama.com/
9)Marketing Management (12 Ed) by Philip Kotler & Kevin Lane Keller.

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“IDENTIFYING STRATEGIC

Strategic Business Unit or SBU is understood as

ØBe a separate identifiable business

ØHave a distinct mission

ØAn SBU has three characteristics :

1)It is a single business or collection of related businesses

3)It has a manager who is responsible for strategic planning and

profit performance and who controls most of the factors

•The purpose of identifying the company’s strategic business

1 . The Boston Consulting Group

ØA star is a leading SBU (high market share) is an expending

ØA cash cow is a leading SBU (high market share) in a relatively

ØA problem child or question mark is an SBU that has made little

ØIt identifies four

External criteria for identifying SBUs are

Internal criteria for identifying SBUs are

ØMarket based criteria :

Capabilities based criteria :

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