Strategic Business Unit
Strategic Business Unit (SBU) implies an independently managed division of a large company, having its own vision, mission and objectives, whose planning is done separately from other businesses of the company. The vision, mission and objectives of the division are both distinct from the parent enterprise and elemental to the long-term performance of the enterprise.
Simply put, an SBU is a cluster of associated businesses which are responsible for its combined planning treatment, i.e. the company engaged in a diversified range of businesses, categorises its multitude of businesses into a few separate divisions, in a scientific way. The task may include analysis and bifurcation of a variety of businesses.
It can be a business division, a product line of the division or even a specific product/brand, targeting a particular group of customers or a geographical location.
Characteristics of Strategic Business Unit
- Separate business or a grouping of similar businesses, offering scope for autonomous planning.
- Own set of competitors.
- A manager who is accountable for strategic planning, profitability and performance of the division.
A strategic business unit is set up to focus on a certain segment of the market, which requires production or management skills that aren’t found in the parent company.
The structure of SBU is made up of operating units, each of which is its own business. The top corporate officer gives the managers the job of running the business and planning the business unit’s strategy. So, the corporate officer is in charge of coming up with and carrying out the overall strategy. He or she also runs the SBU using strategic and financial controls.
So, the strategic business unit is made up of related business divisions, and the senior executive is given the power to make decisions for each unit. A chief executive officer is in charge of making sure that the senior executive does his or her job well.
In a strategic business unit, there are three levels. The corporate headquarters are at the top, the SBUs are in the middle, and the divisions within each SBU are at the bottom. So, the divisions within the SBU are linked to each other, but the groups within the SBU are separate from each other. From a business strategy point of view, each SBU is its own business.
The corporate officers run a single strategic business unit that is seen as a profit centre. It puts more emphasis on strategic planning than on operational control, so that the different parts of the SBU can respond as quickly as possible to changes in the business world.
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Responsibility
One of the first role of strategic business units is to assign responsibility and more importantly outsource responsibility to others. With this, the top management has an overview of work being done in each individual unit and they do not have to get involved in day-to-day activities for these strategic business units.
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Accountability
When handling multiple brands or products, it is easier if there are separate business units which are accountable for the success or failure of the business or product. By making these business units accountable, the company can directly take a call when hard decisions are to be taken.
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Accountancy
Profit and loss and balance sheets will look more prettier and more manageable if the statements are prepared separately for separate strategic business units. This makes the accountancy more transparent and at the same time, when companies have to make investment decision than this accountancy will come in use for the company.
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Strategy
Companies like Nestle have 4 different strategic units. One SBU like Maggi deals in Food products, another deals in Dairy products like Nestle milkmaid, the third SBU deals in Chocolate products like Kitkat so on and so forth. Thus, in the above example, it is very simple to change strategy for each business unit because the strategy for each is independent of the other.
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Independence
The managers of the strategic business units get more independence to manage their own unit which gives them the opportunity to be more creative and innovative and empowers them for making decisions. The best thing that can happen for SBU’s are fast decision making which is possible only when these SBU’s are given independence to work by themselves.
The last but not the least advantage of strategic business units are that funds allocation becomes simpler for the parent company. Depending on the performance of the SBU, funds allocation can be done on priority.
Thus, there are many advantages of having strategic business units and it is highly recommended that any firm which has multiple products adopt strategic business units in its organization structure.
