Index

Chapter 1
Introduction
Strategic Business Units Define
Strategic business units

Chapter 2
Characteristics of Strategic Business Unit (SBUs)
Functional strategies
The BCG matrix

Chapter 3
Ansoff Opportunity Matrix

Chapter 4
GE Approach
GE Approach to Strategic Planning

Chapter 5
SONY CORPORATION
About Sony
History and Culture
Products Life Cycles Analysis BCG Matrix

Chapter 6
Aims and objectives

Chapter 7
SBUs STRUCTURES, STRATEGIES AND MARKET

Chapter 8
Strategic Business Units Concepts and Markets

Chapter 9
Strategic Business Units and Synergy

Chapter 10
Advantages of SBU
Disadvantages of SBU

Chapter 11
Characteristic
SBU Features

Chapter 12
SBU organization unit

Chapter 13
Conclusion

Chapter 14
Bibliography

Chapter 1
Introduction
A strategic business unit is a semi-autonomous corporate unit that focuses on a product
offering and market segment. In business, a strategic business unit (SBU) is a profit
center which focuses on product offering and market segment. SBUs typically have a
discrete marketing plan, analysis of competition, and marketing campaign, even though
they may be part of a larger business entity. An SBU may be a business unit within a
larger corporation, or it may be a business unto itself or a branch. Corporations may be
composed of multiple SBUs, each of which is responsible for its own profitability.
General Electric is an example of a company with this sort of business organization.
SBUs are able to affect most factors which influence their performance. Managed as
separate businesses, they are responsible to a parent corporation. General electric has 49
SBUs. Companies today often use the word segmentation or division when referring to
SBUs or an aggregation of SBUs that share such commonalities.

An SBU is a semi-autonomous unit that is usually responsible for its own budgeting,
new product decisions, hiring decisions, and price setting.

An SBU may be a business unit within a larger corporation or it may be a business unto

itself. Corporations may be composed of multiple SBUs, each of which is responsible for
its own profitability.
Factors that determine the success of an SBU include the degree of autonomy given to
each SBU manager, the degree to which an SBU shares functional programs and facilities
with other SBUs, and the manner in which the corporation adopts to new changes in
the market.

Strategic business units are self contained divisions formed within an organization for
dealing with specific business concerns. These units pull together the diverse parts of the
concerned organization while cutting across the geographical and diverse lines for
serving a specific market in a more efficient manner.
These strategic business units are also referred to as independent business units or
strategic planning units. The main philosophical concept behind the formation of strategic
business units is to serve a clear and defined market segment along with a clear and
defined strategy. These business units have to contain all the needs and corporate
capabilities of the respective organization. The entire portfolio of the concerned business
has to be managed by allocation of managerial and capital resources for serving the
overall interest of the entire organization. This helps in developing a balance in the
earnings, sales and the assets at a level which is controlled and acceptable for taking the
right amount of risks.
The strategic business unit (SBU) is created with the application of set criteria which
consist of the competitors, price models, customer groups and the overall experience of
the company. It is also sometimes seen that a number of different verticals present in the
same organization having similar competitors and target customers are amalgamated to
form a single SBU. This helps in strategically planning the overall business of the
organization. This is also true for the company which has different product ranges and
some of them have similar capabilities in terms of research and development, marketing
and manufacturing. Such products can also be amalgamated to form a single unit.
The main notion which rests behind the concept of strategic business units is to gain a
competitive advantage in the populated marketplace. This can be done because the SBU
helps in segmenting the activities of the company in a strategic manner and the resources
are thus allocated competitively.

Strategic Business Units Define

A strategic business unit is a significant organization segment that is analyzed to develop
organizational strategy aimed at generating future business or revenue. Exactly what
constitutes an SBU varies from organization to organization. In larger organizations, an
SBU could be a company division, a single product, or a complete product line. In
smaller organizations, it might be the entire company.
Although SBUs vary drastically in form, they have some
common characteristics. All SBUs are a single business (or collection of businesses),
have their own competitors and a manager accountable for operations, and can be
independently planned for.

Strategic business units

Strategic business units are absolutely essential for multi product organizations. These
business units are basically known as profit centres. They are focused towards a set of
products and are responsible for each and every decision / strategy to be taken for that
particular set of products. Strategic business units can be best explained with an example.
Example of Strategic business units The best example of strategic business unit would
be to take organizations like HUL, P&G or LG in focus. These organizations are
characterized by multiple categories and multiple product lines. For example, HUL may
have a line of products in the shampoo category, Similarly LG might have a line of
products in the television category. Thus to track the investments against return, they may
classify the category as a different SBU itself.
There are several reasons SBUs are used in an organization and they are mentioned in
my post on the importance for using SBUs in a multi product organization. However,
along with the reasons for using SBUs there are also some powers which needs to be
inferred on an SBU. Planning independence, Empowerment and others are such powers
which influence a SBU. 3 of such features are discussed below.
1) Empowerment of the SBU manager Several times the empowerment of SBU
managers is crucial for the success of the SBU / products. This is mainly because this
manager is the one who is actually in touch with the market and knows the best strategies
which can be used for optimum returns. Thus several times, the SBU manager might need
a higher investment for his products. At such times the manager should be supported
from the organization. Only this confidence will help the manager in the progress of the
SBU.
2) Degree of sharing of one SBU with another This point is directly connected to the
first one. What if one SBU needs some budget but the same is not offered because the
budget is being shared by 2 other SBUs and as it is the budget is short. Thus the first
SBU does not get the independence to implement some important strategies. Similarly
there might be other restrictions applied to one SBU as it is using some resources which
are shared by another SBU. This might not always be negative. Of one SBU gains more
profit then usual, this revenue might also become useful for the other SBU thereby
promoting growth of both of them. This is where sharing actually plays a positive role.

3) Changes in the market An SBU absolutely needs to be flexible because it needs to

adapt to any major changes in the market. For example if an LCD manager knows that
LEDs are more in demand now, he needs to communicate to the top management that he
would also like a range of LED products to make the SBU even more profitable. Thus by
adding LED to its portfolio, the SBU can immediately become double profitable. Thus by
adjusting to change on SBU levels, the organization as a whole can become profitable.
The key to Strategic business management is to have a strict watch on the investment and
returns from each SBU. The SBU manager too plays a crucial role in this and hence he is
recruited from the industry with extensive experience of that particular industry. Portfolio
/ Multi SBU management and is done at the absolute top level of the management. Each
and every change in the market, and its affect on SBUs is anticipated which is then taken
into consideration. Hence, for a multi product organization, business management may
actually mean product portfolio management or SBU management.

Strategic business units are self contained divisions formed within an organization for
dealing with specific business concerns. These units pull together the diverse parts of the
concerned organization while cutting across the geographical and diverse lines for
serving a specific market in a more efficient manner.
These strategic business units are also referred to as independent business units or
strategic planning units. The main philosophical concept behind the formation of strategic
business units is to serve a clear and defined market segment along with a clear and
defined strategy. These business units have to contain all the needs and corporate
capabilities of the respective organization. The entire portfolio of the concerned business
has to be managed by allocation of managerial and capital resources for serving the
overall interest of the entire organization. This helps in developing a balance in the
earnings, sales and the assets at a level which is controlled and acceptable for taking the
right amount of risks.
The strategic business unit (SBU) is created with the application of set criteria which
consist of the competitors, price models, customer groups and the overall experience of
the company. It is also sometimes seen that a number of different verticals present in the
same organization having similar competitors and target customers are amalgamated to
form a single SBU. This helps in strategically planning the overall business of the
organization. This is also true for the company which has different product ranges and
some of them have similar capabilities in terms of research and development, marketing
and manufacturing. Such products can also be amalgamated to form a single unit.

The main notion which rests behind the concept of strategic business units is to gain a
competitive advantage in the populated marketplace. This can be done because the SBU
helps in segmenting the activities of the company in a strategic manner and the resources
are thus allocated competitively.

Chapter 2

Characteristics of Strategic Business Unit (SBUs)

1. It is a single business or collection of related business.
2. It has its own competitors.
3. It has a manager who is accountable for its operation.
4. It is an area that can be independently planned for within the organization.

Functional strategies
Functional strategies include marketing strategies, new product development strategies,
human resource strategies, financial strategies, legal strategies, supply-chain strategies,
and information technology management strategies. The emphasis is on short-term and

medium-term plans and is limited to the domain of each departments functional

responsibility. Each functional department attempts to do its part in meeting overall
corporate objectives, so to some extent their strategies are derived from broader corporate
strategies.
Many companies feel that a functional organizational structure is not an efficient way to
organize activities so they have re-engineered according to processes or strategic business
units (SBUs).
An SBU is a semi-autonomous unit that is usually responsible for its own budgeting, new
product decisions, hiring decisions, and price setting.
An SBU is a profit center which focuses on a product offering and a market segment.
SBUs typically have a discrete marketing plan, analysis of competition, and marketing
campaign, even though they may be part of a larger business entity. An SBU may be a
business unit within a larger corporation or it may be a business unto itself. Corporations
may be composed of multiple SBUs, each of which is responsible for its own
profitability. General Electric is an example of a company with this sort of business
organization. SBUs are able to affect most factors which influence their performance.
Managed as separate businesses, they are responsible to a parent corporation. Companies
today often use the word segmentation or division when referring to SBUs or an
aggregation of SBUs that share such commonalities.
There are three factors that are generally seen as determining the success of an SBU:
1. The degree of autonomy given to each SBU manager
2. The degree to which an SBU shares functional programs and facilities with other SBUs
3. The manner in which the corporation adopts to new changes in the market
Commonalities
A SBU is generally defined by what it has in common, as well as the traditional aspects
defined by McKinsey: separate competitors; and a profitability bottom line. Four
commonalities
Revenue SBU
Like Marketing Cost SBU
Like Operations/HR Profit SBU
Like sales judged on net sales not gross

Success factors
There are three factors that are generally seen as determining the success of an SBU:
1. the degree of autonomy given to each SBU manager,
2. the degree to which an SBU shares functional programs and facilities with other SBUs,
3. the manner in which the corporation is because of new changes in market.

The BCG matrix

The BCG matrix (aka B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston
Consulting Group analysis, portfolio diagram) is a chart that had been created by Bruce
Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing
their business units or product lines. This helps the company allocate resources and is

used as an analytical tool in brand marketing, product management, strategic

management, and portfolio analysis.
When using the Boston Consulting Group Matrix, SBUs can be shown within any of the
four quadrants (Star, Question Mark, Cash Cow, Dog) as a circle whose area represents
their size. With different colors, competitors may also be shown. The precise location is
determined by the two axes, market Growth as the Y axis, Market Share as the X axis.
Alternatively, changes over or two years can be shown by shading or other differences in
design.xx. currently have high growth and high market share however question mark is
product with low share but high growth. Cash Cow has high share but low growth.
Finally,dog is product that has low growth and low share.
The purpose of the BCG Matrix is to determine investment priorities for a company with
a portfolio
This is the BCG Matrix.
According to the BCG Matrix, there are four different possible outcomes for a BU: cash
cow, dog, question mark, or star.
According to the principles behind the BCG Matrix, as an industry grows, all business
units become cows or dogs. Usually a BU will go from being a question mark, to a star,
then a cow, and finally a dog.
Other possible uses for the BCG Matrix are determining relative market share and the
market growth rate of a product line.
Product life cycle
The process wherein a product is introduced to a market, grows in popularity, and is then
removed as demand drops gradually to zero.

BCG Matrix
The BCG Matrix was created in 1970 by Bruce Henderson and the Boston Consulting
Group. The purpose of the BCG Matrix is to determine investment priorities for a
company with a portfolio of products/BUs. A scatter graph is used to show how a
product/BU ranks according to market share and growth rates.

Four Outcomes
According to the BCG Matrix, there are four different possible states for a product/BU:
Cash Cow
Question Mark
A cash cow is a product/BU that has high market share and is in a slow growing industry.
It is bringing in way more money than is being invested in it and the main idea is to ride
it out as long as possible. A company shouldn't invest any more money in a cash cow
because the industry cycle is at its end, but it is still a viable product/BU while the profits
last. A dog has a low market share in a mature industry. There is no room for growth so
no more funds should be invested in the product or product/BU. If it is a BU, then the
consensus is to sell it off.
A question mark is a product/BU growing rapidly in a growing industry. It is consuming
vast amounts of financing at this point and creating a low rate of return. A question mark
does have the potential to become a star, however, so it should be monitored to determine
its growth potential.
A star has a high market share in a high growing industry. This is a product line or BU a
company should focus its efforts on in the hopes that it will become a cash cow before the
end of its life cycle. According to the principles behind the BCG Matrix, as an industry
grows, all business units become cows or dogs. Usually a BU will go from being a
question mark, to a star, then a cow, and finally a dog.
Other Uses for the BCG Matrix
Other possible uses for the BCG Matrix are determining relative market share and the
market growth rate of a product line. The BCG Matrix can help determine where a
product is in its product life cycle and if there is a possibility of growth for the market or
product.

Chapter 3
Ansoff Opportunity Matrix
The Ansoff Opportunity Matrix describes a company's possible growth opportunities with
current as well as new markets and products.

Opportunity Matrix
An opportunity matrix can be used by a company to identify opportunities.
The four basic growth possibilities according the the Ansoff Matrix are market
penetration, market development, product development, and diversification.
Each growth opportunity has a certain amount of risk. Diversification is considered the
opportunity with the highest risk because it involves making time and money investments
in things like new techniques, skills, and equipment.
Market penetration has the lowest risk but eventually the company will reach market

TERMS
Market saturation
A situation in which a product has become distributed within a market to the fullest
possible extent, leaving demand for the product at a minimum. The actual level of
saturation can depend on consumer purchasing power, competition, prices, and
technology.
Diversification

A corporate strategy in which a company acquires or establishes a business other than

that of its current product.
SWOT Analysis
A structured planning method used to evaluate the strengths, weaknesses, opportunities,
and threats involved in a project or in a business venture.
EXAMPLES
Product development (existing markets, new products): McDonald's operates in the
fastfood industry, but it frequently markets new types of burgers.

Ansoff Opportunity Matrix

Companies can choose their growth strategies based on the type of market (new or old)
they wish to pursue and the type of product (new or old) they wish to propagate.
Ansoff Opportunity Matrix
The Ansoff Opportunity Matrix was created by Igor Ansoff as a way to create growth
strategies
for corporations based on markets and products (Figure 2). According to Ansoff, there are
four
possible combinations:
1. Marketing penetration - This growth strategy uses current products and current
markets with the goal to increase market share.
2. Market development - This growth strategy uses existing products to capture new
3. Product development - This growth strategy uses new products in the existing market.

4. Diversification - This strategy creates completely new opportunities for the company
by creating new products and new markets.
A company should decide which strategy to use based on the strengths and weaknesses of
the company and its competitors. Each strategy has a different level of risk, with market
penetration having the lowest risk and diversification having the highest risk.
Market Penetration
This occurs when a company infiltrates a market in which current products already exist.
The best way to achieve this is by gaining the customers of competitors. Other ways
include attracting non-users of your product or convincing current clients to use more of
your product.
The penetration that brands and products have can be recorded by companies such as
ACNielsen and TNS who offer panel measurement services to calculate this and other
consumer measures. In these cases, penetration is given as a percentage of a country's
households who have bought that particular brand or product at least once within a
defined period of time.While market penetration may come with the lowest risk, at some
point the company will reach market saturation with the current product and will have to
switch to a new strategy, such as market development or product development.
Market Development
Market development targets non-buying customers in currently targeted segments. It also
targets new customers in new segments in order to expand the potential market. New
users can be defined as: new geographic, demographic, institutional, orpsychographic
segments. Another way is to expand sales through new uses for the product.Before
developing a new market, companies should think about the following: Is it profitable?
Will it require the introduction of new or modified products? Is the customer and channel
researched and understood?
If a company believes that their strength lies with their products and they believe their
products would be enticing to new customers, then a company may want to use a market
development
New Product Development
New product development is a process that has two parallel paths: one involves the idea
generation, product design, and detail engineering; the other involves market research
and marketing analysis. A product is a set of benefits offered for exchange and can be
tangible (that is, something physical you can touch) or intangible (like a service,
experience, or belief). Companies typically see new product development as the first
stage in the overall strategic process of product life cycle management used to maintain
or grow market share.

If a company believes that their strength lies with the customers, then they should
consider a product development strategy.
Diversification
Diversification seeks to increase profitability through greater sales volume obtained from
new products and new markets. At the business unit level, diversification is most likely to
expand into a new segment of an industry that the business is already in. At the corporate
level, it is generally via investing in a promising business outside of the scope of the
existing business unit. Ansoff pointed out that a diversification strategy stands apart from
the other three strategies.The first three strategies are usually pursued with the same
technical, financial, and merchandising resources used for the original product line,
whereas diversification usually requires a company to acquire new skills, new techniques,
and new facilities.
Because of the high risk involved with diversification, many marketing experts believe a
company shouldn't attempt diversification unless there is a high return on investment and
their SWOT analysis makes them feel that they have a chance of succeeding in the new
market with a new product.

Chapter 4

GE Approach
The GE / McKinsey matrix is a model used to asses the strength of a strategic business
unit (SBU) of a corporation.
GE/McKinsey Matrix
The matrix shows market attractiveness and business strength.
The GE matrix analyzes market attractiveness and competitive strength to determine the
overall strength of an SBU.
External factors of market attractiveness that affect a business include market size,
market growth, entry barriers, segmentation, and overall risk.
Internal factors of competitive strength include assets, competencies, brand strength,
profit margins, innovation, and quality.
The GE matrix can also be used to determine if an organization should enter a market or
if it should reposition a product line or brand within a market.
Strategic business unit
A mid-sized business or a division of a corporation that has different strategies and
objectives than its parent company.

GE Approach to Strategic Planning

The GE / McKinsey matrix is a model used to assess the strength of a strategic business
unit (SBU) of a corporation. It analyzes market attractiveness and competitive strength to
determine the overall strength of a SBU.The GE Matrix is plotted in a two-dimensional, 3
x 3 grid. The Y-axis measures market attractiveness based on a high, medium, or low
score. The X-axis measures business unit strength on a high, medium, or low score.
Market Attractiveness
Market attractiveness deals with different external factors. These factors can include such
things as market size, market growth rate, and market profitability. External factors that
can affect market attractiveness also include pricing trends, competitive intensity, overall
risk, and entry barriers. Other considerations regarding market attractiveness include
what if any opportunities there are to differentiate products and services, demand
variability, segmentation, distribution structure, and technology development.
Competitive Strength
Competitive strength focuses on internal factors and the ability of the SBU to overcome
specific issues with the market and competitors. Different internal factors that need to be
considered include assets and competencies, brand strength, market share, market share
growth, and customer loyalty. Other factors that should be considered include relative
cost position, profit margins, innovation, quality, financial resources, and management
strength.

Uses for a GE Matrix

While the GE / McKinsey matrix was originally used to assess a SBU, corporations can
use this for other purposes as well. It is a good way to determine if a company should
enter a specific market. It is also a good way to assess how a company is doing in a
specific market and if repositioning may be necessary to revive a faltering product line,
brand, or organization.

Chapter 5

SONY CORPORATION
About Sony
Sony is a multinational conglomerate corporation and the world's largest
mediaconglomerate with revenue of US$72 billion (as of fiscal 2003). Its principal
business operations include Sony Corporation (Sony Electronics in the U.S.), Sony
Pictures Entertainment, Sony Computer Entertainment, Sony BMG Music Entertainment,
Sony Ericsson and Sony FinancialHoldings. Sony is also a leading manufacturer of
electronics, video, communications, videogame consoles and information
technology products for the consumer and professional markets.These make Sony one of
the most comprehensive entertainment companies in the world.
The company's slogan is Sony. Like no other.
History and Culture
The current Sony Corporation has a unique culture which is firmly rooted in her
History especially in relationship to her two founders, Masaru Ibuka and Akio Morita.
Ibuka and Morita were both dedicated electrical engineers and geniuses above their
business talents. Both gaveinsights and visions in what the company should make and
how it should be made. Ibuka,especially, gave constant advice and suggestions to the
engineers involved in projects from theearlier on transistor radios to Walkmans. This
created the umbrella strategy in which Sony operates under where the top management,
especially Ibuka, Morita and now Norio Ohga gavethe general direction in which the
lower engineers actively learned, developed and improved onthe vision/idea. Therefore,
although there is a planned direction, the actual product.Development through launching
is emergent with great flexibility.
Although the research and development section of Sony differs greatly from other
companies with its great flexibility, Sony, in its essence is still a traditional Japanese
company in many ways. There is life-time employment, with strong norms and values
which in turn create strategies through their actions. Status is given (the crystal award)
instead of bonuses (not significant amount) for superior achievement. There is also the
strong seniority system such as the mentor and apprentice relationship that is typical of a
Japanese firm. All this can be classifiedas the cultural school in which strategy formation
is of collective behaviour. Collective vision and stress on human resource, which is
typical of many Japanese, can be clearly seen in the mission statement "Management
Policies"

Products Life Cycles Analysis BCG Matrix

The market growth axis correlates with the product life cycle paradigm and predicates the
cash requirement a product needs relative to the growth of that market. Reference to the
BCGMatrix appended the vide-game console produced by Sony is definitely in theStar
sector since the companys business has achieved high growth rate as well as acquired
comparatively larger market share.
However, although generally Stars are leaders in high growth markets and tend to
generate large amounts of cash, Sony must be mindful that they also use a lot of cash
because of growth market conditions. In addition, Sony also needs to be aware that
market growth is not The only factor or necessarily the most important factor when
assessing the attractiveness of a Market as growth markets attract new entrants.
For instance, if capacity exceeds demand, then a particular market may become a low
margin one and therefore becomes unattractive. The positions of Sonys existing products
are elaborated below:
a. Dog
A product becomes a dog due to low market share and a low growth rate and when the
product neither produces nor uses up bulky amounts of cash. Walkman and CD players
fall under this category. Some analysts opined that Sonys excessive focus on the
maturing consumer electronics business (profit margin below 1 per cent in 200203),
coupled with increasing competition in the consumer electronics industry was severely
affecting its profitability.
b. Question
A product becomes a question when they have a lower market share and they
Do not generate much profit or cash. Sony products that fall under this category
Include semi conductor, music player, VAIO computer and CRTTV. Due to aggressive
competition from its competitors such as Samsung Panasonic and Matsushita, these
products could not make as much sales as they expected and their market shares
Now range between 10-14%, comparatively lower the competitors.
c. Star
A star is when huge quantities of profit are produced because of the powerful market
share and high growth rate. Sonys digit camera, LCD TV, DVD player and play stations
fall under this category. Their market shares range between 25 to 40%, way ahead of its
competitors.

d. Cash cow
Sony Ericsson W980 from Sony walkman series is a cash cow. We say a product is a cash
cow when the product show signs of that the return on assets is better than the market
growth rate, and makes more cash than they use. In case of Sony Ericsson W980, its a
phone with touch sensitive music controls and 8 gigabytes of internal memory. This
means one can store up to 8000 songs. Sony Ericsson W980 helps to position Sony
Ericsson as a market leader in the music world.

Chapter 6

Aims and objectives

Business and market research units (and indeed textbooks) typically focus on teaching the
methodology design associated with the main data collection approaches (e.g., secondary,
qualitative and quantitative techniques). However, Strategic Business Research focuses
on research based decision making and the strategic role that research plays in effectively
directing companies and their activities in the contemporary business world.
Marketing managers frequently commission research agencies to carry out their market
research tasks and so it is important for them to appreciate the principles of data
collection. However, since the Marketing function is increasingly directing business
strategy it is critical that managers also appreciate the broader strategic role of research
and how employing a proven combination of research activities maximises the chance of
longer term success.
In the past business research was frequently employed to solve particular problems, such
as declining sales and customer satisfaction. However, in modern business research plays
a much more proactive function
This unit introduces the three pillars of strategic business research as understanding the
organisation, understanding customers, and understanding the marketing environment
(including the competition). Students taking this course will appreciate the role of the
research pillars in directing strategy and, through analysis and interpretation real life case
study data, will be equipped to design strategy and implement appropriate actions on the
basis of actual findings.
Rather than focusing on methodological design considerations, the unit provides training
in the use and interpretation of actual data generated from the most important areas of
contemporary business research, namely segmentation, brand health tracking, service
quality and customer satisfaction, employee satisfaction and internal audits, retail audits
and other research activities that support the marketing mix.

Chapter 7

SBUs STRUCTURES, STRATEGIES AND MARKET

Structuring an organization is an intuitive act in administration, since operating in an
unorganized environment can become highly inefficient or unproductive. Colenghi
(2003) alerts to the fact that restructuring an organization is a means of defining
functional rules and determining objectives that need to be achieved. However simple,
this conception of arranging tasks and responsibilities within an organization touches on
two essential elements of structuring: procedures and objectives.
The structuring an organization runs a greater gamut of elements and factors that must be
considered for the organization to function efficiently. The vision of organizational
structure perceived by Vasconcelos and Hemsley (1997), gives a more precise idea of the
task involved. For these authors, the structure of an organization would be the result of a
process by means of which authority is distributed and activities from the most basic
levels to the highest levels of administration are specified. The structure gives rise to a
system of communication, allowing people to perform their activities efficiently and to
exercise the authority they need in order to achieve their organizational objectives.
Re-organizing the divisions or departments of an organization, as a process of
organization of its functions, tasks and resources under criteria of similarity (Oliveira,
2000) it possibly is the most common fundament of organizational re-structuring. The
process of departmentalization, that leads to obtaining more rigid (mechanistic) or more
flexible (organic) organizational structures, is grounded in three basic elements:
a) complexity;
b) formalization, and
c) centralization.
The search for optimization of results pressures for firms to find new forms of
organizational structuring. Results are mainly obtained through mastery in strategic areas
that allow companies to control internal and external elements they consider to be
important to their objectives. The principles of restructuring and departmentalization of
organizations are ways of achieving this control. There are, however, other equally or
more efficient forms of structuring organizations capable giving out results. One of these
forms is structuring into Strategic Business Units (SBU).

Chapter 8

Strategic Business Units Concepts and Markets

As defined by Fischmann and Santos (1982), SBUs refer to the division of business
reality, following specific criteria of common connection. Such criteria can be of an
internal order (the chain of values within a company) or an external order (the market
environment of its operation). For the authors, the criteria of common connection can be
congruent or diversified. In any case, however, they must be catalyzers of the common
characteristics of the businesses that in turn represent the profile of each Strategic Unit.
According to Fischmann and Santos (1982), catalyzing criteria are, in fact, the criteria for
constitution of an SBU. A catalyzing criterion can be, for example, a production line of a
company. In this case, the production line specific for each product or for each set of
products can group common activities under the same autonomous administration,
creating the rationale to configure an SBU. For companies in which technological factors
are a differentiating element in their production processes, sub-division or grouping under
specific technologies can be, according to Fischmann and Santos
(1982), the criterion for constituting an SBU. Mastery of technology in producing
tankers, for example, can be the determining factor for setting up an SBU, whether those
tankers are used for the transportation of water, oil,
gasoline or any other product. Bourgeois III (1996) defines an SBU in terms of market
vision. In truth, the author uses the definition of Arthur D. Little (ADL) for an SBU. ADL
is based on the principles of
a) segmentation of the market;
b) product life-cycles, and
c) the competitive position of the company, in order to single out a strategic business
unit, i.e. to justify the configuration of an organization into SBUs.
According to ADL, an SBU is a business involving a group of products that serve
common markets, compete with the same rivals and are connected in such a way that
strategies cannot be formulated for any one of its products without having an impact on
its other products.
Among recent work done on the concept of constitution of SBUs, that of Prahalad and
Doz (2003) is perhaps the most comprehensive and integrated. According to them, an
SBU is a business obedient to the logic of portfolio configuration, whose contributive
economic value to the corporation results from the value logic and the logic of internal
governance. According to these authors, the creation of value logic for a certain
configuration within a corporation depends on the vision and the ability of top
management create the rationale of value logic in a company above and beyond what it
could created if it existed separately. Prahalad and Doz (2003) go on to say that it is the
job of executives to guarantee that reconfiguration of a corporation into SBUs, within the
logic of value proposed, be duly managed by the companys middle managers. As such, it
is necessary to have structural clarity, formalized administrative processes and basic
premises regarding the nature and quality of interactions and values, beliefs, and
behavior.

Chapter 9

Strategic Business Units and Synergy

When a company is structured into SBUs, starting from an
already existing company, there is obviously a loss of synergy. Therefore, in order to
structure such a company into SBUs there must be strategic advantages for the
monolithic company; if not, there would be no reason to restructure it (Prahalad and Doz,
2003). Even so, despite restructuring into independent units, the new format
must look for possible synergies between units. From the point of view of competitive
strategy, the contributions of Ansoff (1990) to the concept of synergy are perhaps the
most interesting. To Ansoff (1990), synergy refers to the combination of product-market
that contributes to the general profitability of the company. The strategic value of synergy
lies exactly in the fact that there are advantages of scale under which a large company,
with the same total sales of various smaller companies, is able to operate at costs lower
than the sum of the operational costs of smaller companies. In the process of operating an
SBU in such a way as to make it contributive to the objectives of the corporation, it is
necessary to not lose sight of three elements that form the conceptual foundation for
configuring an SBU:
(a) administrative elements;
(b) operational elements and
(c) market elements.
Thearrangement of an SBU based on these elements or on a combination of them, must
contribute to the strategic objectives of the company in such a way that justifies its
structuring into an SBU. What is proposed, then, is a theoretical model for sustaining the
logic of structuring an organization into SBUs. Figure 2 shows this model, along with
how the strategic objectives of an organization can be better fulfilled if the configuration
presents a value logic (Strategic Benefits) that sustains performance, or strength
(Administration) of managers, in the sense of leading the organization in the direction of
its objectives.

Chapter 10

Advantages of SBU
The main advantages are:
1. SBU supports cooperation between the departments of the company which has a
similar range of activities;
2. Improvement of strategic management
3. Improvement of accounting operations,
4. Easier planning of activities

Disadvantages of SBU?
1. Excessive fragmentation of strategy-critical processes
2. Can lead to inter-functional rivalry and conflict, rather than team-play
3. Multi-layered management bureaucracies and centralized decision-making slow
response time
4. Hinders development of managers with cross-functional experience because the ladder
of advancement is up the ranks within the same functional area.
5. Forces profit responsibility to the top
6. Functional specialists often attach more importance to what's best for the functional
area than to what's best for the whole business - can lead to functional empire-building
7. Functional myopia often inhibits creative entrepreneurship, adapting to change, and
attempts to create cross-functional core competencies
8. Difficulty with contact with higher management
9. May cause of internal tension due to difficult access to internal and external sources of
funding,
10. May be the cause of the unclear situation with regard to the management activities.

Chapter 11

Characteristic
The strategic business unit (SBU) is a separate, specialized subsystem in the company,
which acts as an independent company. For the first time SBU concept has been applied
by the U.S. company General Electric. SBUs 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. SBUs can be used to prepare the
diversified company's strategy.
SBU Features
The main features are:
1. Location in the structure of the company,
2. These are organizational units without legal personality,
3. They utilize formula "product-market",
4. Type of activity performed by them is of crucial and decisive importance for the whole
company,
5. Functional and decision-making autonomy include: laboratory testing, production
preparation, production, finance, accounting andmarketing,
6. SBU has divisionalized structure, which is determined by the size of production,
technology and research activities, financial and accounting processes and marketing
influences.

Chapter 12
SBU organization unit
SBU usually includes following organizational units:
1. Research and development.
2. Manufacturing.
3. Technology.
4. Marketing for a homogeneous product groups.
The division of units responsible for particular groups of products are created in
accordance to:
1. Needs of customers of this products
2. Technologies of their manufacture,
3. Utility of products
4. Place in a production portfolio
Above criteria are the basis for assembling products in homogeneous groups of products
and creating their strategic organizational units. Such SBUs allows company to improve
the overall efficiency.

Chapter 13
Conclusion
The Strategy unit studies firms as competitors in an economic landscape. Key issues
include: the development and effectiveness of firm strategy at both a business and
corporate level; the analysis of the competitive environment; and the sustainability of
strategy over time.
Our research, course development, and teaching draws on multiple disciplines, including
economics, sociology, and political science, and focuses on both domestic and global
competition. The objective of the work is to generate findings and develop concepts that
will help managers improve their strategic decisions while advancing the state of
knowledge in the academic study of strategy and related disciplines.

Chapter 14
Bibliography
Mckeown, Max, The Strategy Book, FT Prentice Hall, 2012
www.strategicbusinessunit.com