business unit plan definition

• Coaching Skills Training
• Coaching TIPS²™
• Continuous Improvement Coaching
• Courageous Conversations Workshop
• Executive Coaching Program
• Feedback 360
• Safety Coaching
• Sales Coaching Training Program
• Free Consultation
• Applied Strategic Thinking®

Strategic Leadership Course

Strategic teaming, strategy development processes and services.

• Communication Training for Managers
• Conflict and Collaboration
• Confronting Racism Workshop
• Delegation & Accountability
• Diversity, Equity, and Inclusion Workshop
• Flexible Leadership
• Leading Change
• Leading Groups to Solutions
• Leading Innovation
• Mid-Level Management Training
• Qualities of Leadership
• Bottom Line Leadership
• Customized Leadership Development Programs
• Leadership Development Program Design
• Mini-MBA & Operational Finance
• Problem Solving and Decision Making in the Workplace
• Transition to Leadership
• Virtual Leadership
• High-Performance Teamwork
• Leadership Team Alignment Workshop
• Orienteering
• Corporate Outdoor Training and Team Building
• Retreats for Teams
• Innovation Skills Training
• Personal Impact Workshop
• Supervisor Training Programs
• Customization of CMOE’s Learning Library
• Full Curriculum Development and Design
• Learning & Development Advisory Services
• Bottom Line Leadership Training
• Consulting Services
• Leadership Retreats
• Learning and Development Consulting Services
• Needs Analysis and Organization Assessments
• Transformation & Change Solutions
• Facilitator Training Workshop
• Empathic Leadership
• Supervisor Development Series
• All Courses
• Digital Learning
• Books and Publications
• Assessments and Surveys
• Clients Served
• History and Experience
• Meet the CMOE Team
• Testimonials
• Articles & Tools
• Scenario Templates
• Certified Partners
• Event Resources
• Industry Insights
• Resource Library
• Video Library
• News and Events
• Professional Accreditation and Continuing Education Units
• Surveys & Assessments

Business Unit Strategy

What is business unit level strategy.

By definition, a business unit (also referred to as a division or major functional area) is a part of an organization that represents a specific line of business and is part of a firm’s value chain of activities including operations, accounting, human resources, marketing, sales, and supply-chain functions. Business units and functional areas help a company organize itself internally. For example, a company may have several strategic business units that each sell different products or provide distinct services. As fully functional segments of a company, business units typically have their own strategic direction and vision.

When it comes to strategy , each business unit has a role to play in the company’s grand plans and enterprise strategy. Each line of business or sector must align with and contribute value to the primary corporate business strategy . In order to optimize results, strategy needs to be part of everyone’s responsibilities. As such, each business unit must develop its own business-unit strategy framework that will define how it will fulfill its part of the primary corporate strategy and make a distinct, value-added contribution to the organization’s long-term success.

Developing A Business Unit Strategy Framework

CMOE helps organizations worldwide become more proficient at setting strategy and thinking strategically throughout the organization: at the corporate level, the business-unit level, and even the department, team, and individual level.

Enterprise strategy is a clear and compelling direction for the organization, typically created by senior leaders. It is a “plan to win” and defines the long-term goals, objectives, and initiatives that will secure the future.

Business Unit

Business units determine which parts of the core, enterprise strategy the unit or division will contribute to directly and then formulates a unit or division strategy with their own supporting priorities. This where the division’s strategy intersects with the enterprise strategy. It creates a strategy within the company’s larger strategy. Business unit leaders are responsible for communicating a clear direction for departments, teams, and individuals as well as ensuring their functions adapt and evolve in a dynamic business environment.

For strategy to be effective, it must be cascaded through the organization. Departments need to identify strategic connection points within the business unit’s strategy and formulate initiatives and plans they can operationalize and execute on.

Teams too must have a line of sight to the department strategy that is in alignment with the business unit and enterprise. All team members need to be aligned on how the team will add value to the business and help create competitive advantage. Teams need to take responsibility for delivering results today, while formulating and executing on aligned strategies that shape a promising future.

People bring strategy to life and create the strategic edge businesses need to compete so individual need to define how they will contribute to the strategic priorities of their team. This creates the conditions for people to discover their personal connection to the firm’s future. Individual contributors at all levels need to think about the future in innovative and entrepreneurial ways, especially in their individual areas of responsibility.

It doesn’t matter if you are a leader or an individual contributor: you have to know how to work strategically in order to help move the enterprise or corporate strategic plan along.

The methodology in CMOE’s Strategic Leadership™ Workshop has been expressly designed for leaders who need to develop the ability to create and implement a strategic direction for their part of the business. CMOE also offers the Applied Strategic Thinking® Workshop , which is designed for team leaders and individual contributors who want to develop the ability to think proactively and capitalize on opportunities to make a strategic contribution to the enterprise strategy.

Our business unit strategy and strategic thinking programs and processes improve the strategic capability of the organization at all levels and enhance strategy alignment and effectiveness. No longer is strategy the sole responsibility of senior leaders; business-units must create their own strategic plans that align with and support the enterprise vision.

Why Choose CMOE’s Business Unit Strategy Workshops

Because every organization has different needs, the  Strategic Leadership™ Workshop and the Applied Strategic Thinking® Workshop are available in a variety of learning formats designed to fit your specific needs.

Participants are exposed to real, actionable ways to become more strategic in every part of their work, and they have numerous opportunities to apply the concepts as they begin building strategy for their piece of the business.

Need More Information?

“Think about a whole army of people being more strategic, not just the generals. Imagine the possibilities if everyone in your organization devoted a little extra discretionary effort and thought to the future, to how to achieve the future he or she needs and wants.”

“Moving the strategic needle on some longer term opportunities does take good strategic leadership, alignment, and communication throughout the organization. Every function should strive to achieve better alignment across the business, both in the short term and farther out.”

“Regardless of where you sit in the organization, your job is to sort through all of the signals you receive. This will give you clues about how the broader organization is adapting and shifting and help you develop your own strategic program before you are even asked.”

Recommended For You

Applied strategic thinking® workshop, contact form.

Need More Information? Please fill out the following form and we will be in contact with you with more information.

" * " indicates required fields

Delivery Options

In order to meet the specific needs of each client we partner with and make the most of the learning and development investment, CMOE offers programs in the following formats and lengths:

Instructor-led training (delivered onsite by a CMOE subject matter expert/facilitator)

Digital learning program (self-paced or live)

Blended and layered solution (combining instructor-led training and digital learning)

Train the trainer services (certifying internal trainers in CMOE’s world-class programs)

Curriculum integration (deliver the topic in conjunction with another topic or event or build it into a development curriculum)

4-16 hours (8 hours preferred) for instructor-led variable for digital learning

Contact a CMOE Client Services Specialist to discuss a targeted solution that is right for your organization.

Recent Blog Posts

It’s not about being tough, it’s about growth: giving useful feedback.

We’ve all heard the phrase “Sticks and stones can break my bones, but words will […]

Balancing Recognition and Accountability: Leadership in Action

Effective leadership is foundational to the continued success of any organization. At the heart of […]

How to Write a Team Vision Statement [Template Included]

A vision statement is a guide for your team’s goals, aspirations, and intentions. It provides […]

As Featured In:

©2024 Center for Management & Organization Effectiveness. All rights reserved.

• Common Leadership Styles
• People Management Skills
• Life Skills to Build
• Managing Time Effectively
• Self-Management Skills
• Skills of Successful Entrepreneurs
• Best Leadership Quotes
• What is a KPI?
• What is OKR?
• What are SMART Goals?
• How to Set Financial Goals
• Best Business Objectives
• Goal Setting Statistics
• Best Goals Quotes
• Boost Cross Team Collaboration
• Leading And Managing Remote Teams
• Apps For Managing Remote Teams
• Virtual Team-building Activities
• Effective Team Meeting Agenda
• Manage a Software Development Team
• Team Communication Quotes
• Teamwork Quotes
• Accountability Quotes
• Powerful Boss Quotes
• Emotional Intelligence Quotes
• Hard Work Quotes
• Perseverance Quotes
• Achievement Quotes
• Positive Attitude Quotes
• Networking Quotes
• Project Management Basics
• Principles of Total Quality Management
• Elements of Total Quality Management
• Key Elements of Strategic Management
• 5 Elements of Management Process

Strategic Business Units: Meaning, Types, And Characteristics

Business growth in size and product categories is the desire of every business owner. You cannot discuss business growth without fully understanding the basics of the strategic business unit (SBU).

Top companies like Coca-Cola adopted the SBU strategy to spark business growth into new market growth spaces and better manage their subsidiary products. Business owners use SBUs to analyze processes and allocate resources properly.

Understanding strategic business units go beyond knowing the definition; you need to learn its characteristics, types, and overall SBU structure.

This article will discuss SBU in strategic management and the strategic business unit structure.

Let’s dive in!

What is a Strategic Business Unit (SBU)?

A strategic business unit (SBU) describes an autonomous business entity or a division of a large company that functions as an independent business.

Strategic business units have visions, missions, and objectives. Although they may be distinct from their parent enterprise, they must still conform to the company's long-term goals.

A strategic business unit can be in the form of separate divisions of a parent company, a product line from the divisions, a specific product or service being offered, or a group whose target is a geographical location or another set of people.

Despite being autonomous and independent, SBU still has organizational oversight as it reports directly to its parent company.

There is a need for an organization to set up a strategic business unit; SBU arises when there is a need to expand. The parent company then sets up strategic business units to focus on specific parts of the business so it can direct its focus on other essential areas.

SBU is suitable for organizations with multiple product structures. Companies that want to diversify into smaller units use a business portfolio approach for corporate strategic analysis.

Boston Consulting Group (BCG) Matrix, designed in 1968 for Boston Consulting Group by Bruce Henderson, is the most popular business portfolio approach for analyzing corporations' production lines or business units.

Examples of a Strategic Business Unit

A strategic business unit, SBU can function as operation units in direct control over its strategy and product lines or as independent businesses.

Irrespective of the form or type of a strategic business unit, they still operate as an independent entity.

Here are some examples of strategic business units.

1. Products

A separate unit can be brought out of a large company solely based on the product categories such a company provides.

An example is a manufacturing company that sets up two product divisions named fashion and equipment with the same brand name and operational functions.

2. Services

Organizations set up strategic business units based on the service they render. For example, a prominent telecom giant can choose to set up a data center division with the sole task of helping the telecom giant provide colocation services to its customers.

3. Location

The location or region category is a way businesses target customers across various geographical locations. It is handy for big multinational corporations looking to expand their reach across new areas.

You can set up a strategic business unit based on the location requirements of an organization far away from the company's corporate headquarters to help pull in more customers.

For example, a European-based fashion brand launching an African-themed clothing line needs to set up a strategic business unit in Africa to help it sell more of its new product line.

4. Customer Segment

The customer segment of a business involves businesses that are in the constant company of servicing high-net-worth individuals.

This practice is pretty standard in the banking sector. Banks and other financial institutions set up a strategic business unit to help these high-net-worth individuals and small businesses with their bookkeeping process and better manage their money and account.

5. Innovation

Innovation is an often tricky aspect for businesses as it pertains to innovative products and services. Beyond ground-breaking technological innovations, there are other innovation types .

Innovative companies tend to experience a considerable inflow of investments that, if not appropriately managed, can lead to mismanagement for your organization.

IT companies divide their technology businesses into strategic business units to help deal with innovation processes and new product launches and to maintain financial controls .

Structure of a Strategic Business Unit

A strategic business unit set up by an organization is composed of operating units functioning as independent businesses.

The corporate headquarters remain at the top of the strategic business unit run, SBUs are next, and the divisions within the SBUs are at the bottom.

Top Corporate Officer

Within the structure of a strategic business unit, the top corporate officer assigns responsibilities of the organization to the division owners f or the onward implementation of their business unit strategy.

Division Owners

The division owners under the corporate officer are responsible for creating and executing a strategic viewpoint for the SBU and creating strategic and financial controls.

Senior Executives

The senior executive works under and reports to the chief executive officer (CEO).

In this structure, senior executives have the explicit right to get involved in the decision-making for each unit since both the divisions of business and strategic business units are interconnected.

Business Unit Leaders

Business unit leaders ensure their employees are open to adapting and evolving in a dynamic business environment. Each business unit should have its own strategic direction and own vision.

Independent SBU

When a strategic business unit is independent, and its divisions are connected and come to a strategic viewpoint, each team is considered an independent business.

SBUs can have their own support functions, such as human resource management and training departments. They function as autonomous businesses.

SBU as a Profit Center

A single strategic business unit in an SBU system is a profit center. It focuses on the market segment and product offering. Corporate officers head it as parent supervisors often focus on strategic planning against operational control.

Without constant checking and interactions between the head company and the strategic business unit, the separate SBU groups and divisions get to respond better to a changing business environment.

Characteristics of a Strategic Business Unit

A strategic unit is independent, autonomous and flexible, consisting of separate teams of individual workforce poised to help the department achieve its goals. This business unit has its particular brand or product line that distinguishes it from its parent company.

SBU shares functional programs, facilities, equipment, and human resources with its parent organization.

Generally, a strategic business unit comprises the following distinctive characteristics:

• A separate business or a group of related divisions or enterprises in control of autonomous planning
• Unique and distinct experiences in management that the parent business might lack
• Work for various markets and target different market segments
• Do not have competitors as their rivals or other businesses as a result of their competitive advantage
• The head of a strategic planning unit is solely responsible for the profitability and performance of its specific unit

Pros and Cons of Strategic Business Units

Even with the numerous benefits that strategic business units offer existing and new business, you still need to consider some drawbacks before setting up a strategic business unit.

Pros of Strategic Business Units

Some advantages creating a strategic business unit tends to afford your business include:

• Improves Coordination: Strategic business units bring improved coordination to an organization due to related divisions focusing on complementing each other rather than competing.
• Decentralized Authority: Creating strategic business units reduces the authoritative control and decentralizes it to created units, motivating the organization's workforce to be more effective.
• Improved Speed and Efficiency: With one person at the helm of a strategic business unit's affairs, formulating a comprehensive strategy for the team is relatively more straightforward. With the head of the SBU in regular communication with management, there is an improved rate related to the groups for effective implementation.
• Assures Accountability: Managers are assigned to each division unit and are tasked with ensuring their assigned division's optimal running and performance. Corporate officers hold managers directly responsible for the regular operations of their separate divisions.
• Easier Bookkeeping: Large volume data organizations get to create a simpler and more efficient means of simplifying their bookkeeping process by creating a strategic business unit to monitor and store their data.

Cons of Strategic Business Units

Here are some of the setbacks of setting up a strategic business unit:

• Bridge in Communication: Keeping the flow of communication between units and upper management becomes more challenging with time. It can negatively affect the unit's operations without a clear focal point.
• Internal Tension: Access to funding often brings about tension in an organization. The same is the case with strategic business units, as access to funding sources can cause internal pressure among unit members.
• Increases Operational Cost: A strategic business unit comes as an additional unit layer to an organization and would have its own operational and administrative costs, ultimately increasing its operating cost.

How to Set Up a Strategic Business Unit

Setting up a strategic business unit offers numerous benefits to an organization as they develop and provide new products, markets, and technologies without the usual bureaucracy of working in a vast business organization structure.

A strategic business unit would comprise a team that manages its operations, brand name, objectives, and geographical location where it conducts its operations.

Organizations work better under a unit structure as they are not bound by the limited available resources that confound the larger organization.

After weighing the benefits you stand to gain from setting up a strategic business unit, you need to consider some requirements that determine how to set up your strategic business unit.

Here are some requirements to consider in setting up a strategic business unit for your organization.

1. Organizational Structure

The first requirement to consider in setting up a strategic business plan is to adapt your current organizational structure and prepare it to accommodate new changes.

Y our organizational structure is likely to be changed to create room for a different strategic business structure to nurture and flourish.

With your organization adapting its organizational structure, strategic business units are free and independent to experiment and test new methods that drive significant changes.

Joining your business units with each other in the long run can lead to creative ideas being suppressed due to issues around process and branding.

Large companies are not flexible and agile enough to adapt to the needed organizational changes. The best bet for your organization is to separate and make business units separate and distinct.

2. Recruitment and Selection Process

In setting up your strategic business unit, ensuring the same management team works in both the parent company and strategic business unit defeats the purpose.

When setting up a strategic business unit, the recruitment and selection process needs to be changed . The goal is to build a new company within an existing market against a developed one.

Applying the strategy gathered during your time in the head company and incorporating it into a new unit would open you up to challenges as a staff with a success rate in the head company.

A strategic business unit would not function optimally if the management team had little knowledge about the strategic business unit under its care.

The interview process for recruiting new members to your strategic business unit should be focused more on the unit's objectives and less on the parent company. It can be an avenue to build a long-lasting internal relationship between your employees and the team.

3. Remuneration System

Creating a remuneration system for your business is essential in encouraging and motivating your employees, significantly when our business has grown and gained more ground and reputation in the market.

Remunerations can be in the form of shares, money, gifts, promotions, or other financial incentives that motivate employees to perform better.

Financial incentives are only one part of motivating your employees, which is limited. Employees can be adequately inspired by their careers.

Recognizing employees' work and impact on your business and appreciating them for their hard work can motivate them.

4. Corporate Culture

Making considerable tweaks to your organization's corporate culture is crucial when setting up a strategic business unit.

As a business's chief executive officer, you must devise intelligent and innovative ways of keeping your unit and team motivated. It should span beyond financial incentives alone.

Making your employees feel listened to and appreciated for their contributions to the business's success needs to be reflected at all times by management. It minimizes disgruntled employees complaining about the working environment and conditions.

You need to listen to the demands and requirements of your employees and do your best to meet them as long as it conforms to the business goals and objectives. Make changes to the corporate culture to incorporate your employees' needs.

Was This Article Helpful?

Anastasia belyh.

Anastasia has been a professional blogger and researcher since 2014. She loves to perform in-depth software reviews to help software buyers make informed decisions when choosing project management software, CRM tools, website builders, and everything around growing a startup business.

Anastasia worked in management consulting and tech startups, so she has lots of experience in helping professionals choosing the right business software.

• Memberships

Strategic Business Unit (SBU): Definition and Theory

Strategic Business Unit (SBU): this article provides a practical explanation of the Strategic Business Unit or SBU . This article covers what an SBU is, what its structure is, how to set it up and what its pros and cons are. We also discuss the difference between divisions and SBUs, and what the GE model is. After reading, you’ll understand the basics of the SBU. Enjoy redaing!

What is a Strategic Business Unit (SBU)?

A Strategic Business Unit (SBU) is a fully independently operating entity or unit of a business with its own vision and course. Although it operates independently, it has to report directly to the organisation’s head office about the status of their operations and performance. Strategic Business Units (SBU) are often aimed at a specific market.

SBUs are large enough to have their own support functions in terms of Human Resource Management (HRM) , training & development, and marketing. The use of seperate divisions (SBU’s) offers several advantages to organisations. For example, each SBU can fully focus on a separate target market.

The structure works best for organisations with multiple product structures. Examples of this are LG and Proctor & Gamble. The former manufactures many consumer products, such as fridges, televisions, air conditions, and so on. These are made by different ‘small’, independent business units, making it possible to track costs, income, and profits independently. The units are typically considered as profit centres, and are under control of corporate officers or senior executives.

When a unit is labelled as an SBU, it’s given full independence when it comes to decision making, investments, and budgets. Another advantage of this business structure is that it can respond quickly to shifts in product markets.

Strategic Business Units (SBU) structure

The structure of an organisation with SBUs consists of operational units.

In some cases, these units operate as autonomous companies. The highest corporate official assigns the responsibilities for the company to the division managers.

Figure 1 – The Organizational Structure of a Strategic Business Unit (SBU)

A single Strategic Business Unit (SBU) is considered a ‘profit centre’. It is run by supervisors. The emphasis from the parent company is on strategic planning , not on checks.

The less checking and interactions there are between the SBUs and the parent company, the quicker SBUs can respond to changing business environments.

Setting up a strategic business unit

By creating Strategic Business Units (SBU), companies can develop and gain access to new products, markets, or technologies, without experiencing the limitations of working in a huge organisation.

The business unit has its own dedicated management team, own brand and reputation, own objectives , and often other physical locations. It benefits from the advantages related to working in a smaller organisation, but is not bound by limited availability of resources.

At the same time, the smaller business also benefits from the advantages of a larger company, such as an established brand and broad base of customers. The challenges larger organisations are faced with, such as excessive bureaucracy, can be avoided.

In order to make independent and effective Strategic Business Units from a large company, there are a few requirements to be met. The most far-reaching changes that have to be implemented relate to the organisational structure, recruitment & selection, corporate culture, and the remuneration system. These are explained below.

1. Adapting the organisational structure

Naturally, the organisational structure is the first thing that will have to be changed when switching to a Strategic Business structure. Large bureaucratic organisations aren’t flexible and agile .

Another big advantage of adapting the organisational structure is the independence and freedom this grants the separate business units.

By separating business units from each other, teams are given room to experiment and break things, without this creativity being suppressed by process and branding problems .

2. Changing the recruitment and selection process

Developing a new company is different than leading an established one. People who excel in an established company may have great difficulty when asked to run a new business and vice versa.

In order to create a strong culture, the focus during the interview process should be on understanding the organisational objectives. This is a useful way to keep a team motivated.

Only hire people who want to build a new organisation from the ground up and want to learn to work effectively in an uncertain environment with lots of experiments.

3. Adjusting the remuneration system

The rewards for starting a successful business are obvious. Fame and fortune. But bigger companies can’t always offer shares or other important financial incentives to their employees.

Luckily, they don’t always have to. As Frederick Herzberg describes in his two-factor theory , financial incentives only partially influence employee motivation .

Employees are also motivated by their own careers. They want to be recognised for their work within the company and grow along with it.

4. Changing the corporate culture

It’s also important that employees experience other benefits to keep them motivated, or that they are at least satisfied about the work environment and working conditions.

Employees want to feel appreciated for their contributions to the organisation. It’s therefore a good idea to fulfil employee wishes or demands as much as possible, if this helps them to become even more effective in their work.

If a computer programmer works better at night, then they should be offered the option of working at night.

Difference between divisions and Strategic Business Units

A larger company is likely organised in divisions to divide the management of the company in to smaller, organisationally related parts. The head office will in that case still be in full control of the divisions.

Strategic Business Units are organisationally complete, independent units that develop and implement their own strategies. They do still report to headquarters about their performance, but they operate completely independently and are organised in a way that suits their market.

The units are often large enough to implement their own internal management structures.

Switching a larger company to these strategic units means a completely different management structure and approach to business. A company’s division reflects how the activities of the company can best be carried out.

Divisions arise from analyses of business activities, while strategic units should be set up in order to respond to the external market. Instead of looking at themselves and analysing themselves, companies should analyse and study the market .

The main difference between divisions and Strategic Business Units (SBU) is that divisions have an internal focus, while the focus of strategic units is directed outwards. The market.

Strategy and structure

The fact that SBUs have been developed emphasises the differences and necessity of strategic leadership within an organisation. Developing a general strategy for a diversified business is difficult and often means that certain strategic elements do not entirely match the different divisions.

A department can often receive instructions that are unclear or not fully applicable. When a company has adapted its structure and converted divisions into strategic units, they can develop their own strategies.

They can then also analyse their own competitive position, develop products, and meet the needs and demands of their customers in specific markets . Divisions tend not to do those kinds of things.

Value of business processes

Companies that are organised based on different divisions often find it difficult to determine which activities and business process actually generate the most value and which ones should be ceased. This applies mainly to businesses where the divisions are purely functional in nature, such as sales, service, and logistics.

Although different divisions can have different profit centres, decisions about the allocation of resources are not easy ones. For Strategic Business Units (SBU), it’s easier to make such decisions, making their use of resources more likely to be efficient. Strategic units who are the market leader in a certain segment are likelier to be allocated resources .

Pros and cons of Strategic Business Units (SBU)

• Strategic Business Units (SBU) support the collaboration between different company departments
• SBUs make strategic management simpler
• SBUs are efficient for the bookkeeping of larger organisations
• SBUs are easier to monitor and check
• Communication with upper management can be a challenge
• Can lead to internal tension as a result of access to sources of funding

SBU and GE model

One of the way in which companies assess the success or failure of a strategic unit, is by using the GE model .

General Electric uses a simple diagram of nine boxes and three essential labels to define the importance of each business unit. This is done in terms of uniqueness and appeal for each industry and the strength of individual business units in this industry.

These criteria make up the foundation of an analysis GE uses to assess the viability of a strategic unit in the long term.

The idea behind the model is to determine the appeal and relative strength of a unit to see if they would be successful, which ones would perform averagely, and which ones would perform poorly and therefore have to be closed.

Strengths and weaknesses

Managers who wish to apply the GE model must be able to accurately define the strengths and weaknesses of each business unit. They then have to be able to assess the uniqueness of the strategic units in terms of high or low.

Companies that perform strongly are businesses with strong business strengths and high uniqueness values in a sector. Companies that perform averagely, are in the mid-range. Weak business units don’t have strengths and are not very unique in the sector.

Strategic Business Units (SBUs) core concepts

• An SBU is a business or collection of related businesses that operate independently from the rest of an organisation. These units can therefore be planned separately. An SBU has its own marketing strategy , own business objectives and other SMART objectives that may differ from those of the parent company.
• An SBU has its own competitors, so its own competitive position as well. This structure makes it possible to create unique business units that focus on different markets in which the company is active. This stimulates competition and makes markets and revenues grow.
• SBUs have their own managers who are responsible for the strategic planning process and the performance of the unit.

Now it’s your turn

What do you think? Are you familiar with the explanation of a Strategic Business Unit (SBU)? Do you work in a strategic business unit? Do you think it would be a good idea for larger organisations to split up into strategic business units? What are some of the pros and cons of Strategic Business Units (SBU) you’ve noticed? Would you like to share any? Do you have any other tips or additional comments?

Share your experience and knowledge in the comments box below.

More information

• Dvir, D., & Shenhar, A. (1992). Measuring the success of technology-based strategic business units . Engineering Management Journal, 4(4), 33-38.
• Dvir, D., Segev, E., & Shenhar, A. (1993). Technology’s varying impact on the success of strategic business units within the Miles and Snow typology . Strategic Management Journal, 14(2), 155-161.
• Hinterhuber, H. H., & Levin, B. M. (1994). Strategic networks—the organization of the future . Long range planning, 27(3), 43-53.
• Website Zintego . Retrieved 02/20/2024 from Zintego.com

How to cite this article: Janse, B. (2020). Strategic Business Unit (SBU) . Retrieved [insert date] from Toolshero: https://www.toolshero.com/strategy/strategic-business-unit-sbu/

Original publication date: 05/19/2020 | Last update: 02/20/2024

Add a link to this page on your website: <a href=”https://www.toolshero.com/strategy/strategic-business-unit-sbu/”>Toolshero: Strategic Business Unit (SBU)</a>

Did you find this article interesting?

Your rating is more than welcome or share this article via Social media!

Average rating 4 / 5. Vote count: 12

No votes so far! Be the first to rate this post.

We are sorry that this post was not useful for you!

Let us improve this post!

Tell us how we can improve this post?

Ben Janse is a young professional working at ToolsHero as Content Manager. He is also an International Business student at Rotterdam Business School where he focusses on analyzing and developing management models. Thanks to his theoretical and practical knowledge, he knows how to distinguish main- and side issues and to make the essence of each article clearly visible.

Related ARTICLES

Decision Making Unit (DMU): Definition and Basics

N. Venkat Venkatraman biography and books

Core Competence Model (Hamel and Prahalad)

PMESII-PT Analysis, an army Theory explained

SOAR Analysis: the theory plus example and template

Corporate Governance: the definition and basics

Also interesting.

Organizational Network Analysis (ONA)

Abell model explained including an Example

Service Profit Chain Model and Steps explained

Leave a reply cancel reply.

You must be logged in to post a comment.

BOOST YOUR SKILLS

Toolshero supports people worldwide ( 10+ million visitors from 100+ countries ) to empower themselves through an easily accessible and high-quality learning platform for personal and professional development.

By making access to scientific knowledge simple and affordable, self-development becomes attainable for everyone, including you! Join our learning platform and boost your skills with Toolshero.

POPULAR TOPICS

• Change Management
• Marketing Theories
• Problem Solving Theories
• Psychology Theories

ABOUT TOOLSHERO

• Free Toolshero e-book
• Memberships & Pricing

• Become a Partner

• Product Overview Know more about our products
• OKR Management Strategy-execution made easy
• Performance Management Build a high performance team
• Task Management Increase day-to-day productivity
• Employee Engagement Engage, align and inspire your team
• Integrations Integrate easily with all your favorite apps
• Case Study Know why 1000s of brands trust Profit.co
• Why Profit.co? Know what customers like you think about us.
• OKR Certification Iterate Faster with OKRs Coaching & Certification Programs
• OKR University OKR resources for beginners and experts
• eBooks Books sharing our OKR expertise, ideas and insights
• KPI Library Find the Most Effective KPIs for your business
• OKR Examples Collection of OKR examples for your business
• OKR Webinars Discover current trends and expert insights
• Answers (FAQs) Get instant solutions to your queries
• OKR Canvas Kick start your OKR implementation right away
• Help Center Endless support in case you are stuck
• Release Updates Outlined feature updates from our last releases
• Try it Free
• Schedule Demo

Creating a Strategic Framework for Business Units

Category: OKR University .

Introduction

For a growing business, structuring teams for maximum efficiency is imperative. An effective business unit model can make a difference in success. A business structure ensures better financial efficiency and organization.

This guide explores what a business unit entails, the types of business units to choose from, and the pros and cons, and informs you how to create an effective strategy framework.

Let’s dive into business units and how implementing a strategic framework could benefit and streamline your organization.

What is a Business Unit?

A business or strategic business unit is a subset or independent division of a larger company. The unit’s processes, success metrics, product lines, market research teams, budget allocations, and strategic objectives align with the overall business policies.

The leaders in the unit report to the top-level executives, and the team members follow the code of conduct established by the overall HR department.

Business units aim to maximize profits by targeting different market segments. Each unit follows its direction, growth strategies, and vision.

What are the Types of Business Units?

There are numerous types of business units that you can adapt to fit your organization’s needs.

Here are three primary types of business units:

1. Geography business units

Such units focus on sales and marketing in particular geographical regions.

2. Customer business units

These units target particular customer groups. For example, you can have a business unit dedicated to selling products to large companies and another focusing on small businesses.

3. Product business units

Such units are in charge of marketing and developing products that fall under a particular category. For instance, if you have different products, you can have a business unit for each type.

Great things in business are never done by one person. They’re done by a team of people. Steve Jobs

Advantages and Disadvantages of a Business Unit

A business unit has numerous advantages and disadvantages, so comparing and evaluating all relevant factors is essential before establishing one.

Here are the advantages of a business unit:

• Every business unit targets a different customer base and market section, which can help increase profitability.
• Each unit functions independently, so only some permissions require a go-ahead from the central authority, simplifying decision-making
• Bookkeeping is easier for large businesses.
• Business units help companies become more agile and adapt to changing market conditions.
• These units allow you to focus resources on the most productive areas, improving profitability.

Here are the disadvantages of a business unit:

• The setup process can be challenging because every unit requires different aspects, such as goals, vision, and promotional strategies.
• Sometimes high competition among the units negatively affects the parent company.
• Business units can introduce silos and deter cooperation, leading to wasted resources and inefficiency because each unit focuses on individual performance.

Ready to implement your business unit?

Book a free demo

What Are the Characteristics of a Business Unit?

Business units have distinct characteristics that distinguish them from other business structures.

The main characteristics of a business unit are:

1. Unique values and missions

Business units have unique values and missions that assist in creating a broader customer base for the parent company. The unique objectives help every unit target a particular demographic and offer services and products that suit them.

2. Autonomous planning

Business units leverage autonomous planning to strategize business operations, including marketing, developing new products, and expansion. Strategic planning is very important to organizations to align vision and mission to execution. Each unit is a manageable entity that can operate under a different name but remains under the primary company.

3. Unique competitors

Business units focus on their respective markets, so they have different competitors. This structure encourages unique competition, creating an environment that nurtures new marketing techniques and product innovation.

4. Independent cost and revenue tracking

Business units account for revenue and costs separately. They help the parent company track revenue from different services or products like sales revenue making it easier to see which business units underperform.

How Does It Differ from a Subsidiary?

Subsidiaries refer to companies that a parent company partially or wholly owns. You can differentiate a business unit from a subsidiary through aspects such as:

1. Leadership structure

Every business unit has a manager who runs operations and reports to the parent company when necessary. Subsidiaries are under the parent company’s control, so the managers report to the executive team that oversees and coordinates subsidiary programs and initiatives.

2. Share ownership

With subsidiaries, the parent company owns most of the shares and has more say in business operations. A business unit remains independent and has individual shares.

3. Internal structure

Business units have independent internal structures and core business functions. Although subsidiaries can have internal systems, they rely more on the primary company’s structure.

4. Objectives

Subsidiaries and business units develop missions and objectives for different reasons. Subsidiaries form objectives that focus on the primary company’s vision. If the goal is expansion, the subsidiary will focus on expanding the parent company into new markets.

For instance, business units have independent objectives, so if it’s an expansion, they will focus on independent expansion and have separate plans to explore new markets.

What Are the Steps Involved in Creating a Business Unit?

Forming business units is an excellent way to promote business expansion and growth. You can create an efficient unit through the following steps:

• Determine the business unit’s purpose and define its particular responsibilities.
• Allocate business resources, including assets, finances, and people.
• Establish accountability with strategic metrics and determine how to track performance and progress effectively.
• Define goals depending on what you aim to achieve.
• Create communication channels between the parent company and the business unit and determine how the information will flow.
• Establish the unit’s autonomy to enable independent decision-making.
• Plan for regular reviews and embrace adjustments to ensure success.

How Can You Develop a Strategic Framework for a Business Unit?

A strategic framework helps you stay focused on the overall goals by providing clarity and transparency in your strategic processes.

Here are the steps for developing a strategic framework for a business unit:

1. Choose a suitable strategic framework

Some examples of strategic frameworks are SWOT analysis, balanced scorecards, issue-based strategic planning, OKRs, and strategy mapping.

Your choice depends on your goals and current standing, but you can have different frameworks for various elements or stages in the planning process.

2. Integrate the strategic framework into your strategy

Ensure you determine your strategic objectives and how every goal fits into your strategic framework. Decide what you must measure and the respective KPIs to know how your vision, strategic framework, and goals align.

3. Review your plan based on your strategic framework

Having a strategic framework helps you understand how the goals of the business unit contribute to the bigger picture. Strategic consulting helps in the review cycle as a course correction aimed to close the strategy execution gap.

A business or strategic business unit is a subset or independent division of a larger company.

Strategic business units help the parent company focus on potential markets or particular customers. They also bring structure to businesses with several services and products.

A business unit is independent and has separate shares from the primary company. A subsidiary has no individual shares since the parent company owns the share majority.

As a leader, you must always be keen to find new ways to enhance business performance and improve return on investment Creating an effective strategic framework is one effective way to boost performance and revenue generation.

You can use a strategic business unit plan to distinguish various product lines and increase market capitalization. Business units can help with brand recognition, market awareness, research and development, and market analysis if you plan to introduce new products or explore new markets.

To Bridge the Strategy Execution Gap

Sign up with Profit.co

Related Articles

How do you mitigate the typical okr captain blind spots.

When organizations embark on an OKR (Objectives and Key Results) transformation program, selecting the right type of professional whether Process-focused,... Read more

Navigating Stakeholder Dynamics with Block’s Strategies

Navigating stakeholder relationships effectively is critical in project management. Using Peter Block's structured approach to stakeholder management, project leaders can... Read more

What is the Time Commitment Required for Various Roles in an OKR program?

At Profit.co, we understand that successful OKR (Objectives and Key Results) implementation requires a collaborative effort. To help your organization... Read more

Move Beyond Spreadsheets: OKR Software Delivers Measurable ROI

The growing gap between strategic intent and operational execution necessitates clearly defined objectives and meticulous progress tracking. This is where... Read more

What is Iterative Business Execution?

Get a Personalized Demo

Execute your strategy with the industry’s most preferred and intuitive software

What Is A Business Level Strategy? How To Create It + Examples

Many leaders put a lot of effort into strategic planning, but their grand strategies fall short. More often than not, the issue lies not in the strategy they formulate, but in the strategy they overlook—the business level strategy. 

This strategy concentrates on the execution of initiatives tailored specifically to a business unit. It's like “the middle level” of strategy and as it often happens with middle-level things, it remains overlooked in the shadow of the bigger picture.

Gartner’s survey shows that 67% of key functions at a company are not aligned with business units and corporate strategies. It also shows that 67% of employees do not understand their role when new growth initiatives are launched. These findings suggest that most companies focus primarily on their overarching, high-level strategies, neglecting how these strategies translate to lower levels and functions.

Thinking in terms of strategy levels is a good way of breaking down your overall strategy into manageable parts. This approach makes it easier to understand who's responsible for what and how the strategy should be carried out.

In this article, we'll walk you through the components of a strategy at a business level. We'll show you how to write a perfect strategic plan for your business and then apply it, ensuring all the pieces fit together seamlessly.

🎁BONUS: Download Your Strategy Levels eBook. It's a comprehensive guide that covers all three levels of strategy and will show you how to create both corporate and business strategies.

What Is A Business Level Strategy?

Business level strategy is a sum of the strategic planning and implementation activities that set and steer the direction of an individual business unit. These activities will generally include how to gain a competitive advantage and create customer value in the specific market the business unit operates in.

As a result, organizations with only one distinct business will often combine business strategy with corporate strategy as a single strategy level.

Benefits Of A Business Strategy

Before we dive deeper into business strategy, let's quickly discuss why you should have it regardless of your business model or company size. A well-defined business strategy:

• Provides a clear roadmap and purpose, guiding decision-making and resource allocation .
• Helps align the efforts of different departments and teams, fostering coordination and synergy.
• Enhances competitive advantage by identifying unique value propositions and differentiation opportunities.
• Aids in identifying and capitalizing on market opportunities while mitigating potential strategic risks .
• Improves organizational efficiency, promotes innovation, and enables effective measurement and performance evaluation.

Ultimately, a well-planned and executed business strategy can lead to sustainable growth, profitability, and long-term success.

Difference Between Corporate Level Strategy And Business Level Strategy

There seems to be a lot of confusion surrounding the difference between corporate level strategy and business level strategy, so let’s clear things up and get our definitions straight.

A corporate level strategy comes into play when an organization has multiple businesses operating in different markets. It sets the overall direction for the entire organization . It decides which markets to compete in, how to allocate resources across the organization, and similar big-picture things.

On the other hand, a business level strategy zooms in on a specific business within the organization . It focuses on creating a game plan tailored specifically for that business unit to achieve success in its corner of the market.

To reiterate, a corporate level strategy is about steering the entire organization, while a business level strategy is about guiding a specific business unit to thrive in its market.

To help make the difference between the two levels clearer, let’s look at the example of a bank below and how they use strategy levels in their organization.

Types Of Business Level Strategies With Examples 

To better understand how business level strategy differs from other strategy levels, it’s useful to look at some business level strategy examples . 

When organizations are deciding on the best strategy for a specific business level, they typically consider five types. Let's take a closer look at each of them and see what kind of competitive advantage they offer:

Cost Leadership

A cost leadership strategy is all about offering products at a lower price than your competitors. To become cost leaders, businesses employ economies of scale and various tactics such as improving facilities, investing in tools, reducing overhead costs, and minimizing expenses related to R&D and POS operations. The ultimate goal is to achieve the lowest cost for your product or service.

Differentiation

Rather than focusing on lower costs and passing the savings onto customers, differentiation strategies emphasize the development and marketing of products in a manner that provides greater value to customers and focuses on unique features that warrant a higher price point.

The most famous example of differentiation is Apple , which applies this strategy across all business units (laptops, smartphones, tablets, etc.). Apple has heavily invested in R&D, customer service, and marketing, successfully carving a niche that allows them to charge a premium price for their products without compromising market share.

💡If you're considering pursuing a differentiation strategy, McKinsey's Three Horizons of Growth is a great framework to use.

Focused cost leadership

Businesses can concentrate their efforts by targeting a niche market or even a subset of that niche to further reduce costs.

For instance, a tool manufacturer might choose to focus their cost leadership strategy solely on the professional tradesperson market. 

By narrowing their focus, companies can better understand their customers' needs and create value more efficiently.

Focused differentiation

A focused differentiation strategy involves standing out from competitors while concentrating efforts on a smaller subset of their customer base.

This might seem counterintuitive, but deeply understanding a smaller customer segment allows businesses to anticipate customers’ needs more accurately, making value creation a smoother process.

Integrated low-cost/differentiation

Some businesses find success by combining a low-cost strategy and differentiation.

A great example is the rise of "premium fast food" restaurants, which offer the low prices associated with traditional fast-food chains while providing a differentiated range of offerings. The combination provides just enough uniqueness to cater to a particular market. The success of such restaurants is a testament to the effectiveness of this type of strategy.

📚 If you're struggling to determine the best business strategy for your business unit, consider exploring the Value Disciplines framework . It has guided many successful businesses in the right direction.

How To Write A Business Level Strategic Plan 

Once you've decided on the type of business strategy you want to pursue, you need to write a strategic plan that outlines the actions your business unit will take to achieve its vision.

If you need guidance on how to write a strategic plan , we've covered it in detail before. But it can’t hurt to quickly go over the process anyway.

1. Analyze where you currently stand

First, you need to gather and analyze key information about your business's present state and performance. 

This can include reviewing KPIs, doing a SWOT analysis , evaluating the competitive landscape , reviewing financial performance, gathering customer feedback, considering internal capabilities, and analyzing risks and challenges. 

Such an analysis will help you develop a fact-based understanding of your current position that should your strategic direction and choices. 

2. Prioritize focus areas

Identify the key areas you'll be focusing on when working towards your vision . Your analysis from the previous step should help. These focus areas should be more specific than your vision statement , but not as detailed as having particular metrics or deadlines attached to them.

3. Define strategic objectives

Strategic objectives represent what you want to accomplish . These objectives are relatively high-level but should still have a deadline associated with them. Make sure your strategic objectives align with one or more of your focus areas. Typically, you'll have 3-6 objectives for each focus area.

4. Assign KPIs

KPIs are values that help you measure progress toward your strategic objectives.  It's important to develop KPIs that directly contribute to achieving specific goals or objectives. Otherwise, you run the risk of diverting attention, time, and resources away from crucial KPIs.

5. Create projects

Projects describe what you will do to accomplish your objectives. Projects need to be specific, including clear deadlines and a description of the actions you'll take. 

Each project should align with at least one strategic objective and outline how it will contribute to achieving that objective. Typically, you'll have multiple projects for each strategic objective.

💡 Pro tip: When writing your strategic plan , it’s helpful to keep in mind that business level strategy decisions are typically based on analyzing two main factors: customers and core competencies.

👉 How Cascade can help:  

Cascade’s Planner makes it easier to create, share and execute strategic plans. To make things even simpler, you can use our template which will help break down your high-level plan into executable outcomes.

👉🏻 Get your free business strategy template here.  

More related business level strategy templates: 

• Business Growth Strategy Template
• Business Development Strategy Template
• Business Continuity Plan Template
• Business Expansion Plan Template
• Business Action Plan Template

‍ 💡Don't see what you're looking for? Explore our strategy template library with over 1,000 templates catered to different business units and industries.

The Key Focus Areas For Business Level Strategies

Now that we understand how to structure a business strategy, let's dive into the actual content that should be included. 

While the specifics will vary depending on the organization, there are generally two key elements that should be addressed in your business level strategy.

Core Competencies

In business level strategy, the concept of core competencies is key. 

Core competencies are the unique elements of a business that set it apart in the market and provide value to customers.

Identifying and leveraging these competencies to gain a competitive advantage is a major aspect of business level strategy.

If you're struggling to identify your business's core competencies or competitive advantages, a VRIO analysis is a great starting point that should help you out. 

👉 Grab your free VRIO strategy template here.

Understanding your customers is another essential aspect of business level strategy. 

You need to know who your current and potential customers are and how they interact with your business. 

To develop this understanding, consider the following who, what, and how questions:

Who are the customers?

Look at demographic descriptors and consumption patterns to paint a clear picture of your customer base. 

Unlike corporate strategists, business level strategists often have a precise understanding of their customers. That allows them to tailor strategic decisions in a way that just isn’t feasible at a corporate level.

What are the products that customers need?

Understanding the wants and needs of your customers is vital for developing and maintaining a competitive advantage. 

Successful businesses are the ones that fulfill customer needs and create value. That’s why you want to understand your target customers to the point where you can forecast changes in customer needs as well as anticipate fluctuations in demand. 

How can the business satisfy customer needs?

Finally, organizations need to leverage core competencies, resources, and their understanding of their target audience to ensure customer satisfaction. Businesses need to create a solution to a pressing problem and create a product or service that’s perceived as valuable in the eyes of the target market segment.

Putting it all together

Now that you have a solid understanding of your core competencies and the customers you serve, you have a powerful foundation for developing strategies that foster competitive advantage and drive value. This is the ultimate goal of the business level strategy.

How To Cascade Business Level Strategy To Functional Level Strategy

Once you've crafted your business strategy, it's important to ensure that it’s effectively communicated and translated into actionable plans at the functional level . 

This process, known as cascading, enables each department to align its efforts with the overall strategic objectives of the organization. Here’s how you do it:

• Share the business level strategy with department heads.
• Identify relevant objectives and projects for each department.
• Define focus areas based on the identified objectives and projects.
• Develop department-specific strategies and tactics. Address specific actions each department will take.
• Align efforts and coordinate among departments.

By following these steps, you can effectively cascade your business strategy to all key departments, coordinate efforts and achieve strategic objectives.

👉 How Cascade can help: 

With Cascade's Alignment & Relationships feature , you can see every plan in your workspace and how they connect to each other from a bird's eye view. Using a simple tree structure, you'll be able to see how every plan is aligned with each other and progressing across your organization.

Final Thoughts

Business level strategy is where abstract strategic directions from the corporate level translate into tangible initiatives that generate real-world value.

Together with a strategy execution platform like Cascade , it can help you achieve great strategic feats. The combination of the right approach and the right software empowers you to:

• Create simple yet impactful strategies

Our most successful customers have used Cascade to zoom in on certain parts of their business, identify their core competencies, and prepare suitable objectives. Instead of overcomplicating strategies, they kept it simple and actionable.

• Reverse engineer your strategy

Cascade enables you to see where your initiatives stand today and provides data as well as the wider context. These strategic insights will help you design metric-based strategies rooted in reality, rather than relying on disconnected numbers, outdated tactics, and irrelevant industry benchmarks.

• Adapt quickly and effectively

You can monitor the impact of a particular approach on a smaller, business level scale, recognize what’s working, and either change course or double down. 

These benefits and everything mentioned in the article make a business level strategy combined with a strategy execution platform immensely valuable. Good and iterative strategic planning at the business level will radically impact outcomes for any organization—from the very small right up to the very large one.

Business Level Strategy FAQs

Should a business level strategy change over time if so, why .

Yes, business level strategies should change over time to adapt to evolving markets, competition, customer needs, and internal capabilities.

The ability to adapt also reflects that the business is monitoring its current performance, the impact of its strategic decisions, and is proactively thinking about improvements. The ability to adapt is crucial for sustainable success.

Popular articles

Viva Goals Vs. Cascade: Goal Management Vs. Strategy Execution

What Is A Maturity Model? Overview, Examples + Free Assessment

How To Implement The Balanced Scorecard Framework (With Examples)

The Best Management Reporting Software For Strategy Officers (2024 Guide)

Your toolkit for strategy success.

• Intelligence
• Organization

Strategic Business Units: Definition, Benefits, and Examples

Authors antony desmond.

At its core, a strategic business unit (SBU) is a self-contained business entity that operates independently within a larger organization. The purpose of an SBU is to focus on a specific product, market, or geographic area and to develop its own business strategy, goals, and objectives.

Benefits of Strategic Business Units

Implementing an SBU structure can provide numerous benefits for organizations, including:

Improved Focus and Accountability - By dividing an organization into SBUs, each unit can focus on specific markets, products, or services. This allows each SBU to develop specialized expertise and to tailor its strategy and operations to its specific needs.

Increased Flexibility and Responsiveness - Because each SBU operates independently, it can quickly respond to changes in the market, customer needs, and industry trends. This agility can be a significant advantage in highly competitive industries.

Greater Transparency and Resource Allocation - An SBU structure can provide greater transparency into the performance of individual business units, making it easier for management to allocate resources and make strategic decisions. This can help organizations identify and invest in their most profitable products, services, or markets.

Examples of Strategic Business Units

Examples of strategic business units can be found in various industries, including:

Automotive - Automakers such as General Motors and Ford have organized their operations into SBUs. Each SBU is responsible for a specific product line, such as trucks or SUVs, and has its own marketing, sales, and product development teams. General Motors has its Chevrolet and Cadillac SBUs, which allows them to focus on different segments of the market. In 2021, General Motors reported a net income of $6.4 billion, an increase of over 200% from the previous year. Ford's SUV SBU has been instrumental in developing new electric SUV models, such as the Mustang Mach-E. In 2021, Ford reported a net income of $3.3 billion, up from a net loss of $1.3 billion the previous year.

Consumer Goods - Consumer goods companies such as Procter & Gamble and Unilever use SBUs to focus on specific product categories. For example, Unilever has separate SBUs for food and beverages, personal care, and home care products.

Financial Services - Banks and other financial institutions often use SBUs to organize their operations by geography or product line. For example, JPMorgan Chase has separate SBUs for consumer and community banking, commercial banking, and asset management.

Technology - Technology companies such as IBM and Hewlett-Packard use SBUs to organize their operations by product line or industry vertical. For example, IBM has separate SBUs for cloud computing, cognitive computing, and security solutions.

The long story - short

SBUs are designed to be independent enough to make their own decisions regarding their product line, marketing, and sales strategies. This allows them to respond more quickly to market changes and customer needs. According to a study by the Harvard Business Review, companies with an SBU structure tend to have better financial performance than those without one.

One of the advantages of the SBU structure is that it allows companies to allocate resources more effectively. By giving each SBU its own budget, companies can ensure that resources are being used efficiently. Another advantage of the SBU structure is that it encourages innovation. By giving each SBU its own product development team, companies can develop new products more quickly and efficiently.

However, the SBU structure is not without its challenges. One of the biggest challenges is coordinating the activities of the different SBUs within the company. This can be especially difficult when there is overlap between the product lines of different SBUs. For example, if the truck SBU and the SUV SBU both want to develop a new crossover model, there may be conflict over resources and market positioning. Companies must carefully manage these conflicts to ensure that the overall goals of the company are being met.

The SBU structure has become a popular organizational model in the automotive industry. By giving each SBU responsibility for a specific product line, companies can allocate resources more effectively, encourage innovation, and respond more quickly to market changes. However, companies must be careful to manage conflicts between different SBUs to ensure that the overall goals of the company are being met.

SBU vs subsidiary

The distinction between a corporate business unit and a corporate subsidiary lies in several key differences. First, a subsidiary typically focuses on different product categories and target audiences than those of its parent company. This allows the parent company and subsidiary to avoid competing for the same customers. A graphic representation of this difference could be a Venn diagram showing the overlapping and distinct areas of the product categories and target audiences of each entity.

Secondly, a subsidiary is legally a separate business entity, even if it is wholly or partially owned by a parent company. Subsidiaries have their own boards of directors and executive teams that handle strategic management and decision-making. In contrast, business units are not independent companies, but rather belong within a larger corporation. A diagram illustrating this could be a flowchart showing how a subsidiary has its own decision-making hierarchy, while business units are governed by the larger corporate structure.

Thirdly, the organizational structure of a subsidiary may not match that of its parent company, as it operates independently with its own management team. By contrast, each business unit in a corporation fits into a larger organizational structure, led by the same top-level management team. A diagram showcasing this difference could be an organizational chart of a corporation with multiple subsidiaries and business units, showing the hierarchical relationships and reporting structures between them.

Another difference between business units and subsidiaries is the relationship to the company as a whole. Since subsidiaries do not legally form part of a parent company, they may not have access to all of the same resources as a business unit would. For example, subsidiaries may not have the same marketing teams or recruiters promoting job opportunities as business units. On the other hand, business units belong to the parent company and have access to all of its resources. A visual representation of this difference could be a comparison chart showing the resources and benefits available to business units versus those of subsidiaries.

In conclusion, while both corporate business units and subsidiaries have their own unique advantages, there are clear differences between the two models. Understanding the organizational structures, relationships to the company, and independence of each model is crucial for making informed decisions about the most effective business strategy.

Recent posts

Transforming Healthcare: Patient Pathways and interoperability

Innovation thinking in healthcare - customer centric approach

The Art of Assurance in Metal Price Negotiation cycles

CW1 AB / CW1 Inc is responsible for your data. Cookies are used to analyze traffic & customize content. Please see our cookie policy for more information.

Strategy Explained

• Business Strategy
• Creating a Successful Strategy
• Corporate Strategy
• The Role of Leaders
• Related Topics

All strategy is based on understanding competition. Michael Porter’s frameworks help explain how organizations can achieve superior performance in the face of competition. Strategy defines the company’s distinctive approach to competing and the competitive advantages on which it will be based. A good competitive strategy is one that creates unique value for a particular set of customers.

Key Concepts

Making trade-offs, fit across the value chain, thinking strategically, competing to be the best vs. competing to be unique.

Strategy starts with thinking the right way about competition. Many managers compete to be “the best”—but this is a dangerous mindset that leads to a destructive, zero-sum competition that no one can win. Competing to be unique, on the other hand, is the basis of a sound business strategy that leads to a positive-sum competition with multiple winners.

Setting the Right Financial Goals

Managers should also think about setting proper financial goals for the company. Pleasing today’s shareholders is not the right goal. The fundamental goal of a company is superior long-term return on invested capital (ROIC) .  Only if you achieve strong ROIC are you creating true economic value, which says that you can produce a product f or a price that’s greater than the cost of making it (including the cost of capital employed). Revenue growth is good only if superiority in ROIC is achieved and sustained.

Levels of Strategy

There are two fundamental levels of strategy: corporate level strategy and business unit strategy .  Cor p orate strategy defines what set of businesses to compete in, while business unit strategy describes how to compete in each distinct business or industry.

While both are essential, business units typically account for 90% or more of economic performance—and therefore it is the focus of Michael Porter’s strategy work. The business unit, and not the company overall, is the core level of strategy.

Business strategy

Competitive advantage is won or lost at the business unit level. To achieve competitive advantage, companies must position themselves strategically within their industries.

Corporate strategy

In diversified companies, corporate leaders can enhance competitive advantage by capturing synergies across business units within the corporate portfolio.

The Five Forces

The Five Forces is a framework for assessing competition in any industry by analyzing the industry’s structure and profitability. Five Forces analysis is the first step in thinking about strategy, about how to shift the forces in your favor, and where to establish a unique positioning.

Terminology

The terms “business unit strategy,” “business strategy” and “competitive strategy” are often used interchangeably in Porter's work.

Don't have a Shopify store?

• What is the Strategic Business Unit (SBU)?

What is the Strategic Business Unit (SBU)? The complete guide

CEO Avada Commerce

Drive 20-40% of your revenue with Avada

SBU seems to be a strange term, but if you are about to grow your business in terms of size and product categories, it is necessary to understand the basics of a strategic business unit.

Knowing its importance to any business owner, we would like to introduce this post, which will cover the definition and the complete guide to set up a strategic business unit.

Let’s dive in!

What is a strategic business unit (SBU)?

A strategic business unit (also known as SBU) is a business term used to present an independently managed entity or unit of a large company. Those strategic business units often have their own visions, missions, objectives, and course. Moreover, their planning is done separately from other businesses, and their goals are different from the parent enterprise and elemental to the long-term performance of the business.

In other words, a strategic business unit is an array of a huge corporation that is responsible for its shared planning treatment. They can be business divisions, product lines of the division, or a particular product/service. No matter what SBUs are, they all target a specific group of customers or a geographical area.

Despite working independently, the strategic business unit still has to report directly to the parent organization’s head office when it comes to the status of their working process and performance. Normally, the strategic business unit looks at a specific market or industry.

Being an array of the main company doesn’t mean SBUs are at the small business size. On the other hand, they are large and have their own support functions. They can obviously control Human Resource Management (HRM), training & development, and marketing works. Having strategic business units is extremely important because they provide many benefits to businesses. Especially when the main companies have multiple product structures, they should know and set up SBUs structure. Having one or many SBUs, a business can have them respond quickly to shifts in product markets.

One typical example of SBU structure is famous brands like LG. They provide a long list of consumer products such as fridges, televisions, air conditions, and more. Each of them is made by different strategic business divisions. They are responsible for manufacturing and delivering products but have to take into account making decisions, investments, and budgets. In this way, LG’s main business can spend more time and attention on tracking costs, income, and profits.

• What is Business Level Strategy?
• What is Product Branding?
• What is a Merchant Cash Advance?

Examples of a strategic business unit

Being responsible for its own strategy and bottom line, a strategic business unit can be a division, a team, or a completely separate business. Also, they can be a marketing team that helps the whole company in operational functions. Now, we will show you some simple examples and different types of strategic business units.

A large company can split up into small ones based on the product categories it provides. This type is the most common one when it comes to SBU. For example, a snowboard manufacturer decides to set up two strategic business units because it owns two product divisions, which are fashion and equipment.

The fashion division and the equipment division have the same brand name and administrative functions, such as best HR software and information systems.

Similar to products, companies also build up the strategic business unit according to their services. For instance, a telecom company can set up a data center division. This division will help the parent company in providing different services like a colocation data center .

The location category or Region category is when a business targets customers from different nations or areas. A European fashion brand launches a Japanese distribution and promotion capabilities and takes it as a strategic business unit to help the company sell more products to Japanese consumers.

Customer Segment

When it comes to the customer segment, a business can have a separate division to service high net world individuals. One industry that is familiar with setting up SBUs based on the customer segment is Banking.

The innovation category is used, especially when it comes to innovative products or devices. For example, a huge information technology business can be split up into strategic business units to launch its new innovative products. The unit is applied as a growth investment and avoids spending too much after launch.

The structure of a strategic business unit

The structure of a company setting up SBUs consist of Operational units . Those units work as autonomous businesses. Within the SBUs structure, the highest corporate officials tend to assign the responsibilities of the company to the division owners in terms of regular operations and business unit strategy. Easily put, the parent officer has the responsibility of developing and executing the comprehensive strategy and managing the SBU via strategic and financial controls (also known as financial checks ).

That means the senior executive has the right to make decisions for each unit since the SBU structure connects related divisions of business and the strategic business unit. What’s more, those senior executives have to follow the rules and are supervised by the head executive officer.

When it comes to levels of a strategic business unit, there are three which includes:

• The corporate headquarters stay at the top.
• Strategic business units’ are in the middle.
• Divisions that are assembled based on the similarity within each strategic business unit remain at the bottom.

You should keep in mind that each SBU will be considered an independent business when it comes to the strategic viewpoint. That means the SBU groups are independent of each other, and the SBU divisions are connected.

In the SBU system, a single strategic business unit is regarded as a profit center and is led by corporate officers. The parent supervisors focus on strategic planning instead of checks or operational control. If there are little or no checking and interactions between the strategic business units and the head company, the SBU’s separate divisions can respond extremely quickly to changing business environments.

Characteristics of a strategic business unit

In general, a strategic business unit has the following characteristics:

• SBU is a separate business or a group of similar businesses that are in charge of scope for autonomous planning.
• Strategic business units do not have the same set of rival companies as the others
• The head of a strategic business unit will be responsible for the profitability, performance, and strategic planning of the specific unit.
• SBUs work in different markets and target different groups of customers.
• SUBs have different expertise in production or management that do not exist in the parent business.

The advantages and disadvantages of strategic business units

Although strategic business units are important to any business, it still holds some drawbacks. Before deciding whether to set up a strategic business unit or not, let’s review its pros and cons:

The advantages of strategic business units

• Strategic business units simplify the Strategic Management process.
• Strategic business units help the association between different company departments.
• Strategic business units make it easier for the bookkeeping process of high-volume organizations.
• Setting up strategic business units is simple and easy when it comes to monitoring and checking.

The disadvantages of strategic business units

• It is hard to communicate with upper management.
• Strategic business units can result in internal tension, which is directly made by access to sources of funding.

How to set up a strategic business unit

Setting up a strategic business unit (SBU) is beneficial because organizations creating SBUs can develop and gain success to new products, markets, or technologies, whereas they can avoid the drawbacks of working in huge businesses. The strategic business units will have their own managing team, brand name, reputation, objectives, and physical locations. In this way, those companies can work more effectively in a smaller organization and are not bound by the limited availability of resources. Also, they can grow and gain more sales thanks to the advantages of a larger company.

For example, strategic business units can save time and effort spent on building an established brand and broad base of customers that already exist in the parent organization of the SBUs. At the same time, they can prevent themselves from common challenges of the larger company such as excessive bureaucracy.

After knowing the importance of setting up an SBU, you should consider some requirements below. They look at organizational structure, recruitment & selection, corporate culture, and the remuneration system, which you should concern about before building a strategic business unit for your company.

Organizational structure

The first requirement is adapting the organizational structure. That means the organizational structure will be soon changed when you decide to switch to a different strategic business structure. If your company adapt the organizational structure, you are free and independent in experiencing, making the experiment, and significant changes. Separating business units from each other allows you to prevent creativity that is suppressed by process and branding problems. However, large bureaucratic companies are often not flexible and agile.

Recruitment and selection process

The managing team working in the strategic business unit is not those working in the parent company. Therefore, when setting up an SBU, you should change the recruitment and selection process. It is about building up a new company within a different market rather than leading a developed one. The staff that excel in the head company will have many challenges if they have to apply what they know into running a new unit. Similarly, a strategic business unit can’t develop well if its managing team knows little or nothing about the SBUs.

So, if you are about to open an interview to recruit people working for your SBU, focus on asking about the organizational objectives instead of the general knowledge about the parent brand. This recruitment process can help build an internal relationship and keep the team motivated. Remember to hire people who want to build a new business from the ground up as well as learning experiences from an uncertain but experimental environment like SBUs.

The remuneration system

When a business grows up and the company gains more and more in reputation and fortune, business owners tend to provide shares, money, gifts, or other important financial incentives to encourage and motivate their employees. However, it does not mean those high-volume companies always have to offer incentives for them.

On the other hand, according to Frederick Herzberg’s two-factor theory, “financial incentives only partially influence employee motivation”. In fact, they are more motivated by their own careers, which means recognizing them for their hard-working within the business and letting them grow along with it.

The corporate culture

The last requirement when it comes to setting up a strategic business unit is adjusting the corporate culture. Besides financial incentives, business owners need to concern about giving them other benefits to keep them motivated. What you need to do is make your employees feel like they are listened to and appreciated for their contributions to the success of the company. Or else, they will easily get fed up with and unsatisfied about the toxic working environment and working conditions.

Listen to them, ask them about their wishes and demands, and try to fulfill them as much as possible. For example, an employee wants to work at night because he finds he works better at night, change the corporate culture, and allow him this night-shift option.

Related posts:

• What is Personal Branding?
• What is Co-Branding?
• 15 Key SaaS Metrics that every Business should care about
• How to conduct a Brand Audit ?

A strategic business unit (SBU) is an ideal tool to help a business target its group of customers more effectively. Some expertise said that larger organizations should not split up into strategic business units since it holds some existing disadvantages. Nonetheless, setting up a strategic business division is challenging but rewarding as long as you make it correctly.

Hopefully, this post can give you something essential for your success in eCommerce business work. Give the strategic business unit a try if you haven’t applied for it before or you want to grow your business to a higher level. If you find this post interesting, remember to share it with your friends.

Do we miss anything? Do you want to add any tips or knowledge? Please be free to leave a comment in the section below and we will reply to you soon.

• --> --> --> -->