A strategic business unit also known as SBU is a profit center which focuses on product offering and market segment and thus having a different vision and direction from its parent enterprise. They normally have a distinct marketing plan, analysis of competition, and marketing campaign, irrespective of being a part of a large business unit.It reports to the headquarters about its operational status.
It is a business unit within a larger corporation, or it may be a business into itself or a branch. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability.
Funds allocation –
Depending on the performance of the SBU, funds allocation can be done on priority.
The success of a product/services depends on its segmentation targeting and positioning. Each of these processes are in continuous touch with the market, receiving feedback, identifying your target market, targeting them and then positioning thus dividing products into different market segments.
The best reference for investments in SBU’s can be the BCG matrix. In the BCG matrix, the SBU’s are divided as per their market share and the market growth rate. Thus depending on the BCG matrix, the type of investments which each product needs can be decided.
- Difficult to contact with higher level of management,
- may cause internal tension due to problematic access to internal and external sources of funding,
- may be the cause of the unclear situation with regard to the management activities.
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There are many advantages of having strategic business units and it is highly appreciable that any firm having diverse product line/ services should adopt for strategic business units in its organization structure.
Following are the strategies used in an organization –
- Cost Leadership Strategy
It works well when the goods or services are standardized, so the company can sell generic acceptable goods at the lowest prices. In order to minimize costs to the customer without decreasing profits, a company can either sell its goods at average industry prices to earn higher profits than its competitors or it sells at below-industry prices, trying to achieve profit by the market share.
- Differentiation Strategy
In this a company has to provide a product or service with distinctive qualities valued by customers. In this the business should have access to leading scientific research (or perform this research); a highly skilled and creative product development team; a strong sales and marketing team; and a corporate reputation for quality and innovation.
- Focus Strategy
Focus strategy is just what it sounds like: concentrate on a particular customer, product line, geographical area, market niche, etc. The idea is to serve a limited group of customers better than your competitors who serve a broader range of customers. A focus strategy works well for small but aggressive businesses. Specifically, companies that do not have the ability or resources to engage in a nationwide marketing effort will benefit from a Focus strategy. Focus can be based on cost or differentiation strategy. It involves focusing the cost leadership or differentiation on a small scale. The idea is to make your company stand out within a specific market sector.
- Integrated Cost Leadership – Differentiation Strategy
Companies having integrated strategies rather than relying on a single generic strategy are able to adapt quickly and learn new technologies. The product/services under the integrated cost leadership-differentiation strategy are less distinctive and costs are not as low as the cost-leader, but they combine the advantages of both approaches.