A strategic business unit (SBU) in business
strategic management
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment ...
, is a
profit center
A profit center is a part of a business which is expected to make an identifiable contribution to the organization's profits.
Overview
A profit center is a section of a company treated as a separate business. Thus profits or losses for a prof ...
which focuses on product offering and market segment. SBUs typically have a discrete
marketing plan
A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan so that goals may be achieved. While a marketing plan contains a list of actions, without a sound strategic foun ...
, analysis of competition, and
marketing campaign, even though they may be part of a larger business entity.
An SBU may be a business unit within a larger
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
, 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.
General Electric
General Electric Company (GE) is an American multinational conglomerate founded in 1892, and incorporated in New York state and headquartered in Boston. The company operated in sectors including healthcare, aviation, power, renewable energ ...
(GE) is an example of a company with this sort of business organization. SBUs are able to affect most factors which influence their performance. Managed as separate businesses, they are responsible to a parent corporation. GE has 49 SBUs.
Companies today often use the word ''
segmentation'' or ''
division'' when referring to SBUs or an aggregation of SBUs that share such commonalities.
Commonalities
A SBU is generally defined by what it has in common, as well as the traditional aspects defined by
McKinsey
McKinsey & Company is a global management consulting firm founded in 1926 by University of Chicago professor James O. McKinsey, that offers professional services to corporations, governments, and other organizations. McKinsey is the oldest and ...
: separate competitors; and a profitability bottom line. Four commonalities include:
*Revenue SBU
*Like Marketing Cost SBU
*Like Operations/HR Profit SBU
*Like sales judged on net sales not gross
Success factors
There are three factors that are generally seen as determining the success of an SBU:
#the degree of autonomy given to each SBU manager.
#the degree to which an SBU shares functional programs and facilities with other SBUs.
#the way in which the corporation handles new changes in the market.
BCG matrix
The
BCG Matrix BCG may refer to:
Astronomy
* Blue compact galaxy
* Brightest cluster galaxy
Medicine and biochemistry
* BCG vaccine (Bacillus Calmette–Guérin), for tuberculosis
* Ballistocardiography, measuring heart forces
* Bromocresol green, a dye an ...
, a chart designed by Bruce Henderson for the Boston Consulting Group in 1968, may help corporations to analyze their business units or product lines. This helps the company allocate resources; brand marketing, product management,
strategic management
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment ...
, and
portfolio analysis can use it as an analytical tool.
When using the Matrix, SBUs can appear within any of the four quadrants (Star, Question Mark,
Cash Cow
Cash cow, in business jargon, is a venture that generates a steady return of profits that far exceed the outlay of cash required to acquire or start it. Many businesses attempt to create or acquire such ventures, since they can be used to boost ...
, Dog) as a circle whose area represents their size. With different colors, competitors may also be shown. The precise location is determined by the two axes, market Growth as the Y axis, Market Share as the X axis. Alternatively, changes over or two years can be shown by shading or other differences in design.xx.
[For an example, see Robert Cushman, "Norton's Top Down, Bottom-Up Planning Process", ''Planning Review'' 7 (6), November 1979]
Star products currently have high growth and high market-share. The Question Mark identifies products with low share but high growth. A Cash Cow has high share but low growth. Finally, Dog labels product which has low growth and low share.
See also
References
{{Portal bar, Business, Economics
Strategic management