Strategic Business Unit

Definition

What is the strategic business unit?

A strategic business unit (SBU) is a company unit that focuses on product offerings and market segments in the business world. They may be part of a more prominent company organization. SBUs often have their marketing plan, competitor analysis, and marketing campaigns.

A strategic business unit could be a company division, a product line within the division, or even a specialized product that caters to a specific demographic or geographic location. Multiple SBUs can make up a corporation, each of which is accountable for its profitability. 

What is the strategic business unit?

Characteristics of strategic business unit

Certain features must be present in strategic business units:

  • A distinct business goal
  • They compete with their own set of rivals.
  • SBUs allow the parent company to track all of its divisions’ sales, costs, and profits independently.
  • The SBU strategic manager is generally independent of other SBUs in making or implementing strategic decisions.
  • Within the SBU, crucial operational choices might be made.
  • SBU managers are responsible for their divisions’ strategic planning, performance, and profitability.

A strategic business unit is explicitly developed to target a particular market sector that requires production or management capabilities not found in the parent firm.

4 Strategic types of SBU

According to the growth-share matrix, a company’s SBUs are classified using the Boston Consulting Group (BCG) technique.

The following are the several types of strategic business units in the BCG matrix:

Stars

It’s about high-growth, high-share brands or businesses. Stars require a significant sum of investment to fuel their rapid expansion.

A star business unit has a high market growth rate and a high relative market share. It’s a lucrative venture and has enticing long-term profit prospects.

Since stars have a rapid pace of growth, they are also highly competitive markets. Only if they can consolidate their competitive position, their growth will eventually slow, and they will become cash cows.

Cash Cows

Cash cows are high-share, low-growth enterprises or businesses. These well-established and profitable strategic business units require less capital to maintain their market position.

Cash cows make an amount of revenue, which the organization eventually uses to pay off its liabilities and support other critical business units that require investment.

Cash cow businesses operate in industries that are in the mature stage and have a firm competitive position in their industry.

Question marks

Question marks have a high business growth rate segment with a poor competitive position. To ensure the long-term viability of these business resources, the organization must commit to developing them in specific areas.

Management must carefully consider which question marks should be developed into stars and which should be pulled out. Companies should not invest any more money in this type of SBU because there are fewer chances for future growth.

Dogs

Dogs are products and businesses with poor market growth and market share. This form of SBU can’t make money and has a bleak future. It is because this SBU isn’t very competitive.

The main offices must decide the future of the company. If there are adequate reasons for its resurrection, it could be divested, liquidated, or turned around.

Dogs have low attractiveness, competitiveness, and relative market share. They don’t generate income, and developing them would worsen their competitive disadvantage. These firms should be sold as soon as possible.

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