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What is a business unit definition.

A business unit is a division of a company that is responsible for its own profit and loss. A business unit can be as small as a single product or service , or it can be an entire company. The term “business unit” is most often used in large corporations to describe divisions or groups with their own managers and staff. In this context, each business unit is like a mini-company within the overall corporation.

What is a Business Unit?

A business unit is a group of people within a company who are responsible for a specific function. The term can be used to refer to departments, divisions, or other types of teams. Business units typically have their own goals and objectives, which may be different from those of the company as a whole.

The term business unit is often used in contrast with the term functional area. While business units are responsible for specific functions, functional areas are responsible for specific tasks or activities. For example, marketing may be a functional area, but there could be multiple business units within marketing, each with its own goals and objectives.

Business units can be of various sizes, and their structure will depend on the size and type of company. In large companies, business units are often organized into divisions, which are then further divided into departments or teams. In smaller companies, there may only be one or two business units.

The definition of a business unit can vary depending on the company and the industry. However, all business units share some common features: they have a specific purpose, they are composed of people with different skills and knowledge, and they have their own goals and objectives.

The Different Types of Business Units

There are three common types of business units: product, customer, and geography.

Product business units are responsible for developing and marketing products within a certain category . For example, a company that sells multiple types of electronics may have a separate business unit for each type of product.

Customer business units focus on specific groups of customers. For example, a company may have a business unit that focuses on selling to small businesses, another that focuses on selling to individuals, and another that focuses on selling to large organizations.

Geography business units are responsible for sales and marketing activities in specific geographical regions. For example, a company may have separate business units for North America, Europe, Asia Pacific , and Latin America.

The Pros and Cons of a Business Unit

When it comes to business structure , there are a variety of different options that companies can choose from. One option is to organize their business into units. Business units are divisions within a company that are responsible for their own profit and loss . This type of structure can have its pros and cons, which we will explore in this article.

1) Business units allow companies to be more nimble and responsive to market conditions . Because each unit is responsible for its own performance, they are incentivized to be quick on their feet and adapt to changes in the market. This can give companies an advantage over their competitors who may be slower to react.

2) Business units also allow companies to better focus their resources on areas where they can achieve the most success. By allocating resources more efficiently, companies can improve their overall profitability .

1) One potential downside of business units is that they can create silos within a company. When each unit is focused on its own performance, there can be less cooperation between departments. This can lead to inefficiencies and wasted resources .

2) Another potential con is that business units can foster a culture of competition rather than cooperation within a company . If units are too focused on outperforming each other, it can come at the expense of working together towards common goals.

What Are the Key Elements of a Successful Business Unit?

There are four key elements to a successful business unit: a clear and concise mission statement, well-defined goals and objectives, a detailed plan of action, and a dedicated team of employees.

A clear and concise mission statement sets the tone for the entire organization and provides direction for the business unit. The mission statement should be aspirational yet achievable, and it should be reviewed and updated regularly as the business changes and grows .

Well-defined goals and objectives help to focus the team on what needs to be done in order to achieve success. Objectives should be specific, measurable, attainable, relevant, and time-bound (SMART). They should also be aligned with the overall mission of the organization.

A detailed plan of action is essential in order to achieve desired results. The plan should lay out who is responsible for each task , when tasks need to be completed, and how tasks will be measured for success. Regular check-ins should be scheduled to ensure that everyone is on track and that any necessary adjustments can be made along the way.

Finally, a successful business unit requires a dedicated team of employees who are committed to working together towards common goals. Each team member should have a clear understanding of their role within the organization and how their work contributes to the overall success of the business unit. There should be strong communication and collaboration among team members, as well as a sense of mutual respect.

How to Create a Business Unit

A business unit is a distinct entity within a company that is responsible for its own products, services, and profits/losses. Creating a business unit can be an effective way to organizational growth and expansion. Here are some steps to take when creating a business unit:

1. Define the purpose of the business unit. What will it be responsible for? 2. Assign resources to the business unit. This includes people, finances, and other assets. 3. Create accountability measures for the business unit. How will you track its progress and performance ? 4. Set goals for the business unit. What do you hope to achieve? 5. establish communication channels between the business unit and other parts of the company. How will information flow? 6. Enable the business unit to make decisions independently . What autonomy will it have? 7. Review and adjust as needed. Be prepared to make changes to ensure the success of your business unit!

In conclusion, a business unit is a distinct and self-contained entity within a company. It has its own goals, objectives, and strategies. A business unit can be as small as a single person or as large as an entire division. The key distinguishing factor is that each business unit operates independently of the others and has its own bottom line .

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Strategic Business Units: Meaning, Types, And Characteristics

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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.

Strategic Business Unit -SBU

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.

Strategic Business Unit

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.

Remuneration System

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.

Corporate Culture feedback

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.

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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.

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  • What is the Strategic Business Unit (SBU)?

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

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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.

What is a strategic business unit (SBU)?

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.

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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 ).

The structure of a strategic business unit

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.

Despite its disadvantages, many businesses still use this structure

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.

Change the recruitment and selection process

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.

Give your employees other benefits to keep them motivated

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.

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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.

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