Strategic Business Units Defined
A strategic business unit is a
significant organization segment that is analyzed to develop
organizational strategy
aimed at generating future business or
revenue. Exactly what constitutes an SBU varies from organization to
organization. In larger organizations, an SBU could be a company
division, a single product, or a complete product line. In smaller
organizations, it might be the entire company.1
Although SBUs
vary drastically in form, they have some common
characteristics.
All SBUs are a single business (or
collection of businesses), have their own competitors and a manager
accountable for operations, and can be independently planned for.
Why Divisional Structure?
When organizations get large, they become slow,
awkward, unmanageable, inflexible, and difficult to focus. They distance
people from each other, and consume more energy than they release.
Problem to
Address
Divisions can create internal competition that
ruins cooperation,
cross-pollination of ideas, and
learning within
your firm.
Division Defined
Division is a business unit having a clear set
of
customers
and
competitors.
A division can be independently planned for within the organization and has
profit and loss responsibility.
Case
in Point
Konosuke
Matsushita
In 1933,
Konosuke Matsushita,
founder of Panasonic, devised a
new management
system, dividing the company into three autonomous business units: radios,
lighting & batteries, and synthetic resins/electro-thermal products...
More
Case
in Point
Hewlett-Packard
Hewlett-Packard set the pattern for a
divisional structure of an
innovative organization
long ago. Divisions aggregated into units such as Test and Measurement
Organization are the core dominant organizational entities of the company.
When John Chambers, President and CEO of Cisco Systems looked around for
large-scale organizational models that sustained innovation, customer
intimacy and satisfaction, he found Hewlett-Packard to be the best.
Case
in Point
British
Petroleum
To enhance
organizational
capability, BP
reduced or removed central functions, and business units were empowered to
chose their own routes to implement changes.
The units aim at accomplishing the overall
strategy of BP, but enjoy complete autonomy in their operations.
They are free to develop their own processes
and solutions according to their local requirements.
In order to integrate the efforts of the
business units engaged in the same business activities, they were organized
into peer groups. They met periodically to discuss the performance of their
businesses. The purpose of the reorganization was to
facilitate knowledge sharing and build
synergies,
i.e. to exchange knowledge and synergize creative capabilities and expertise
of the employees working in different business units of BP.
Fidelity Investments fundamentally
believes that employees practice Kaizen most enthusiastically when they feel a
deep sense of ownership in the work.
Fidelity fosters this
feeling of ownership by dividing power in the
company among small divisions (each called a company
or a business unit) with aggressive
entrepreneurial leadership.
Entrepreneurial
Leader: 4 Specific Attributes
Each of these Fidelity
companies is responsible for its own management
systems, its own strategies and activities – and its
own
results...
More
Results-based Leadership
Case
in Point
Dell
Computers
At Dell Computers,
segmentation
initially started as a sales concept to most effectively meet the
needs of different groups of customers. It soon evolved into a
series of complete business units, each with its own sales, service,
finance, IT, technical support, and manufacturing arms.
"It really makes sense for our business," says
Michael Dell, the Founder of
Dell Computer Corporation.3 "Our direct connection to our
customers enables us to understand the different needs of different
customers. Segmentation takes closed
feedback
loops and makes it even smaller and more intimate. It refines our
relationship with our customers."
