Strategy Formulation:

Business Portfolio

Strategic Business Unit (SBU)

A Major Product Line Within a Company

By: Vadim Kotelnikov

Founder, Ten3 Business e-Coach Inspiration and Innovation Unlimited!

"The bigger a company gets, the smaller it's brains get." ~ Clark Howard

Characteristics of Strategic Business Units (SBUs)

  1. It is a single business or collection of related businesses

  2. It has its own competitors

  3. It has a manager who is accountable for its operation

  4. It is an area that can be independently planned for within the organization

 

 

Flat Organization Flat Organizational Structure

Business Portfolio

BCG Growth-Share Matrix

GE Multifactor Business Portfolio Matrix

Winning Organization

Flat Organizational Structures

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.

 Case in Point  Fidelity Investments

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."

SMART Business Architect (Ten3 Mini-course)

 

 

 

References:

  1. "Modern Management," Ninth Edition, Samuel C. Certo

  2. BCG Growth-Share Matrix

  3. "Direct from Dell", Michael Dell with Catherine Fredman

Mini-courses

  1. SMART Business Architect, Vadim Kotelnikov

  2. Strategic Management, Vadim Kotelnikov