STRATEGIC BUSINESS UNIT – WHERE TO PLAY?

A strategic business unit, popularly known as SBU, is a fully-functional unit of a business that has its own vision and direction.

A strategic business unit or SBU operates as an independent entity, but it has to report directly to the headquarters of the organisation about the status of its operation. It operates independently and is focused on a target market and is big enough to have its own support functions such as HR, training departments etc.

Once a unit is given an SBU status, it can make its own decisions, investments, budgets etc. It will be quick to react when the product market takes a shift or changes start happening before the shift happens.

Strategic business units are absolutely essential for multi product organizations. These business units are basically known as profit centres. They are focused towards a set of products and are responsible for each and every decision / strategy to be taken for that particular set of products. 

Strategic business unit would be to take organizations like HUL, P&G or LG in focus. These organizations are characterized by multiple categories and multiple product lines. For example, HUL may have a line of products in the shampoo category, Similarly LG might have a line of products in the television category. Thus to track the investments against return, they may classify the category as a different SBU itself.

Each Business Unit must meet the following criteria:

1.     Have a unique business mission, independent from other SBUs.

2.     Have clearly definable set of competitors.

3.     Is able to carry out integrative planning relatively independently of other SBUs.

4.     Should have a Manager authorized and responsible for its operation.

BEST EXAMPLE FOR SBU WOULD BE TATA GROUP

                         

SBU's which form a major part of the Tata group include:

Tata steel

Tata motors Ltd.

Tata consultancy services

Tata Technologies

Tata tea

Tata power

Tata Communications

Tata Teleservices

Tata hotels