A strategic business
unit is a part of an organization for which there is a distinct external market
for goods or services that is different from another SBU.
Identification of SBU is essential
to the development of business level strategy, as its unique for each SBU.
There are two opposing pitfalls
that need to be avoided:
If each product and each
geographical branch (and so on) is considered to be an independent SBU such
immense variety of competitive strategies for a single organization would
create a lack of focus and inefficiency.
On the other hand, the concept of
the SBU is important in properly reflecting the diversity of products and
markets that actually exist.
There are two broad criteria which
can help in avoiding these two pitfalls and, therefore, in identifying SBUs
that are useful when developing business level strategies.
External criteria for identifying SBUs are about
the nature of the marketplace for different parts of the organization.
·
Two
parts of an organization should only be regarded as the same SBU if they are
Ø Targeting the same customer types,
Ø Through the same sorts of channels
and
Ø Facing similar competitors.
For example, a ‘unit’ tailoring
products/services to specific local needs cannot belong to the same SBU as
another that offers standardized products or services globally. Nor are units
that offer the same products to a customer group through exclusively different
channels (retail or mail-order/internet).
Internal criteria identifying SBUs are about the
nature of an organisation’s strategic capability its resources and competences.
·
Two
parts of an organization should only be regarded as the same SBU if they have
Ø Similar products/services built on
Ø Similar technologies and
Ø Sharing a similar set of resources
and competences.
This usually means
that the cost structure of the ‘units’ will be similar.
So within a company
like Kodak the units offering film based products are not in the same SBU as
those offering digital photography products even though they are addressing the
same customers through the same channels.
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