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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