What is a Strategic Business Unit (SBU)?

A Strategic Business Unit (SBU) is a profit center that focuses on a specific product offering and market segment, with a distinct vision and direction from its parent company. SBUs typically have their own marketing plans, competition analysis, and marketing campaigns, though they remain part of a larger business entity. They report their operational status to the corporate headquarters.

An SBU can either be a unit within a larger corporation, or a standalone business, responsible for its own profitability. Corporations often operate multiple SBUs, each with its own focus area.

Key Aspects of SBU

Funds Allocation

Funds allocation in an SBU is done based on its performance. High-performing SBUs are typically given priority in fund allocation to ensure continued growth and operational efficiency.

STP (Segmentation, Targeting, Positioning)

The success of a product or service is heavily reliant on its segmentation, targeting, and positioning (STP). These processes work in continuous feedback with the market, helping the company identify target customers, position the product effectively, and segment the market accordingly to optimize product offerings.

Investments

The BCG matrix is often used as a reference for investments in SBUs. The matrix divides SBUs according to their market share and market growth rate, helping to decide the type and level of investment each SBU should receive.

Challenges in SBU

• Difficult to contact with higher-level management
• May cause internal tension due to problematic access to internal and external funding sources
• Unclear situation regarding management activities

How We Help

We recognize the advantages of having Strategic Business Units (SBUs) and highly recommend adopting this approach for organizations with a diverse product line or services.

Our team helps you implement the right strategies for your SBUs:

1. Cost Leadership Strategy

This strategy works well when the goods or services are standardized. It focuses on minimizing costs for customers without compromising profitability. The company may either sell at average industry prices to earn higher profits than competitors, or sell below industry prices to achieve market share.

2. Differentiation Strategy

This strategy is used when a company offers a product or service with distinctive qualities that are valued by customers. Companies using this strategy usually have access to leading scientific research, a skilled product development team, a strong sales and marketing force, and a reputation for quality and innovation.

3. Focus Strategy

Focus strategy involves concentrating on a specific customer base, product line, geographical area, or market niche. The idea is to serve a limited group of customers better than competitors who serve a broader range. This strategy works well for small, aggressive businesses with limited resources and capabilities.

Focus can be based on either cost leadership or differentiation strategy, concentrating on a smaller scale.

4. Integrated Cost Leadership-Differentiation Strategy

Companies that adopt an integrated strategy use both cost leadership and differentiation strategies to adapt quickly and leverage new technologies. The products or services in this strategy may not be as distinct or as low-cost as pure cost-leadership products, but they combine the advantages of both strategies.