Definition: A strategic business unit (SBU) is an independent unit or business division in an organization with its own objectives and vision. These objectives can be different from the parent organization but support the long-term goals of the organization.
An organization with diversified portfolios can have multiple strategic business units with different objectives but serving the organization.
An SBU can be a specific product line, business division, or group targeting a specific geographic location or group of people.
Businesses form the strategic business unit to target a specific purpose that requires a specific process or procedure not available within the parent organization.
These strategic business units have the following characteristics:
- They are independent.
- They have their own planning, vision, objectives, and mission.
- They are aligned with the organization’s goals.
Levels in Strategic Business Units
A strategic business unit has three main levels.
The corporate headquarters is at the top, monitors the processes and performance, and reports to the parent organization.
The SBU is in the middle, and then divisions are at the bottom according to their function, operation, or similarities.
An SBU can have one or more than one divisions under it.
A single strategic business unit is known as a profit center and is led by a corporate officer.
If an organization has multiple SBUs, each should offer a unique product or service. Duplication or overlapping of products or services is not recommended. No two business units should compete for a similar product, service, or audience.
Examples of Strategic Business Units
Coca-Cola wanted to launch new products and tap into a new market. Since this was new territory, they created new strategic business units to launch Nestea and Fanta, and it was a success.
These business units were independent and had an uninterrupted focus on these new products.
Another example is LG. They have multiple products and have different strategic business units to manage each product.
Pros of Strategic Business Units
- Better focus on objective
- Faster decision making
- Decentralized authority
- Easy monitoring
Cons of Strategic Business Units
- Increased cost
- Poor communication with the parent company and other SBUs
- Inefficient resource utilization
Summary
A strategic business unit is similar to an autonomous business and works independently to achieve its objectives. Organizations create SBUs to offer them full flexibility in running businesses and achieving organizational goals. An SBU is a good tool for businesses to target a specific group or a niche market effectively.