Strategic business unit

O-Founders

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3 Oct 2022
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5 key Advantages of Strategic Business Unit

Whether adopting the latest technologies or strategies, businesses aspire to create a brand that helps them stay competitive, win customer satisfaction and make profits. Every business seeks various means to grow. One such means we will study here is a strategic business unit, its role, importance for businesses to thrive. 

What is a strategic business unit? 

A strategic business unit is a part of a large organization that is managed independently, having its vision, mission, and objective. It is a division designed to govern its strategy, and the essence, in a few cases, works as a completely separate business. In a few instances, SBUs comprise the organization’s team that performs administrative and operational functions.  

A deeper understanding of the strategic business unit 

Most of the strategic business units (SBU) are enormous to render support to the functional department of the organization, such as the human resources and training. When reporting their work, they have to do it directly to the organization’s headquarters. Their objectives could differ from the parent organization. However, they support the organization’s long-term goals. 

Businesses form the strategic business unit to fulfill a specific purpose requiring a particular procedure or process not accessible within the parent organization. An SBU could be a business division, product line, or a group aiming at a group of people or a specific geographical location. 

The key characteristics of a strategic business unit are as follows :

1. The operations align with the organizational goals

2. Work independently with self-planning mission, vision, and objectives

Why are strategic business units critical? 

A strategic business unit works under the concept of micromanagement. What if you have all of your tasks as necessary? The first thing you do is to try to divide the tasks and do them individually. Converting a product brand into an SBU will be effective.

Here we will study why a strategic business unit is essential for any business:

1. Makes work more organized

The best way to manage your time properly is to stay organized. For instance, what would be the case if the manager takes care of 5 to 6 products simultaneously? That isn’t very clear. Consequently, what you experience is pressure. The focus is on completing the work without much innovation. Thus there is no scope for expansion. The role of the SBU is vital, which helps you stay organized. 

2. Helps attain focus

The organization helps in micro-management. Consider organizations producing multiple products. What if every product acquires the required attention? The output is qualitative. SBUs make it happen as it helps managers focus on different aspects of the organization. Considering the requirements of each product, SBU makes efficient management, careful analysis, and attention. 

For instance, consider the organization P&G. we know that the organization has many product outcomes. Each product has various specifications regarding expenses, workforce, strategies, and returns. Under those conditions, micromanagement is the need. SBU helps focus and attain them.

3. Enables effective decision making 

The responsibility of taking care of the new business unit exists in the established business units. What if the revenue of the established SBUs experiences a downfall? How to practically handle the cash crunch? To make such decisions, you must have the figures for each product or SBU. 

SBU helps make effective decisions, whether for micro-management or macro management, concerning whether the investment requires making or, if done, whether it requires continuing. 

4. Profit oriented

Micromanagement of every SBU gives a comprehensive view of the organization. Such a view helps develop financial statements and calculate the organization’s returns and investments from an individual SBU. This helps determine the profitability of the organization. The SBUs play a significant role in determining the organization’s profitability. 

5. STP 

The segmentation, targeting, and positioning model help determine the product’s success. These processes help know the target market, get in contact with it and stay updated with the market. 

In cases where you are dealing with more than five products simultaneously, dividing the products into SBUs helps you stay updated with each product’s market. Accordingly, a marketing manager will be assigned one product at a time and responsible for it. Thereby, a valuable contribution results in STP maintenance in the target market.

Conclusion:

The five discussed reasons specify the significance of micro and macro-level management for a multi-product organization. Businesses holding multi-product should realize that the organization’s success depends on how you execute the product operations. Here is where the role of SBU comes into action. 

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