what is Strategic Business Unit? What are conditions required for creating an SBU? How is performance of SBU measured? What are the advantages and disadvantages of creating SBUs?
Ans. Strategic business units are self-contained divisions formed within an organization for dealing with specific business concerns. These units pull together the diverse parts of the concerned organization while cutting across the geographical and diverse lines for serving a specific market in a more efficient manner. These strategic business units are also referred to as independent business units or strategic planning units. The main philosophical concept behind the formation of strategic business units is to ...view middle of the document...
The main notion which rests behind the concept of strategic business units is to gain competitive advantage in the populated marketplace. This can be done because the SBU helps in segmenting the activities of the company in a strategic manner and the resources are thus allocated competitively. Each Business Unit must meet the following criteria
1. Have a unique business mission, independent from other SBUs.
2. Have clearly definable set of competitors.
3. be able to carry out integrative planning relatively independently of other SBUs.
4. Should have a Manager authorized and responsible for its operation.
5. be large enough to justify senior management attention but small enough to serve as a useful focus for resource allocation.
Recent years have seen heightened concern and focus on measuring and managing organizational performance. Performance management methodologies such as strategy maps, demand forecasting, customer profitability analysis, product profitability analysis, activity-based costing, and value based management, balanced scorecards, performance prism, dynamic pricing and driver-based resource capacity planning have proved to be great assets for improving business performance. At the same time, as the global modern economy has evolved, businesses have had to adapt to new organizational models. Competition in the marketplace has intensified further increasing the need for businesses to respond promptly to customer needs, improve quality and cut costs. As a result, most companies have eliminated management layers and devolved authority and decision-making down through the organization. Through decentralization and empowerment, there is conventional thinking that managers and their...