Strategic Business Units: Examples & Definition

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  • 0:00 Strategic Business…
  • 1:10 Differences in SBUs
  • 2:25 Advantages of…
  • 3:30 Lesson Summary
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Lesson Transcript
Instructor: James Carnrite

James has a masters degree in IT Management.

In this lesson, we'll be looking at strategic business units, which are smaller specialized divisions within large companies. After the lesson, you can test your knowledge with a short quiz.

Strategic Business Unit Defined

A strategic business unit is a fully functional and distinct unit of a business that develops its own strategic vision and direction. Within large companies, there are several smaller specialized divisions that work towards specific projects and goals, and we see this organizational setup frequently in global companies. The strategic business unit, often referred to as an SBU, remains an important component of the company and must report back through headquarters about their operational status. Typically, they will operate as an independent organization with a specific focus on target markets and are large enough to maintain internal divisions such as finance, HR, and so forth.

There are many great examples of SBUs that we can relate to. For instance, General Electric has 49 SBUs in such markets as appliances, aerospace, electronics, and so on. LG operates along the same lines, with SBUs competing in electronics and appliances, among others. So, why do each of these SBUs differentiate from each other and still belong to the same organization? We'll discuss that now.

Differences in SBUs

When GE, LG, or any other company initiates a strategic business unit, there are clearly some distinct differences from the traditional pyramidal, hierarchical structure that businesses take. It can be difficult for the pyramid setup to have the ability to outline a business strategy that will encompass all aspects of the markets the company is present in. This typically results in elements of the business being overlooked or never quite as detailed as they need to be. As a result, firms begin initiating SBUs, which have their own separate ability to craft industry-specific strategy as it relates to their function. This allows for the SBU to perform competitive analysis on their market positions and develop goods and services that meet the needs of the target audience.

This approach also benefits the organization as a whole. In the pyramid setup, it can be difficult to understand which business activities are contributing the most value to the organization and which should be evaluated. When an organization adopts the strategic business unit approach, they enable the unit the ability to make decisions based on resources and efficiencies and it becomes clearer how each SBU performs in relation to the overall organization.

Advantages of Strategic Business Units

We have discovered that strategic business units offer organizations a greater level of flexibility and a dynamic approach to business changes as they relate to specific industries. Focus, differentiation, and competitive advantages are some specific benefits to strategic business units.

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