56355345 Strategic Business Unit

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Strategic managementStrategic management

strategic business unitstrategic business unit

(SBU)(SBU)

Presented by:Tibin josephPresented by:Tibin joseph

No:56No:56



LEVELS OF STRATEGYLEVELS OF STRATEGY

Corporate levelCorporate level

• Determine overall scope of the organisationDetermine overall scope of the organisation

• Add value to the different business unitsAdd value to the different business units

• Meet expectations of stakeholdersMeet expectations of stakeholders

Business level (SBU)Business level (SBU)

• How to compete successfully in particular marketsHow to compete successfully in particular markets

OperationalOperational

• How different parts of organisation deliver strategyHow different parts of organisation deliver strategy



Three levels of the strategyThree levels of the strategy

1.1. level: The corporate levellevel: The corporate levelAt this level the fundamental task is to develop aAt this level the fundamental task is to develop abalanced portfolio of businesses which willbalanced portfolio of businesses which willachieve the goals of the corporation and satisfyachieve the goals of the corporation and satisfyits stakeholders.its stakeholders.

2.2. level: The strategic buslevel: The strategic busiiness unit level (SBU)ness unit level (SBU)At this level the business, or set of activities isAt this level the business, or set of activities isgiven and the major task for strategic planner atgiven and the major task for strategic planner atthis level is for business to succeed againstthis level is for business to succeed againstcompetitors and also satisfy corporate successcompetitors and also satisfy corporate success

criteria.criteria.3.3. level: The functional level:level: The functional level:

At this level the major task is to provide anAt this level the major task is to provide anappropriate functional strategies ( finance andappropriate functional strategies ( finance andaccounting, marketing, R+D, production,accounting, marketing, R+D, production,

personnel) for SBU or corporate level strategy.personnel) for SBU or corporate level strategy.



Strategic Business Unit (SBU)Strategic Business Unit (SBU)

AA strategic business unitstrategic business unit (SBU) is a(SBU) is a

part of an organisation for which therepart of an organisation for which there

is a distinct external market for goodsis a distinct external market for goods

or services that is different fromor services that is different from

another SBUanother SBU



Definition of strategic business unitsDefinition of strategic business units

TheThe SBUSBUss areare thethe natural ‘grouping’ of part of anatural ‘grouping’ of part of acorporation.corporation.

The SBU has a range of related products/servicesThe SBU has a range of related products/serviceswhich has similar technologies and productionwhich has similar technologies and production

processes.processes. The products/services are sold in similar or relatedThe products/services are sold in similar or related

market segments.market segments. The production/services are sold against a welThe production/services are sold against a welll--

defined set of competitors.defined set of competitors.

AnAn SBU is managed by an SBU manager, largely asSBU is managed by an SBU manager, largely asan independent unit.an independent unit.

The SBU has its own set of goals and strategies.The SBU has its own set of goals and strategies. Each SBU in a particular organizationEach SBU in a particular organization should be ableshould be able

to operate independently of any other SBU.to operate independently of any other SBU.



What is the portfolio stratregy?What is the portfolio stratregy?

From viewpoint of strategic management theFrom viewpoint of strategic management thecorporations are collections of different “product-corporations are collections of different “product-market-consumer-resource packages” market-consumer-resource packages” . These. These areare thethe SBUSBU’s’s. We can describe th. We can describe thee sum of SBU’ssum of SBU’s,, asasportfolio.portfolio.

The portfolio analysis:The portfolio analysis: CCombines the assessment of business position with marketombines the assessment of business position with market

attractiveness evaluation, which emerges from externalattractiveness evaluation, which emerges from externalanalysis in general and market analysianalysis in general and market analysis,s, in particular.in particular.

IIncludes multiple SBU’s in the same analysis andncludes multiple SBU’s in the same analysis andaddresses the SBU investment decision - whichaddresses the SBU investment decision - whichorganizational units should receive resources, which shouldorganizational units should receive resources, which shouldhave resource withheld , and which should be resourcehave resource withheld , and which should be resourcegenerators.generators.

OOffers baseline recommendations concerning theffers baseline recommendations concerning theinvestment strategies for each SBU based on aninvestment strategies for each SBU based on anassessment of business position and marketassessment of business position and market

attractiveness.attractiveness.



Corporate Portfolio ManagementCorporate Portfolio Management

Portfolio balancePortfolio balance

• MarketsMarkets

• Organisation’s needsOrganisation’s needs

Attractiveness of business unitsAttractiveness of business units

• ProfitabilityProfitability

• Growth ratesGrowth rates

Portfolio ‘fit’ Portfolio ‘fit’

• Synergies between business unitsSynergies between business units

• Synergies with corporate parentSynergies with corporate parent



The Growth Share (or BCG) MatrixThe Growth Share (or BCG) Matrix





Strategic implication of the BCG matrixStrategic implication of the BCG matrix

The stThe strraattegies for the overall portfolio products areegies for the overall portfolio products areconcerned with the issue of balance, I.e. is the portfolioconcerned with the issue of balance, I.e. is the portfolioof products balanced internally in terms of the following?of products balanced internally in terms of the following?

Are there a sufficient number of Are there a sufficient number of „ „cash cowscash cows” ” to supportto supportthose other products in the portfolio which are at stagesthose other products in the portfolio which are at stages

of their lifecycles when they are require cash?of their lifecycles when they are require cash?

Are thereAre there „questions-marks” „questions-marks” which have resonablewhich have resonableprospects of becoming future stars and which do not , atprospects of becoming future stars and which do not , atpresent, constitute a disproportionate drain on currentpresent, constitute a disproportionate drain on currentcash flow?cash flow?

Are there an appropriate number of Are there an appropriate number of „ „starsstars” ” which willwhich willprovide sufficient cash generation when the current cashprovide sufficient cash generation when the current cashcows are no longer able to fulfill this role?cows are no longer able to fulfill this role?

Are there anyAre there any „ „dogsdogs” ” and if so why?and if so why?



How to do a portfolio analysis?How to do a portfolio analysis?

Construct a summary of the industry and competitiveConstruct a summary of the industry and competitiveenvironment of each business units.environment of each business units. Appraising the strength and competitive position of eachAppraising the strength and competitive position of each

business unit. Understanding how each business unitbusiness unit. Understanding how each business unitranks against its rivals on the key factors for competitiveranks against its rivals on the key factors for competitivesuccesssuccess..

IdentifyinIdentifyin

gg

the external opportunities, threats andthe external opportunities, threats and

strategic issues peculiar to each business units.strategic issues peculiar to each business units. Determining how much corporate financial support isDetermining how much corporate financial support is

needed to fund each unit’s businneeded to fund each unit’s busineess strategy and whatss strategy and whatcorporate skills and resources could be deployed to bootscorporate skills and resources could be deployed to bootsthe competitive strengtthe competitive strengthh of various business units.of various business units.

Comparing the relative attractiveness of the businessesComparing the relative attractiveness of the businessesin the corporate portfolio.in the corporate portfolio. CComparomparee the businesses onthe businesses onvarious historical and projected performance measures -various historical and projected performance measures -sale growth, profit margin, return on investment, and thesale growth, profit margin, return on investment, and thelike.like.

Checking the corporate portfolio to ascertain whether theChecking the corporate portfolio to ascertain whether themix of businesses is adequately “balanced” mix of businesses is adequately “balanced”



Assumptions and limitations of BCG Assumptions and limitations of BCG

The use of highs and lows to make just fourThe use of highs and lows to make just fourcategories is too simpcategories is too simpllistic.istic.

The link between market share and profitabilityThe link between market share and profitabilityisn’t necessarily strong. Low-share businessesisn’t necessarily strong. Low-share businesses

can be profitable, too (and vican be profitable, too (and vicca versa.)a versa.) Growth rate onlyGrowth rate only oneone aspect of industryaspect of industry

attracattracttiveness. High-growth market may notiveness. High-growth market may notalways be the best for every business unit oralways be the best for every business unit orproduct line.product line.

It considers the product line or business unitIt considers the product line or business unitonly relation to one competitor: the marketonly relation to one competitor: the marketleader. It misses small competitors with fast-leader. It misses small competitors with fast-growing market share.growing market share.

Market share is only one aspect of overallMarket share is only one aspect of overall

competitive position.competitive position.



Indicators of SBU StrengthIndicators of SBU Strength

and Market Attractivenessand Market Attractiveness



Market Attractiveness/SBU Strength MatrixMarket Attractiveness/SBU Strength Matrix



Strategy Guidelines Based on Directional PolicyStrategy Guidelines Based on Directional Policy

MatrixMatrix



Corporate Level and InternationalCorporate Level and International

StrategyStrategy

Product and geographical diversityProduct and geographical diversity

Related and unrelated diversificationRelated and unrelated diversification

Attractions of international marketsAttractions of international markets Multidomestic and global strategiesMultidomestic and global strategies

Effect of product and geographicalEffect of product and geographical

diversity on performancediversity on performance Corporate parentingCorporate parenting

Portfolio managementPortfolio management



International StrategiesInternational Strategies

IssuesIssues• Global-localGlobal-local

• Centralised/decentralisedCentralised/decentralised

Generic StrategiesGeneric Strategies• Multi-domesticMulti-domestic

Value adding activities located in nationalValue adding activities located in national

marketsmarkets

Products/services adapted to local requirementsProducts/services adapted to local requirements

• GlobalGlobal Standardised productsStandardised products

Produced in centralised locationProduced in centralised location



Ownership

Mission and strategic intent

Scope and diversityThe global dimension

Corporate purpose and aspirations

Bases of SBU strategy

Enhancing SBU strategy: corporate parentingPortfolio management

Financial strategy

The role of the corporate parent

The parenting matrix

Achieving competitive advantagePrice-based strategies

Differentiation strategies

Focus strategies

Bases of strategic choice

56355345 Strategic Business Unit

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