Strategic business units

More recently, companies have been using an organizational device generally referred to as a strategic business unit (SBU). SBU are distinct little businesses set up as units in a larger company to ensure that a certain product or product line is promoted and handled as though it were an independent business.

One of the earlier users of this organizational device was the General Electric Company. This special organization unit was introduced to ensure that each product or product line of the hundreds offered by the company would receive the same attention as it would if it were developed produced, and marketed by an independent company. In some cases companies have also used the device for a major product line. Occidental Chemical Company, for example, used it for such products as phosphates, alkalis, and resins.

To be called an SBU, a business unit must specific criteria. An SBU , for example, must (1) have its own mission, distinct from the missions of other SBU, (2) have definable groups of competitors, (3) prepare its own integrative plans, fairly distinct from those of other SBU, (4) manage its resources in key areas, and (5) have a proper size — neither too large nor too small. Obviously, in practice it might be difficult to define SBU that meet all of these criteria.

For each SBU a manager (usually a “business manager�) is appointed with responsibility for guiding and promoting the product from the research laboratory through product engineering, market research , production, packaging, ad marketing and with bottom line responsibility for its profitability.

Thus, an SBU is given its own missions and gals, as well as a manger who, with the assistance of a full-time or part time staff (people from other departments assigned to the SBU on a part time basis), will develop and implement strategic and operating plans for the product. The Organization of a typical SBU that for phosphates in the Occidental Chemical Company all the functions that would be found necessary in a separate company are reporting to the business manager. Obviously, the major benefit of utilizing an SBU organization is to provide assurance that a product will not get “lost� among other products (usually those with larger sales and profits) in a large company. It preserves the attention and energies of a manager and staff whose job it is to guide and promote a product or product line. It is thus an organizational technique for preserving the entrepreneurial attention and drive so characteristic of the small company. In fact, it is an excellent means of promoting entrepreneurship, which is likely to be so lacking in the large company.