Establishing Strategic Business Units

Large companies normally manage quite different businesses, each requiring its own strategy. A strategic business unit (SBU) has three characteristics: (1) it is a single business, or a collection of related businesses, that can be planned separately from the rest of the company; (2) it has its own set of competitors; and (3) it has a manager responsible for strategic planning and profit performance who controls most of the factors affecting profit. The purpose of identifying the company’s strategic business units is to develop separate strategies and assign appropriate funding. Senior management knows its portfolio of businesses usually includes a number of “yesterday’s has- beens” as well as “tomorrow’s winners”

TABLE 2.1 Defining Competitive Territory and Boundaries in Mission Statements

Competitive Dimension	Description	Example
Industry	Some companies operate only in one industry; some only in a set of related industries; some only in industrial goods, consumer goods, or services; and some in any industry.	Caterpillar focuses on the industrial market; John Deere operates in the industrial and consumer markets.
Products and applications	The range of products and applications that a firm will supply.	St. Jude Medical develops medical technology and services for physicians.
Competence	The range of technological and other core competencies that a firm will master and leverage.	Japan’s NEC has core competencies in computing, communications, and components to support production of laptop computers, television receivers, and handheld telephones.
Market segment	The type of market or customers that a company will serve.	Gerber serves primarily the baby market.
Vertical sphere	The number of channel levels, from raw material to final product and distribution, in which a company will participate.	At one extreme are companies with a large vertical scope. At the other extreme are "hollow corporations,” which outsource the production of nearly all goods and services.
Geographical sphere	The range of regions, countries, or country groups in which a company will operate.	Some firms operate in a specific city or state. Others are multinationals like Royal Dutch/Shell, which operates in more than 100 countries.