Strategic Business Unit (SBU) in marketing is a division of an organization that has its own operating units, customers, labor force, and other resources. Each SBU operates independently in the market to achieve one common goal.
For example, FedEx’s marketing division is divided into five separate business units: express, freight, home delivery, ground & trade networks, and global forwarding.
All divisions operate independently with their marketing budgets and goals to increase revenues. Many consumer marketing companies have no formalized SBUs; instead, they work on each product or project at any given time without specific targets for each brand or product line.
For example, Coca-Cola markets over 500 brands but is not organized into individual SBUs even though some brands are marketed locally by country (e.g., Sprite is marketed in the US, but not globally).
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What are the types of SBU?
The types of SBU are as follows:
- Business-unit SBU: It is a company having its operation and performance.
- Marketing SBU: It is a subdivision of a company that integrates marketing and all other necessary management.
- Line-of-business (LOB) SBU: It refers to an enterprise’s different business lines and segments, such as banking LOB, retail LOB, etc.
- Corporate SBU: It refers to an enterprise’s central department, such as finance, human resources, etc.
What is the purpose of SBU?
The purpose of the Strategic Business Unit is to enable a business to perform in its specific market better than competitors. It can be by improving operational efficiencies or performing specific actions that competitors do not, such as entering new markets or changing pricing strategies.
SBUs can also be used in internal management: for example, they allow different company divisions (such as manufacturing and marketing) to operate independently and track their performance.
In some cases, SBUs have been advocated with almost religious fervor by academics and managers who have espoused them as necessary for effective strategic management. However, in practice, most companies find it extremely difficult to maintain real SBUs.
Why are there so many definitions for SBU in marketing?
There are so many definitions for SBU is due to different functions and the use of an SBU.
For example, let’s consider a company as an organization and its value chain (mapping all the activities needed to deliver a product or service). Each process in that value chain can be considered as an SBU, which may carry out the function of one aspect of producing goods and services.
This could include; human resources, production, distribution logistics (ordering via wholesale), advertising (to customers), and customer service.
Do different SBUs need to understand each other?
An SBU, such as Manufacturing and Marketing, may need to understand what the other is doing to work cohesively.
However, if two or more SBUs are unrelated, they can operate independently without understanding what the other does.
Every firm needs an effective organizational structure that defines its SBUs and how they operate. The difficulty comes in when you try to define one team’s operational activities and another team’s operational activities and define them as totally different.
What is strategic business unit vs line-of-business?
Organizations often have separate organizations with distinct functions such as research & development (R&D), sales, marketing, finance, etc.
These are often divided based on profit centers or function centers that have full knowledge of each separate center’s activities.
For example, consider a company that has its factories and warehouses. It is making money from manufacturing goods while being able to sell them in its warehouse. Thus, the factory would be considered a “Strategic Business Unit,” while the warehouse would be considered a “Line-of-Business Unit.”
Let’s consider an organization whose operating model is to outsource every activity. It may still have strategic business units such as logistics and then line-of-business for different outsourced activities such as accounting services.
What is the benefit of a strategic business unit?
An SBU is a product or service provided by a company whose profits are divided according to the contribution of each product.
SBU is part of an organization’s overall business unit strategy to maximize sales, increase market share, and expand through acquisitions. The main benefit of the Strategic Business Unit is that it allows for flexible resource allocation.
The different Strategic Business Units can react to changes in their environment much faster than other organizational strategic business structure allow.
For example, suppose certain products are becoming very profitable while others are not. In that case, managers can allocate more resources to those products with greater ease because they do not have to abide by rules set out by traditional hierarchies.
How does SBU affect the marketing mix?
SBUs may be one of the most important factors in marketing because they can explore different markets and customer groups, allowing for very powerful diversification.
Strategic business units are “a group within an organization that has its own complete set of activities.”
One example is Google, which has identified key market segments such as small businesses and online shoppers. They then created separating business units to focus on these two types of consumers while remaining part of one larger company – Google Inc.
Another way Strategic Business Units affect the marketing mix is by creating exclusive products or services which can be produced at their maximum capacity without compromising other SBUs’ production capacity and quality.
An example here could be Apple’s iPhone: The smartphone was first released in 2007, and it is still the company’s most profitable product.
What are some limitations of SBUs?
Although Strategic Business Units have a lot of positive effects for organizations, several limitations should be considered before implementing this organizational structure.
As mentioned above, Strategic Business Units tend to produce different products or services to target different customers groups. This can result in businesses having too many products or services that may confuse consumers (i.e., lack of focus).
Another limitation is the possibility that managers will compete with one another if their Strategic Business Unit produces similar goods/services (i.e., cannibalization).
Additionally, Strategic Business Units often do not reflect long-term goals but rather short-term targets.
How can SBU affect the new company?
The SBU can affect new businesses by asking them to focus on one part of the marketing mix.
For example, a company might have an SBU that focuses on marketing or an SBU that focuses on logistics. The company may also have an SBU that focuses only on the technology of its product.
It is important to have an own strong strategy for each SBU as they will have different goals and targets.
For example, the consumer-focused SBU would aim to serve customers and keep them loyal, which could be done by improving their service and offering discounts.
However, the logistics-focused SBU’s goal would be to increase efficiency and lower costs – rather than serving the customers directly.
Overall, there are many different ways that Strategic Business Units can affect the marketing mix, such as increasing market share or improving their service. However, it is important to consider the limitations of SBUs before implementing them within an organization.
Strategic Business Units (SBUs) is an organizational structure that consists of different divisions, each focusing on a different target market. They are sometimes more flexible than traditional hierarchies because they can allocate resources quickly to different products or services.
This can also mean that organizations have too many different products/services to offer, or they overlap in terms of what they offer. Ultimately, this confuses consumers.