Full Form of SBU
The full form of SBU is Strategic Business Unit. SBU can be defined as an independent department or a sub-unit of a large organization that is fully functional and focuses upon a target market and has its mission, vision, direction, objectives, and support functions such as training and human resource departments and this unit have to report to the headquarters of the concerned organization directly.
The different characteristics are as follows:
- Strategic Business Unit utilizes a product-market strategy.
- SBU is a part of the organizational structure.
- It is regarded as organizational units that are devoid of individual and independent legal personality.
- They perform activities that are considered the utmost crucial and significant for the entire organization concerning decision making.
- It has a divisional structure determined by its size of production, accounting processes, research and development activities, and marketing function.
- Strategic Business Unit decision-making autonomy comprises production, laboratory testing, finance, production preparation, accounting, and marketing.
- They enable the organization to enjoy autonomous planning functions.
- It is responsible for functions like strategic planning, performance, and profitability of the division.
- Strategic Business Unit even has a set of competitors.
Types of SBU
The types of Strategic Business Unit of the BCG matrix are as follows:
#1 – Stars
It is high growth and high share products or business concerns. Stars always need a lump sum investment to fund their fast growth. The growth of this type of SBU slows down eventually and turns into cash cows. Star Business Units is regarded as a profitable business, and it even has attractive long-term profit earning opportunities. As this type of SBU has a higher growth rate, these are regarded as highly competitive. It can turn into cash cows only if it consolidates its competitive position.
#2 – Cash Cows
They generate relatively more cash in comparison to what they consume. This type of SBU is low market growth and high share products or businesses. Cash cowsCash CowsA cash cow is a company or a business unit that provides a consistent cash flow stream by capturing significant market share and requires a relatively lower capital investment and maintenance cost. In addition, products generated are standard and have consistent demand with higher returns at a lower risk. generate a lot of cash that the organization ultimately utilized by the organization in settling off its bills and support other strategic business units that need the investment.
#3 – Question Marks
It is a low share business unit in a high growth market. Question marks produce a significant amount of cash. Companies must not inject further cash in this type of SBU since it lacks opportunities for future expansion.
#4 – Dogs
It is low market growth and low market share products and businesses. This type of SBU is unable to generate cash and even has a very dim prospect. This is due to the low competitiveness of this SBU.
Structure of SBU
Strategic Business Unit structure comprises of operating units where these units function autonomously. They comprise of three levels. The corporate headquarters, SBUs, and the divisions clustered by similarity are positioned at the top-most, middle, and bottom. The SBU groups carry their status, whereas the divisions within the same are clustered with each other.
ABC Limited manufactures customer durables such as television sets, mobile phones, laptops, and other electronic gadgets. These units are formed as independent strategic business units to track revenues separately, costs incurred, sales, and profits. The moment a unit is bestowed with an SBU status, it becomes easy for the same to make effective decisions, budgets, investments, etc. With independent SBUs, it will become easy for ABC Limited to respond to the sudden shift or changes taking place in the product market on or before time quickly.
Difference Between Strategic Business Unit & Division
Strategic Business Unit and divisions might seem very similar concept, but in reality, the two are different from one another. They differ on grounds like strategic functions, results, implementation, and so on. Strategic Business Units can make their own strategic decisions soon after the same gets created by an organization. SBUs can analyze the company’s competitive placement in the relevant industry and can even develop products accordingly based on customer response and needs and can even measure their performance. Divisions usually cannot carry out such important tasks and functions.
Some of the advantages are as follows:
- Strategic Business Unit gives an organization ample opportunities to shape up a promising future and make constructive decisions.
- They give ample opportunities to an organization to identify and make well-informed strategic decisions.
- SBU even offers multiple financial benefits to an organization.
- It improves strategic management in an organization.
- They even improve the accounting function of an organization.
- Strategic Business Unit eases out the planning of organizational activities.
Some of the Disadvantages are as follows:
- Strategic Business Unit faces a lot of difficulties while contacting with the top-level management.
- They can also sometimes be one of the probable causes of unclear situations when it comes to managerial activities.
- SBU can also be one of the probable causes of internal tensions arising due to difficulties in accessing external and internal funding sources.
SBU stands for the strategic business unit. Strategic Business Unit supports co-operation and co-ordination between multiple departments of an organization that has a very similar range of functions and activities to perform as well as deliver. They also enable an organization to operate for a longer period as it ensures that an organization is fully aware of the upcoming shift and changes in the market place so that the same can readily adjust itself and easily survive in the highly competitive scenario.
This has been a guide to the Full Form of SBU, i.e. (Strategic Business Unit). Here we discuss types and examples of SBU along with characteristics, advantages, and disadvantages. You may refer to the following articles to learn more about finance –