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Business units and business areas

A strategic business unit (SBU) is "a homogenous set of activities or


business from a strategic point of view, i.e., for which, it is possible to formulate a
common and at the same time a different strategy from the appropriate one to
other activities and/or business units. Each unit strategy is autonomous and it is
not independent from other strategic units, since they all fit in the companys
strategy. Then, you can consider the company as a set of several strategic units,
where each one of those offers diverse profitability and growth opportunities, and /
or requires a different competitive approach MENGUZZATO, M. and RENAU, J.
J. (1991). La direccin estratgica de la empresa. Barcelona: Ed. Ariel, p. 90.

The strategic business unit concept emerges in the seventies, when the
General Electric Company, given its diversification of 10 groups with 50 divisions
and 170 departments made up as profit centers, establishes different units of
analysis from the existent ones, in order to facilitate the strategic planning process
in a so complex organization. NAVAS, J.E. y GUERRAS, L.A. (1996). La direccin
estratgica de la empresa .Madrid: Ed. Civitas, pg.333.

There are two approaches or purposes of strategic business units:

1. In a case, they can be considered as units of analysis, which have emerged to


facilitate reflection. Those are expected to better delimit the competitive
strategy that can be more successful in each type of activity or business. This
approach, about SBU definition is called formulation of strategies, because
this aspect prevails when setting them up.
2. According to another approach, SBUs are considered as organizational units,
with own activities and functions that are relative to a set of business that
represent enough strategic homogeneity. This way of understanding the SBU
is called implementation of strategies, since it is the organizational support
on which the strategy is developed.

The SBUs approach as strategic formulation units, initially, arises as a


response to the need of reconsidering the strategic planning process and,
therefore, with a purpose pointed to that end.

This approach, aimed at the formulation of strategies, is justified by the no


existence of a global competitive position in the diversified companies, but by
different competitive positions for each activity, because of the fact that those are
developed in different competitive settings and require diverse competences, this
is why, different must be made.

The delimitation of these business units depends on:

The mission and the goals of the company as a whole and in particular, on the
business.
The competitive environment faced by every activity that defines how to
compete.
Internal analysis factors, which identify the competitive advantages necessary
to compete in every business.

Concerning the approach of implementation of a strategy, in which the SBU


with organizational units already existing are identified (for example, divisions), for
Grima and Tena a SBU is "an organizational unit that, under a responsible
authority, gathers all or at least the majority of basic corporate functions (sales,
production, etc.) running and coordinating relative activities to a product or range
of products that satisfy a certain profile on market needs and / or a certain
geographical area. GRIMA, J.D. y TENA, J. (1991): Anlisis y formulacin de
estrategia empresarial. Barcelona: Ed .Hispano Europea, pp.107-108.

In this sense, demarcations of business units do not have to match those on the
previous approach. We stand out the following factors as the most important ones:

The strategies formulated at a business level, so that the organizational


structure would adapt itself to strategic planning needs and criteria.
The current structure of the company may be the greatest determining factor
for defining a SBU. In diversified companies, the classic divisional structure
can be the main point of reference to the point that in many cases the
business unit concept is identified with the division one or with a group of
those.
The size of the company is another limiting factor, in such a way that it would
make no sense to establish too little SBU, even with its own strategic direction.
The material and human resources shared by the diverse enterprises also
have an impact on the construction of business units now that duplication of
those can be extremely expensive for the company. So, it is necessary to
group the shared resources in the same SBU.
References

Durn, D. (1999). Benchmarking al Outsourcing estratgico. Espaa.

Duran, D.; Llopart, X. y Redondo, R. (s.f). La Direccin y el Control


Estratgico, su aplicacin en los recursos humanos. Fundamentos de
direccin estratgica y estrategia empresarial (parte primera). Consultado en
marzo de 2013, en http://hdl.handle.net/2445/13220

Grima, J. y Tena, J. (1991). Anlisis y formulacin de estrategia empresarial.


Barcelona: Ed. Hispano Europea.

Menguzzato, M. y Renau, J. (1991). La direccin estratgica de la empresa.


Barcelona: Ed. Ariel.

Navas, J. y Guerras, L. (1996). La direccin estratgica de la empresa.


Madrid: Ed. Civitas.