Establishing Strategic Business Units
Large companies normally manage quite different businesses, each requiring its own strategy. At one time, General Electric classified its businesses into 49 strategic business units (SBUs). An SBU has three characteristics
- It is a single business, or a collection of related businesses, that can be planned separately from the rest of the company.
- It has its own set of competitors.
- 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.” Liz Claiborne has put more emphasis on some of its younger businesses such as Juicy Couture, Lucky Brand Jeans, Mexx, and Kate Spade while selling businesses without the same buzz (Ellen Tracy, Sigrid Olsen, and Laundry).
Assigning Resources to Each SBU18
Once it has defined SBUs, management must decide how to allocate
corporate resources to each. The GE/McKinsey Matrix classified each SBU by the extent of its competitive advantage and the attractiveness of its industry. Management could decide to grow, “harvest” or draw cash from, or hold on to the business. BCG’s Growth-Share Matrix used relative market share and annual rate of market growth as criteria for investment decisions, classifying SBUs as dogs, cash cows, question marks, and stars. Portfolio-planning models like these have largely fallen out of favor as oversimplified and subjective. Newer methods rely on shareholder value analysis and on whether the market value of a company is greater with an SBU or without it. These value calculations assess the potential of a business based on growth opportunities from global expansion, repositioning or retargeting, and strategic outsourcing.
Assessing Growth Opportunities
Assessing growth opportunities includes planning new businesses, downsizing, and terminating older businesses. If there is a gap between future desired sales and projected sales, corporate management will need to develop or acquire new businesses to fill it. Figure 2.2 illustrates this strategic-planning gap for a hypothetical manufacturer of blank DVD discs called Cineview. The lowest curve projects expected sales from the current business portfolio over the next
corporate resources to each. The GE/McKinsey Matrix classified each SBU by the extent of its competitive advantage and the attractiveness of its industry. Management could decide to grow, “harvest” or draw cash from, or hold on to the business. BCG’s Growth-Share Matrix used relative market share and annual rate of market growth as criteria for investment decisions, classifying SBUs as dogs, cash cows, question marks, and stars. Portfolio-planning models like these have largely fallen out of favor as oversimplified and subjective. Newer methods rely on shareholder value analysis and on whether the market value of a company is greater with an SBU or without it. These value calculations assess the potential of a business based on growth opportunities from global expansion, repositioning or retargeting, and strategic outsourcing.
Assessing Growth Opportunities
Assessing growth opportunities includes planning new businesses, downsizing, and terminating older businesses. If there is a gap between future desired sales and projected sales, corporate management will need to develop or acquire new businesses to fill it. Figure 2.2 illustrates this strategic-planning gap for a hypothetical manufacturer of blank DVD discs called Cineview. The lowest curve projects expected sales from the current business portfolio over the next
five years. The highest describes desired sales over the same period. Evidently, the company wants to grow much faster than its current businesses will permit. How can it fill the strategicplanning gap? The first option is to identify opportunities for growth within current businesses (intensive opportunities). The second is to
Intensive Growth Corporate
management should first review opportunities for improving existing businesses. One useful framework is a “product-market expansion grid,” which considers the strategic growth opportunities for a firm in terms of current and new products and markets. The company first considers whether it could gain more market share with its current products in their current markets, using a market-penetration strategy. Next it considers whether it can find or develop new markets for its current products, in a market-development strategy. Then it considers whether it can develop new products for its current markets with a product-development strategy. Later the firm will also review opportunities to develop new products for new markets in a diversification strategy identify opportunities to build or acquire businesses related to current businesses ( integrative opportunities). The third is to identify opportunities to add attractive unrelated businesses ( diversification opportunities).
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