Strategic business units are self contained divisions formed within an organization for dealing with specific business concerns. These units pull together the diverse parts of the concerned organization while cutting across the geographical and diverse lines for serving a specific market in a more efficient manner.
These strategic business units are also referred to as independent business units or strategic planning units. The main philosophical concept behind the formation of strategic business units is to serve a clear and defined market segment along with a clear and defined strategy. These business units have to contain all the needs and corporate capabilities of the respective organization. The entire portfolio of the concerned business has to be managed by allocation of managerial and capital resources for serving the overall interest of the entire organization. This helps in developing a balance in the earnings, sales and the assets at a level which is controlled and acceptable for taking the right amount of risks.
The strategic business unit (SBU) is created with the application of set criteria which consist of the competitors, price models, customer groups and the overall experience of the company. It is also sometimes seen that a number of different verticals present in the same organization having similar competitors and target customers are amalgamated to form a single SBU. This helps in strategically planning the overall business of the organization. This is also true for the company which has different product ranges and some of them have similar capabilities in terms of research and development, marketing and manufacturing. Such products can also be amalgamated to form a single unit.
The main notion which rests behind the concept of strategic business units is to gain a competitive advantage in the populated marketplace. This can be done because the SBU helps in segmenting the activities of the company in a strategic manner and the resources are thus allocated competitively.