An SBU was defined in Chapter 1 as a unit comprising one or more products having a common market base whose manager has complete responsibility for integrating all functions into a strategy against an identifiable external competitor. We will examine the development and meaning of SBUs again in this chapter to make it clear why objectives must be defined at this level. Abell's explanation is as follows:
The development of marketing planning has paralleled the growing complexity of business organizations themselves. The first change to take place was the shift from functionally organized companies with relatively narrow product lines and served-market focus to large diversified firms serving multiple markets with multiple product lines. Such firms are usually divided into product or market divisions, divisions may be divided into departments, and these in turn are often further divided into product lines or market segments. As this change gradually took place over the last two decades, "sales planning" was gradually replaced by "marketing planning" in most of these organizations. Each product manager or market manager drew up a marketing plan for his product line or market segment. These were aggregated together into an overall divisional "marketing plan." Divisional plans in turn were aggregated into the overall corporate plan.
But a further important change is now taking place. There has been over the last decade a growing acceptance of the fact that individual units or subunits within a corporation, e.g., divisions, product departments, or even product lines or market segments, may play different roles in achieving overall corporate objectives. Not all units and subunits need to produce the same level of profitability; not all units and subunits have to contribute equally to cash flow objectives.
This concept of the organization as a "portfolio" of units and subunits having different objectives is at the very root of contemporary approaches to strategic marketing planning. It is commonplace today to hear businesses defined as "cash cows," "stars," "question marks," "dogs," etc.* It is in sharp contrast to practice in the 1960s and earlier which emphasized primarily sales and earnings (or return on investment) as a major measure of performance. Although different divisions or departments were intuitively believed to have different capabilities to meet sales and earning goals, these differences were seldom made explicit. Instead, each unit was expected to "pull its weight" in the overall quest for growth and profits.
With the recognition that organizational entities may differ in their objectives and roles, a new organizational concept has also emerged. This is the concept of a "business unit." A business unit may be a division, a product department, or even a product line or major market, depending on the circumstances. It is, however, usually regarded by corporate management as a reasonably autonomous profit center. Usually it has its own "general manager" (even though he may not have that title, he has general managerial responsibilities). Often it has its own manufacturing, sales, research and development, and procurement functions although in some cases some of these may be shared with other businesses (e.g., pooled sales). A business unit usually has a clear market focus. In particular it usually has an identifiable strategy and
* These items are defined in Chapter 10.
an identifiable set of competitors. In some organizations (the General Electric Company, for example), business units are clearly identified and defined. In other organizations, divisions or product departments are treated as relatively autonomous business units although they are not explicitly defined as such.
A business unit will usually comprise several "program" units. These may be product lines, geographic market segments, end-user industries to which the company sells, or units defined on the basis of any other relevant segmentation dimension. Program units may also sometimes differ in their objectives. In such cases, the concept of a portfolio exists both in terms of business units within a corporate structure (or substructure, such as a group) or in terms of programs within a business unit. Usually, however, the business unit is a major focus of strategic attention, and strategic market plans are of prime importance at this level.11
As Abell notes, a large, complex organization may have a number of SBUs, each playing its unique role in the organization. Obviously, then, at the corporate level, objectives can be defined only in generalities. It is only at each SBU level that more specific statements of objectives can be made. Actually, it is the SBU mission and its objectives and goals that product/market managers need to consider in their strategic plans.
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