Establishing Strategic Business Units

A business can be defined in terms of three dimensions: customer groups, customer needs, and technology.6 For example, a company that defines its business as designing incandescent lighting systems for television studios would have television studios as its customer group; lighting as its customer need; and incandescent lighting as its technology.

In line with Levitt's argument that market definitions of a business are superior to product definitions,7 these three dimensions describe the business in terms of a customer-satisfying process, not a goods-producing process. Thus, Xerox's product definition would be "We make copying equipment," while its market definition would be "We help improve office productivity." Similarly, Missouri-Pacific Railroad's product definition would be "We run a railroad," while its market definition would be "We are a people-and-goods mover."

Large companies normally manage quite different businesses, each requiring its own strategy; General Electric, as one example, has established 49 strategic business units (SBUs). An SBU has three characteristics: (1) It is a single business or collection of related businesses that can be planned separately from the rest of the company; (2) it has its own set of competitors; and (3) it has a manager responsible for strategic planning and profit performance who controls most of the factors affecting profit.

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  • Josephine Hart
    How to establish sbu in marketing?
    2 years ago

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