By M. Isi Eromosele

The business unit in a corporation is comprised of one or more products with a common market segment, whose manager is charged with the responsibility of devising and implementing business strategies to counter recognized competitors.

The thinking behind the concept of strategic business units is that multi-product corporations are to be managed as a portfolio of businesses units, with each one serving a clearly defined market segment with a specific strategy.

Each business unit in the corporate portfolio should develop a strategy adapted to its capabilities and resources, but consistent with the overall strategy of the corporation.

The total portfolio of businesses is run by allotting it the capital and resources it needs to accomplish the business goals of the entire company, with a manageable level of risk.

Fundamentally, the portfolio is designed and managed within the scope of overall corporate strategy.

During the past twenty years, several corporate structural designs have been tried and rejected. All areas of a corporation (product development, finance, marketing, sales and customer support) are functionally interdependent.

Optimizing certain functions over others has proved ineffective for achieving optimal corporate performance. Subsequently, the profit center concept was tried. This failed because its focus was only on short-term outcomes.

The Strategic Business Unit concept was developed to remedy the failed profit center one. This design requires that in the integration of a corporation’s products and marketing strategies, Strategic Business Units should be identified or created within the corporation.

A Strategic Business Unit is composed of product lines that have a high level of autonomy to develop and implement strategies concerning prices, product development, product style and quality as well as dealing with direct competitors. The strategy for each business unit should be designed around this arrangement.

Strategic Business Units can be established through the application of business criteria such as product scope, market segments, product pricing, competitors and customer segments. A Strategic Business Unit may share the same criteria as other ones within the corporation on such issues as marketing and competitors.

When this occurs, two Strategic Business Units may be consolidated for the purpose of planning and budgeting. Additionally, products and markets within different areas of the corporation that share resources in product research and development, manufacturing and marketing may be included in the same strategic Business Unit for planning purposes.

In general, a Strategic Business Unit needs to be created where it would administratively have the liberty to tackle issues such as customer segmentation, positive and value differentiation from its competitors, establishing and sustaining competitive advantage.

The best level of Strategic Business Unit aggregation within a corporation can be achieved by granular refinement that enables the unit to operate like a freestanding business with the following circumstances:

• Possess an exceptional business assignment, different from that of other Strategic Business Units
• Have a clearly set of identified competitors
• Capable of developing strategic planning, independent of other Strategic Business Units
• Able to manage resources in other areas
• Competent enough to serve as a valuable focus for resource allotment

A Strategic Business Unit should be given the capability to compete in the market with the full support of its parent corporation.

M. Isi Eromosele is the President | Chief Executive Officer | Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance