Features of a Strategic Business Unit

Strategic business units (SBUs) are divisions of large corporations that each have their own product lines, budgets, strategic planning units, and marketing campaigns. Learn more about strategic business unit strategy and the feasibility of launching a new business unit within an existing organization.

What Is a Business Unit?

A business unit (also known as a strategic business unit) is a division of a larger corporation. Each business unit may have its own set of strategic goals, budget allocations, market research teams, product lines, and success metrics. A business unit's leaders report to the corporation's top-level management. Their employees follow the same codes of conduct as the human resources department of the larger company. They are also compensated by the larger corporation.

Large corporations, in particular, may have numerous business units that handle all aspects of the organization. These business units may be located under the same roof or in different locations. Startups and small businesses, on the other hand, rarely have their own business units. These businesses are typically too small to benefit from the decentralization that comes with establishing different business units.

4 Features of a Business Unit

Traditionally, a business unit is separate from the larger organization that controls it. They usually have:

1. A link to corporate management: The leadership team of a strategic business unit serves as a link between the SBU and the rest of the company. These leaders report to C-level executives on a regular basis, informing them of developments within their business unit. The majority of SBU employees only interact with the unit's management team and have little contact with top-level executives.

2. Independent budgets: The internal budget of a strategic business unit is usually distinct from the parent company's budget. The parent company may grant the business unit a top-line budget allocation, and the funds are then distributed by the business unit's management.

3. Distinct revenue streams and profitability metrics: Many business units have distinct revenue streams that do not overlap with those of other business units. Each unit develops its own target market. It then measures its own profitability and market share in isolation from the rest of the company.

4. Their own profits: Each of a corporation's various business units operates as a separate profit center. It uses a specific marketing campaign to reach out to a specific market segment. It has its own product line and aims to build a customer base that is distinct from the customers sought by the rest of the company. Profits from the business unit may be returned to the company as a whole or retained within the business unit for future budgeting.

Business Unit vs. Subsidiary

There are a few key distinctions between a corporate business unit and a corporate subsidiary.

Business functions: A subsidiary typically focuses on different product categories and target audiences than its parent company. This can be a beneficial corporate strategy because the parent company and subsidiary are not competing for the same limited pool of customers.

Independent vs. dependent entities: A subsidiary is more than just a division of a larger corporation. It is a separate legal entity, albeit one that is wholly or partially owned by a parent company. Subsidiaries, in most cases, have their own boards of directors and executive teams in charge of strategic management and decision-making. To be considered a subsidiary, a parent company must own at least 50% of a smaller company. Business units are not separate entities. They are part of a larger corporation.

Structures of organizations: A subsidiary's business structure may differ from that of its parent company. Each business unit in a corporation, on the other hand, is part of a larger organizational structure that is led by the same top-level management team.

Relationship to the company: Because subsidiaries are not legally part of a parent company, they may not have access to all of the company resources that an SBU would have. Their employees may be subject to a different code of conduct and report to a different human resources department. They might not have the same marketing teams promoting new products or job opportunities. These may only be available for parent company business units.