Companies use an organizational structure to outline how certain activities help achieve their goals. This structure also allows companies to organize their operations to create flows between various levels. Usually, large and established companies have several departments and functions. Through an organizational structure, they can manage those functions better. Companies can use several formations to do so.
An organization structure provides a formation for companies to act and operate efficiently. In the absence of this structure, companies cannot work properly. This structure allows companies to remain efficient and focused on achieving their goals. On top of that, it also helps clarify everyone’s roles and responsibilities within that strategy. When setting this strategy, companies must consider various factors.
Companies can choose between various organizational structures. Usually, this decision depends on how the company operates and its current activities. Once companies understand those areas, they can develop an organizational structure that best suits their needs. On top of that, a company’s goals and objectives also play a crucial role in that strategy. Two strategies within this process include strategic business units and divisions.
What is a Strategic Business Unit (SBU)?
A strategic business unit includes an unassisted operated division of a large company. Usually, this division operates independently and does not depend on other activities. With these units, companies can manage various activities under their own control. Strategic business units have their own vision, mission and objectives. Usually, these units plan and operate without reliance on the company that controls them.
A strategic business unit includes a cluster of associated businesses. These units are responsible for the combined planning and operating of those businesses. Usually, strategic business units may consist of divisions, product lines and specific products or brands. These units may also have their strategies, goals and objectives. On top of that, they also compete with others in the industry. Their competitors may not be the same as the company that operates them.
An SBU includes a business unit within larger corporations. In some cases, they may be companies of their own or a branch of operations. The definition of strategic business units applies to different scenarios. However, they usually include businesses or areas that operate under another company. Usually, companies manage them as separate operations. Despite the independence, these units are still responsible to their parent company.
A strategic business unit involves an array of operations that operate under a large company. The parent company is responsible for its shared planning treatment. However, the business unit gets control over how it achieves that plan. Despite their independence, strategic business units must report to the parent company. Usually, strategic business units exist in a specific market or industry.
Overall, a strategic business unit is a division of a company’s operations. This division operates independently of the parent company’s operations. However, it does not imply the SBU does not report to the parent company. An example of a strategic business unit includes PepsiCo’s different subsidiaries. These subsidiaries operate independently of the parent company. Nonetheless, they are a part of its overall operations.
What is a Business Division?
The term business division has a much broader definition than a strategic business unit. It defines the segments or sectors within a company. However, these segments may not necessarily operate on their own or independently. Divisions are a distinct part of any business or company. These may include a wide range of structures or units that operate under a company.
A strategic business unit is also technically a division. However, it does not reflect on all divisions that exist for companies. As mentioned, not every business division can operate independently. Even if they can, the parent company may not allow them to do so. On top of that, not all divisions have their own goals or competitors. Therefore, strategic business units are a subset of these divisions.
The use and creation of divisions are prevalent in a divisional organizational structure. This structure occurs when a company splits its operations into several divisions. Usually, each represents a different product, geographic section or customer unit. Each division has a functional structure within it. Therefore, they will have separate departments for each function.
Divisions usually exist as profit centres for companies. Therefore, they represent areas where companies generate revenues and incur costs. Some divisions may also have the permission to make investment decisions that impact their operations. These divisions are separately identifiable and have features that can differentiate them. With a divisional structure, companies can easily include more structures in the future.
Overall, divisions represent business areas within a company. As mentioned above, these areas may include products, geographical locations and customer units. When companies create divisions, they aim to focus on those specific areas. Usually, each division focuses on a different section of a company’s business plan. However, it works towards its goals. These divisions may come in various forms and shapes.
Strategic Business Unit (SBU) Vs Division: What are the differences?
Technically, strategic business units are divisions. However, the latter may include various other business structures as well. In that context, strategic business units differ from divisions. Companies must identify those differences to understand how each of these works. The variances between both structures can also help separate them from each other.
Overall, strategic business units differ from divisions in several fundamental areas. While these areas do not represent an exhaustive list, they provide details on differentiating between them. The primary aspects in which strategic business units differ from divisions are below.
Goals and objectives
As mentioned above, strategic business units set their own goals and objectives. For those goals, they also develop their strategies. Consequently, they can make better business decisions. Strategic business units also have significantly more control over their operations. This feature also makes strategic business units a form of decentralized operations.
On the other hand, divisions are unlikely to have the same control. Usually, they get their goals and objectives from their parent company. Therefore, they have little or no say in how they operate. While some divisions may create strategies, the parent company usually dictates the process. Therefore, divisions have low or no control over their operations. They operate under a centralized business structure.
Resources and performance
As mentioned above, strategic business units operate as profit centres in most cases. Therefore, they are responsible for their performance and resources. It implies these units must ensure the proper allocation of those resources into various activities. If they fail to perform, they will be responsible for any variances or inefficiencies.
On the other hand, divisions do not have the same responsibilities. In contrast, these units get their resources from the parent company. The company also allocates those resources to various activities and areas. If a division fails, it does not reflect on its performance. Instead, it relates to how the parent company allocated its resources. On top of that, the division is not responsible for the poor performance.
Strategic business units are different from divisions. Therefore, they also require a different management style. As mentioned, strategic business units operate under a decentralized approach to management. Consequently, they can make their own decisions and work independently. This feature gives managers more flexibility in control and decision-making. However, their goals may not align with those of the parent company.
In contrast, divisions operate under a traditional organizational structure. These structures take instructions from the parent company. On top of that, the company also makes decisions about their operations and resources. Therefore, they get less flexibility in control and decision-making. This feature implies that divisions operate under a centralized approach. However, their goals will align with those of the parent company.
Companies form organizational structures that define how they operate. Usually, they can classify their operations into strategic business units and divisions. The former involves giving business units independence over their activities, goals and resources. Divisions, on the other hand, do not get the same features. Strategic business units and divisions are different in various regards.