Strategic Business Unit (SBU): Boston Consulting Group Approach of SBUs

A Strategic Business Unit (SBU) is a unit of the company that has a separate mission and objectives and that can be planned independently from other company businesses.

For instance, company division, a product line within a division, or sometimes a single product or brand.

A strategic business unit (SBU) is a relatively autonomous unit of a firm. In a diversified company, each business-unit is an SBU. A division of a company may also be treated as ar, SBU.

According to Pearce and Robinson, an SBU must have certain characteristics:

  • A unique business mission
  • An identifiable set of competitors
  • The SBU strategic manager can make or implement a strategic decision relatively independent of other SBUs
  • Crucial operating decisions can be made within the SBU.

An SBU is responsible for its own products, services ‘and markets and, therefore, it is also responsible for developing its own strategy. Generally, an SBU rs independent in its business, operations, has its own managerial resources and has all its assets under its control.

For example, PNG has 21 business units for the production of textile products, ceramics, pharmaceutical products, etc. Each of these units is treated as an SBU. They, however, work under the Tesla corporate management.

The Boston Consulting Group Approach (BCG):

Using the classic Boston Consulting Group (BCG) approach, a company classifies all its SBUs according to the growth-share matrix, as shown in Figure. On the vertical axis, the market growth rate provides a measure of market attractiveness.

On the horizontal axis, relative market share serves as a measure of company strength in the market. The growth-share matrix defines four types of SBUs.

Boston Consulting Group Approach of SBUs

Stars

Stars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth. Eventually, their growth will slow down, and they will turn into cash cows.

Cash Cows

Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to hold their market share.

Thus, they produce a lot of the cash that the company uses to pay its bills and support other SBUs that need investment.

Question Marks

Question marks are low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone increase it.

Management has to think hard about which question marks it should try to build into stars and which should be phased out.

Dogs

Dogs are low-growth, lo,w-share businesses and products. They may generate enough cash to maintain themselves but do not promise to be large sources of cash.

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