Identifying Strategic Business Units (SBUs)

Table of Contents

  1. Recap: What are SBUs and Why are They Important?
  2. Leveraging Industry & Customer Segment Analysis for SBU Identification
  3. Focus on “Cash Cows” and “Stars”
  4. Exercise: Defining Key SBUs for Your Chosen Company

With a foundational understanding of your chosen company and its industry context established, the next step in our analysis is to identify its key Strategic Business Units, or SBUs.

Recap: What are SBUs and Why are They Important?

A Strategic Business Unit (SBU) is a relatively autonomous division or unit of a larger company that operates as an independent entity, often responsible for a specific product line, market segment, or geographic area. Thinking in terms of SBUs is crucial for strategic analysis because:

  • Focus and Clarity: Large, diversified companies often compete in multiple industries or market segments. Analyzing the company as a whole can be too broad and obscure meaningful insights. SBUs allow us to focus our analysis on more manageable and strategically coherent parts of the business.
  • Tailored Strategies: Different SBUs within the same company may face distinct competitive environments, customer needs, and strategic challenges. Analyzing SBUs separately allows for the development of more tailored and effective strategies for each unit.
  • Resource Allocation: Understanding SBUs helps in making informed decisions about resource allocation within the company. Different SBUs may have varying growth potential, profitability, and strategic importance, warranting differentiated resource investments.
  • Performance Evaluation: SBUs provide a basis for evaluating performance at a more granular level than the overall company. This allows for better accountability and identification of areas of strength and weakness within the organization.

In the context of this project, focusing on SBUs will enable a more precise and insightful analysis of competitive advantage. We will be examining the drivers of competitive advantage, value chain activities, and innovation efforts at the SBU level.

Leveraging Industry & Customer Segment Analysis for SBU Identification

Your prior industry analysis and initial exploration of customer segments provide valuable inputs for identifying relevant SBUs for your chosen company. Consider the following:

  • Industry Segments as Starting Points: The industry segments you identified in your industry analysis can often serve as initial candidates for SBUs. Companies frequently organize themselves to address distinct segments within their broader industry. For example, in the automotive industry, segments might include passenger vehicles, commercial vehicles, and electric vehicles. Your company may have SBUs aligned with one or more of these industry segments.
  • Customer Groups and Needs: Think about the different customer groups your company serves and their specific needs. Distinct customer groups, with differing needs and willingness-to-pay drivers, often indicate the presence of separate SBUs. For instance, a technology company might have SBUs focused on individual consumers, small businesses, and large enterprises, each with unique needs and purchasing behaviors.
  • Strategic Groups and SBU Refinement: Your strategic group analysis can further refine your SBU identification. Companies within different strategic groups often pursue distinct competitive strategies and cater to different customer segments. If your chosen company operates in a strategic group with a clear and differentiated strategy, this may represent a distinct SBU. Conversely, a company might have SBUs that span strategic groups, but with differentiated value propositions for each.
  • Analyzing Company Reports - Segment Reporting: A crucial source for SBU identification is your company’s own reports, particularly the 10-K report. Companies that operate with a multi-SBU structure often provide segment reporting in their financial disclosures. Look for sections in the 10-K that discuss “business segments,” “operating segments,” or “product categories.” This reporting often provides a company’s official definition of its SBUs for financial and strategic management purposes. Critically, connect this segment reporting back to the industry segments and customer groups you have previously analyzed. Are the company’s reported segments aligned with your understanding of the industry and its customer base?

Focus on “Cash Cows” and “Stars”

The assignment description specifically mentions focusing on “cash cows” and “stars.” These terms originate from the Boston Consulting Group (BCG) Matrix, a portfolio management tool. While we are not explicitly requiring a BCG Matrix analysis, understanding these archetypes is helpful for SBU prioritization:

  • Cash Cows: These are SBUs with high market share in mature, low-growth industries. They generate significant cash flow that can be used to fund other parts of the business. In the context of your analysis, “cash cows” are likely to be established, profitable SBUs that are core to the company’s current financial performance.
  • Stars: These are SBUs with high market share in high-growth industries. They require significant investment to maintain their market leadership and fuel future growth. “Stars” are SBUs representing areas of high potential and future strategic importance for the company.

While you should identify all key SBUs, ensure you explicitly include and prioritize the analysis of at least the “cash cows” and “stars” in your chosen company’s portfolio, as these are often central to understanding current and future competitive advantage.

Exercise: Defining Key SBUs for Your Chosen Company

Now, apply these concepts to your chosen company. In your NotebookLM workspace, create a dedicated section for “SBU Identification.” Then:

  1. Review Segment Reporting: Carefully examine your company’s most recent 10-K report (or other relevant investor communications) and identify any reported business segments or product categories. Document these in your NotebookLM.
  2. Connect to Industry & Customer Segments: For each reported segment (or even if formal segment reporting is limited, consider major product/service areas), analyze its alignment with:
    • The industry segments you identified in your industry analysis.
    • The customer groups or segments your company serves.
    • The strategic groups your company operates within.
  3. Brainstorm Potential SBUs: Based on your review of company reports and your industry/customer segment analysis, list what you believe to be the key SBUs for your chosen company. Justify your choices. At a minimum, identify what you believe to be the company’s primary “cash cow” and “star” SBUs.
  4. Refine and Select SBUs for Analysis: From your brainstormed list, select 2-3 key SBUs that you will focus on for the remainder of your Business Strategy Analysis Project. Explain why you selected these SBUs as the most strategically important to analyze in depth. Consider factors such as revenue contribution, growth potential, and strategic significance to the overall company.

Document your SBU identification process, your list of potential SBUs, and your final SBU selections with justifications in your NotebookLM. This will form the foundation for your subsequent competitive advantage analysis.