When a business reaches such a size that a small group cannot effectively handle all of its routine tasks, the leaders may opt to split the company into sections. These sections can be categorized by geography, specialty or product line. Companies may also choose how they split their workforces, casting employees and managers into either subordinate departments or into autonomous strategic business units.
Strategic Business Unit Qualities
Strategic business units have their own complete organizational structure and can function as separate units from the parent company. SBUs produce their own strategic path and can function as self-sufficient businesses, but they still report their actions to the home office. SBUs usually have separate marketing plans, revenue sources and performance expectations, but an SBU may still act as a component of a larger business.
Strategic Business Unit Examples
Businesses develop SBUs to provide their customers with dedicated service in a specific arena, with all the infrastructure of an independent firm. For example, auto manufacturers such as Ford and General Motors have their own SBUs solely responsible for underwriting car loans for potential buyers. In 1933, the CEO of Panasonic divided the company into three SBUs: one for the manufacture and sale of radios, one to create lighting and battery products, and one to develop synthetic resins and electrothermal products.
Business Division Qualities
Companies establish business divisions to oversee specific tasks, develop specific products or deal with customers in specific regions. Unlike SBUs, which operate on their own with little input from the home office, business divisions rely on feedback from the parent company and have little latitude to make their own rules. This lack of flexibility and autonomy can leave divisions vulnerable to economic changes, corporate mistakes and competition among the various departments.
Business Division Examples
A company can choose to split into task-oriented divisions, which can include sales, human resources, information technology and accounting. Each division is responsible for its own assignments, but must report its progress to a central authority. The company may also place branch offices in different cities to serve local clients in those areas. Although these offices have a strong sense of their local communities, they still must comply with directives from the home office.