The business unit is the key level for crafting strategy. An area that does not meet the criteria of a business unit cannot have a strategy, it has a plan that contributes to the total business unit’s strategy.
Business units will operate in different market segments (or ecosystems). They will be viable businesses on their own. They are capable of making their own product/market choices.
When is it useful?
If there is any ambiguity, an inquiry to assess the fundamental business units of an organisation will be a very insightful starting point for crafting strategy.
If you are running the strategy process in a large business, as the starting point you will need to determine who needs to prepare a strategy.
- Diageo: in general Business Units were individual countries. However, some countries were too small to be viable and build capabilities on their own – these were aggregated into larger units e.g. Middle East and Caricam (CARIbbean/Central AMerica). Brands were not business units, even through their P&Ls were added up and tracked – they did not have paying customers.
- At Lend Lease, Facilities Management was a separate Business Unit from Shopping Mall Management – they have different customers, different skills and different competitors although their is some value chain overlap and shared business.
- ParknShop: ParknShop Hong Kong was a Business Unit with its own strategy – there was no separate strategy for other retail formats (e.g. GREAT, Fusion, Taste) – they leveraged the assets/capabilities of the ParknShop organisation and were not independently viable
How do you do the analysis?
There are some key questions to ask to determine business unit boundaries:It does not necessarily coincide with organizational structure.To determine if an area is a business unit, ask yourself:
- Does it have paying customers?
- Does it have competition?
- Could it be viable economically on its own? (even if it benefits from some shared assets and services)
- Can it make its own product/market (Value Proposition) choices?
If the answer to these questions is negative, the unit is likely to be part of a larger business unit.
Once you have the basic business units identified using these questions, drill down into each of these business units to see if you can split them down further