Transcript What is an SBU?

CH.4 Winning Markets
MM Sem 1, 2003
Warin Chotekorakul
Planning, Implementation
and Control Process
Planning
Implementation
Corporate planning
Division planning
Business planning
Product planning
Performance Monitoring
Measuring result
Organizing
Diagnosing result
Implementing
Taking corrective
action
Strategic Planning: 3 levels
Corporate Strategy
1. Mission and Vision 4.Resource Deployment
2. Objectives
5. Corporate values
3. Business Portfolio Strategy
SBU
Strategy
SBU Strategy
SBU
1. Business Definition 2. Objectives
Strategy
3. Product-Market Portfolio
4. Competitive Strategy
5. Resource Allocation and Management
R&D Strg
Pdtn & Oprtn Fin & Admin
•Tech
•Mktng Obj
Strategy
Strategy
•Pdt mkt strg •Pdt Develm
Mktng Strg
HR
Strategy
Corporate Planning
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Corporate Planning addresses the following
types of questions:
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Management: Role of corporation
• Financial holding
• Conglomerate
• Operating company
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Organizational scope: What biz should the
company be in?
Financing: How and where finance should be
raised?
Organization: How the company should be
structured?
Corporate Planning (2)

Corporate Planning addresses the following
types of questions (2):
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Defining mechanisms: What should its
Vision/Mission be?
Synergies: How should financial and operational
synergies between SBU’s be realized?
SBU Planning
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SBU planning must address the
following types of questions:
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Where to compete e.g., which product/market
segment?
How to compete e.g., when and how to
differentiate and /or achieve cost leadership?
Functional strategies
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Functional strategies address what
individual “Activities” in a biz should do to
support overall SBU strategy.
Marketing:
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Which communication channels?
Which distribution channels?
What price? e.g., What actual price should be?
Production:
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How to manufacture e.g., in-house VS outsource
Where to manufacture?
What infrastructure to invest in?
Mission
“The statement which guides
employees to work independently
and collectively towards realizing the
organization's goals.”
The type of org/biz we want to be and who we
want to serve - a biz definition reflecting scope
of activities
Vision

Visualization of the organization's
intentions for the future and what it
takes to succeed
Establishing an SBU
What is an SBU?
• SBU is a strategically independent business unit,
defined on the basis of external and internal criteria.
• SBU should be a market-driven concept.
Establishing an SBU (2)
External strategic
Independence
(customer/competitor
perspective)
Internal strategic
Independence
(producer perspective)
Signf diff on the external
envi, e.g., distinct cust
groups, buying patterns and
criteria, competitors, etc.
Signf diff in the internal
activities of the company,
thus preventing utilisation of
Shared resources,
e.g., tech, pdtn processes,
raw mat, distn channels, etc.
Establishing an SBU (3)

Primary external clues for identifying
SBUs are:
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Price independence (not diff prices)
Quality independence
Technological independence
Distinct customers
Distinct competitors
Substitutability
Divestibility (Getting rid of one pdt line will
not affect the sales volume of another pdt
line)
Establishing an SBU (4)

Internal dependence of businesses is
assessed by analyzing shared resources
and linkages bet value chain
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Support activities e.g., personnel, finance and
other general overhead activities are
inevitably shared bet SBU’s, but this does not
imply interdependence.
Changes in strategy greatly affecting shared
resources require reassessment of SBU
definitions e.g., SBUs X and Y.
Assigning Resources to
Each SBU

The aim of identifying the
company’s SBU is to develop
separate strategies and assign
appropriate funding.
Tools for assigning resources
Portfolio evaluation models:
1. BCG model
2. GE (General Electric) model
BCG Matrix
What is the BCG Matrix?
 What do the contents in the
model mean?
 What are the strategies that this
matrix suggests?

•What is the BCG Matrix?
BCG matrix is a 2x2 growth-share matrix that helps
management analyze portfolios and also suggests
strategies.
•What do the contents in the model mean?
-Market Growth Rate: annual growth rate of the market
that the SBU in ( >10% is considered high)
-Relative (VS Absolute) Market Share: the SBU’s
market share relative to its largest competitor ( > 1.0 is
considered high share)
1. If you are a market follower, use sales of yours/ sales of
the market leader
2. If you are a market leader, use sales of yours/sales of the
next strongest competitor
- Four different types of businesses (Walker, Boyd,
Larreche Ch.2)
• Question marks: Businesses in high-growth market
with low relative market share
• Stars: Market leaders in high-growth markets
• Cash Cows: Market leaders in low-growth markets
• Dogs: Low-share businesses in low-growth markets
•What are the strategies that the matrix
suggests?
 Build: to increase an SBU’s market share
 Hold: to preserve an SBU’s market share
 Harvest: to increase the SBU’s short-term cash flow
regardless of long-term effect
 Divest: to sell the business
Strategies for BCG Analysis
Star
---Invest (build)---
Question Mark ?
---Invest (build)-----Harvest-----Divest---
Cash cow
---Hold (maintain)-----Harvest---
Dog
---Harvest-----Divest---
BCG Model
(ref. Kotler Ch.3)
20%
Star
Question Marks
16%
1
14%
2
3
12%
10%
Cash Cow
Dogs
8%
6
4
6%
4%
5
0.2x
0.4x
0.6x
0.8x
1x
2x
4x
6x
8x
0
Relative (VS Absolute) Market Share
0.1x
7
2%
10x
Market Growth Rate
18%
Questions?
Is the company healthy?
If not, what would be your suggestions?
Can the company simply sell all or some
of its dog businesses?
Can the company bring a Dog business
back to a Cash Cow position?
Frequently Made Mistakes
Require all SBUs to yield the same
growth rate or return.
 Leaving cash cow too early or too
late.
 Making major investment in dogs
hoping to turn them around.
 Maintaining too many question
marks and underinvesting in each.
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McKinsey/GE Approach
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looks at more factor in evaluating an
actual or potential business than the
BCG model does
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Two key strategic dimensions:
1. Industry attractiveness: attractiveness
level of the interested industry/market
2. Business strength: reflecting internal
situation of company
GE Model
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X-axis is business strength.
Y-axis is market attractiveness.
Possible strategies based on this model
are:1. Invest / grow
2. Selectivity / earnings
3. Harvest / divest
The McKinsey/GE BusinessAssessment Array
Mkt. Attractiveness
5.00
Invest /
Grow
Invest /
Grow
Selectivity
Earnings
Invest /
Grow
Selectivity
Earnings
Harvest /
Divest
Selectivity
Earnings
Harvest /
Divest
Harvest /
Divest
3.67
Bus.
Strength
2.33
1.00
5.00
3.67
2.33
1.00
Critique of Portfolio Models
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Benefit
They help the
managers think more
strategically on what
business they should
eliminate or strengthen
their investment.
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Pitfalls
1. Too much emphasis
on market-share
growth and entry into
high-growth business.
2. Ratings and weight
can be manipulated.
3. Failure to delineate
the synergies
between two or more
businesses.
Planning New Business
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Intensive growth: try to grow within ur biz
1. Market penetration:
1.1. Buy more
1.2. Competitors’ customers
2. Market development:
2.1. New Users: e.g., Aspirin
2.2. New locations
3. Product development: new pdt but the same
tech e.g., higher quality products
Planning New Business (2)
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Integrative growth: add biz that are unrelated
to the current biz
1. Backward integration: to secure the right ss
2. Forward integration
3. Horizontal integration:
3.1) To monopolize market
3.2) To control intensity of competition
Planning New Business (3)
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Diversification growth: Do not put all eggs
in one basket
3.1 Concentric diversification: New cust,
New pdt with similar/related tech n’
marketing e.g. milk and yogurt
3.2 Horizontal diversification: Current cust,
new tech e.g., Nike’s sunglasses, sport
shoes, T-shirts, etc.
3.3 Conglomerate diversification: very
diversified e.g., Mitsubishi
Business Strategic Planning
1.
2.
3.
4.
5.
6.
7.
8.
Set up a mission.
Conduct SWOT analysis
Define goal formulation
Define strategic formulation
Define strategic alliance
Define program formulation
Implementation
Feedback and control
SWOT Analysis
External
factor
OPPORTUNITY
THREAT
Internal
factor
STRENGTH
WEAKNESS
Goal Formulation
MBO (Management By Objective)
 Goals should be set:
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hierarchically
 quantitatively
 realistic
 consistent
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Strategic Formulation
Overall
cost
leadership
Differentiation
Focus
Strategic Alliances
Product or service alliances:
e.g., Rinnai & Electrolux
Promotional alliances:
e.g., McDonald & Disney
Logistics alliances:
e.g., Star alliance
Pricing collaborations:
e.g., Tour organizer & Hotel
The Value Delivery Sequence
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Strategic marketing
- customer segmentation
- market selection / focus
- value positioning
Tactical marketing
- product/service development
- pricing
- sourcing, making
- distributing/servicing
- sales force, sales promotion, advertising
Steps in the planning process
Analyzing market opportunities
 Developing marketing strategies
 Planning marketing programs
 Managing the marketing effort
 Control (annual-plan, profitability,
strategic)
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Contents of the marketing plan
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
Executive summary and table of
contents
Current marketing situation
Opportunity and issue analysis
Objectives
Marketing strategy
Action program
Projected profit-and-loss statement
Controls
Takeaways from Today
Diff tasks to be done in 3 levels of
planning (Corporate, SBU, and
Functional)
 How to define an SBU correctly
 How to allocate resources across
SBUs: BCG, and GE models
 Different growth strategies
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