Criteria for Strategic Business Unit
A business unit is an operating unit in an organization that sells a distinct set of products of services to an identifiable group of customers in competition with a well-defined set of competitors. Generally, the following criteria should be considered in classifying an organizational unit as an SBU:
1. An SBU should serve an external, rather than an internal, market: That is, it should have a set of external customers and not merely serve as an internal supplier.
2. Have definable groups of competitors: It should have a clear set of external competitors, which it is trying to equal or surpass.
3. It should have control over its own destiny: This means that it must be able to decide for itself what products to offer, how and when to go to market, and where to obtain its supplies, components, or even products. This does not mean that it cannot use pooled resources, such as a common manufacturing plant, or a combined sales force, or even corporate R&D. The key is choice. It must be able to choose and not merely be the victim of someone else`s decisions. It must have options from which it may select the alternative(s) that best achieves the corporate and the business objectives.
4. Its performance must be measurable in terms of profit and loss: that is, it should be a true profit center. SBUs operate within the objectives and strategy set by top management. Within that framework, each SBU performs its own strategic management process. The SBU`s operations are either strengthened or weakened depending on the resources allocated to it at the corporate level.