Develop Strategic Business Units

The strategic business unit (SBU) concept has revolutionized many multi-product or multi-service businesses. It is a way of thinking that is absolutely vital to business success. It was first developed by the Boston Consulting Group and then used by many Fortune 1000 companies to transform their organizations into more efficient and vastly more profitable companies.

Business Within the Business

Each unit is managed as a separate business, with it's own management structure, strategic plan, business goals, sales and revenue targets, levels of profitability, and key roles and responsibilities of the people within the unit.

The starting point of implementing the SBU method is to make someone specifically responsible for the operations and the results of the unit. A competent person is put completely in charge of attaining a certain level of profitability, exactly as if he or she were being made president of a separate business.

Basic Business Planning

To make the SBU approach work, you begin by drawing up a complete business plan for each unit. Each product or service within the unit must also have a complete business plan that includes estimated sales revenues, costs, and profitability. You then proceed to determine the exact people and resources that will be necessary to achieve the goals of this SBU.

Make Someone Responsible

The primary reason that a product or service succeeds is that a competent person is completely responsible for it and is totally committed to its success.

A major reason is the failure of any product or service is that the responsibility for its success or failure is spread among several people, and no one is accountable. No person has a meaningful stake in the outcome.

The Cash Cow

The cash cow is defined as an established product or service that sells well and is a net contributor of cash to the business. It is not growing in sales and profitability nor is it declining. It is a mainstay of the company. It is a key to the company's success. At one time it may have been the main product or service of the company, but now it is simply a dependable source of revenue.

Your strategy with your cash cow is to devote sufficient resources and people to them so that their ability to contribute sales and cash to your business extends as long as possible.

Dogs Drag You Down

An essential part of the SBU business plan is to not let the "dog" drag you down. The dog is a product or service that loses money and has no future in the marketplace of today or tomorrow. It seemed like a good idea at the time it was introduced. Sometimes a good deal of emotional investment and capital has been put into this product or service, but it is clear to almost everyone that it has no future.

Action Exercise

Begin today to view each product or service as a separate business, responsible for generating a certain amount of profit each month.

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