Defining Business Unit Boundaries

According to Michael Porter, "Strategically distinct business units are isolated be weighing the benefits of integration and de-integration and by comparing the strength of interrelationships in serving related segments, geographic areas, or industries to the differences in the value chains best suited for serving them separately."

 

Competitive Scope	-	Value Chain
Buyer segments Product segments Geographic scope Industry scope Vertical integration	Vs.	The activities required to design, develop, market, deliver, and support a product or service, or closely related products, to an external market.
_____________________	__	__________________________
Given the reality of today's environment represented by the concepts above...	?	What are the optimal value chains? (What are the optimal SBUs?)

In practice, it helps to look at the table of contents of the SBU Competitive Strategy document and imagine completing each section for the proposed SBU. If the sections cannot be answered in full, there is a good chance that the organizational entity is not a complete business. If each section section requires multiple answers depending on which segment of the proposed SBU, then the 'SBU' is probably more than one business.

Although the SBU analysis itself will reveal poorly defined SBUs, a lot of time will be wasted if the initial list of SBUs is poorly constructed. The more times the list of SBUs is analyzed and refined, the better the foundation will be for the development of: all SBU competitive strategies, all SHU statements of direction, and all group and corporate plans.

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Copyright 2008 Alan S. Michaels               Alan S. Michaels    All Rights Reserved.
Last modified:   Tuesday February 19, 2008