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How is performance of SBU measured? What are the advantages and disadvantages of creating SBUs?
Ans. Strategic business units are self contained divisions formed within an organization for dealing with specific business concerns. These units pull together the diverse parts of the concerned organization while cutting across the geographical and diverse lines for serving a specific market in a more efficient manner. These strategic business units are also referred to as independent business units or strategic planning units. The main philosophical concept behind the formation of strategic business units is to serve a clear and defined market segment along with a clear and defined strategy. These business units have to contain all the needs and corporate capabilities of the respective organization. The entire portfolio of the concerned business has to be managed by allocation of managerial and capital resources for serving the overall interest of the entire organization. This helps in developing a balance in the earnings, sales and the assets at a level which is controlled and acceptable for taking the right amount of risks. The strategic business unit (SBU) is created with the application of set criteria which consist of the competitors, price models, customer groups and the overall experience of the company. It is also sometimes seen that a number of different verticals present in the same organization having similar competitors and target customers are amalgamated to form a single SBU. This helps in strategically planning the overall business of the organization. This is also true for the company which has different product ranges and some of them have similar capabilities in terms of research and development, marketing and manufacturing. Such products can also be amalgamated to form a single unit. The main notion which rests behind the concept of strategic business units is to gain a competitive advantage in the populated marketplace. This can be done because the SBU helps in segmenting the activities of the company in a strategic manner and the resources are thus allocated competitively. Each Business Unit must meet the following criteria: 1. 2. 3. 4. 5. Have a unique business mission, independent from other SBUs. Have clearly definable set of competitors. Be able to carry out integrative planning relatively independently of other SBUs. Should have a Manager authorized and responsible for its operation. Be large enough to justify senior management attention but small enough to serve as a useful focus for resource allocation.
Recent years have seen heightened concern and focus on measuring and managing organisational performance. Performance management methodologies such as strategy maps, demand forecasting, customer profitability analysis, product profitability analysis, activity based costing, value based management, balanced scorecards, performance prism, dynamic pricing and driver-based resource capacity planning have proved to be great assets for
As the managers of these business units get involved in strategic decision-making. The results are. allowing corporate level executives to deal with strategic issues. As a result. However. In the long-term. and Increases operational and strategic control. One of the problems that most companies encounter when they migrate from a centralised to a decentralised organisational model is setting up targets and designing reward systems for the newly formed strategic business units. Increased focus on products and markets. Difficulty in maintaining a uniform corporate image. they face the challenge of achieving great results and avoid experiencing a backlash from senior executives. Competition in the marketplace has intensified further increasing the need for businesses to respond promptly to customer needs. they are more likely to negotiate manageable targets that appear outwardly tough but are inwardly comfortable. and design their own reward systems. To really benefit from decentralisation and empowerment. this approach doesn¶t help at all to improve organisational performance. Over emphasis on short term performance. Facilitates development if general managers. the reality is often very different. At the same time. and investments. disappointing.improving business performance. as the global modern economy has evolved. businesses have had to adapt to new organisational models. Disadvantages of creating an SBU: y y y y y Increased expenditure invited through doubling of operations. personnel. and Distortion of information. Through decentralisation and empowerment. there is conventional thinking that managers and their subordinates will think and act like owners. In the end. . more often than not. Advantages of creating an SBU: y y y y y Minimizes problems associated with sharing resources across functional areas. Dysfunctional antagonism amongst divisions might detract from in general corporate performance. most companies have eliminated management layers and devolved authority and decision-making down through the organisation. measure performance. improve quality and cut costs. Quick response to environmental change. one should re-examine how they can set targets. be willing to take calculated risks and become accountable for their performance.
Q8. Such a clean . The peculiarity of these organisations is that often the consumption of the service takes place while it is in the generation. rather than that of management. insurance. they want to do the best job they can. Professional who are also managers tend to work only part time on management activities. for this and other reason. but provide certain services. The significant difference between the various types of organisations is observed when we analyze the manufacturing or service environment in which they operate. corporate strategy. Professional tend to give inadequate weight to the financial implication of their decisions. what matters is the framework in which the overall manufacturing or service strategy is developed and implemented. finance. banking. business unit strategy. engineering.). but the problem of measuring tha value of human assets is intractable. only senior management is concerned with both. Ultimately. rather than as part of a team. some authors have advocated that the value of these professional should be counted as assets. etc. How does a service organisation differ from a manufacturing organisation? How is professional service organisation differ from normal organisation? How is pricing and marketing done by professional service organisation? Ans: Manufacturing Organisation engaged in the production of goods (finished products) that have value in the marketplace. Marketing in Professional Organisation In a manufacturing company there is a clear dividing line between marketing activities and production activities. Elements of the manufacturing environment include external environmental forces. senior partners in the accounting firm participate actively in audit engagement. education does not include education in management. senior partners in the law firm have clients. advertising. Because professional are the organisation¶s most important resources. Service Organisation includes those Organisations that do not produce goods. Many professionals prefer to work independently. In most professional. regardless of its cost. The system that does this is called Human Resource Accounting. other functional strategies (marketing. this sector includes hospitality. product selection. Professional Organisation Professional Organisation is labour intensive and the labour is of a special type. product/process technology and management of competencies. professional tend to look down on manager. logistics. quite naturally it stresses the importance of the professional. consultancy. Typically. product/process design. These Organisations are further classified into two as Process Organisation (Flow production or continuous process production industries) and Discrete Manufacturing Organisation. etc.
speeches. there is a fixed price for the project. the professional¶s ethical code limits the amount and the character of overt marketing efforts by professional. . fee generally are related to professional time spent on the engagement. however. usually by professional who spend much of their time in production work that is working for clients. golf and similar activities.separation does not exist in most professional organisation. medicine and accounting. These marketing activities are conducted by professionals. In some. In still others. it takes the form of personal contact. Marketing is an essential activity in almost all organisations. In other professions such. Prices vary widely among professions. If it cant be conducted openly. as investment banking. Pricing in Professional Organisation The selling price of work is set in a traditional way in many professional firms. the fee typically is based on the monetary size of the security issue. If the profession is one in which members are accustomed to keeping track of their time. however. they are relatively low for research scientists and relatively high for accountants and physicians. such as law. articles. The hourly billing rate typically is based on the compensation of the grade of the professional plus a loading for overhead costs and profit.
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