CHAPTER 1 – WHERE IS THE ORGANIZATION NOW?

Objectives:

Determine the different processes of corporate business analysis.

Learn corporate business analysis algorithm.
Identify the stakeholders in the formal organization structure.

A strategic business unit (SBU) can be defined as a unit that produces products or
services for which there is an identifiable group of customers. Organization divisions or
units are frequently defined on this basis, with an adhesive company.

The corporate whole, individual businesses have to be managed and business

strategies pursued. The overall corporate strategy and the strategies of sister
businesses will influence the strategy of an individual business.

It is logical to answer the question where the organization is at two distinct organizational
levels:

1. The corporate level or multi-strategic business unit (SBU) level.

2. The single business or SBU level.

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Figure 1.1
Corporate and business strategy

Figure 1.2
Understanding strategy in
organizations

Figure 1.1 outlines the basic corporate model. Individual businesses are seen as part of
a corporate whole, with corporate strategy being concerned with decisions about the
management and composition of that whole.

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THE ANALYTICAL PROCESS

To understand a complex corporate (multi-divisional) organization we have to have a

process that is both holistic and reductionist. This is because corporate and business
level analyses are interwoven, we cannot do one without considering the other. The
framework or process that we use can be compared to an algorithm since it follows a
procedure that helps the reader ask key questions about the organization being studied.

Continuous revision until all evidence is considered

Figure I.3 The iterative nature of strategic analysis.

• Wove backwards and forwards within the procedure until the assess ment of the
data leads to a natural conclusion (see Figure l.3).
• Recognize that the data you are analyzing may be limited.
• Arrive at your conclusions with care in light of the inherent limitations of the
analysis.
• Be prepared to argue for your conclusions from the available evidence,
remembering that managers have to operate in situations of incomplete
knowledge

The Three (3) Analytical Process

1. Preliminary corporate analysis.

2. The analysis of business units.
3. Summative corporate analysis.

Preliminary Corporate Analysis

Some organizations operate in more than one business area and they do not have
neatly structured and easily identifiable product groups or SBUs. It is also possible for
companies to have structures that reflect the views of their senior managers and owners
on how they should operate, or that these structures are an outcome of history and
previous conveniences. This means that we should look beyond organization structure

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when answering this question. It is possible, for example, to classify businesses

according to the markets they serve or with the technology they employ. From a
technological/supply side perspective an industry can be defined as a group of
companies that find it easy to switch their production facilities to manufacture each
other's products.

An SBU can therefore be conceived as an organized unit that is focused on supplying

the needs of specific customer groups through the deployment of specific resources.

In order to be strategically effective an organization needs to communicate its strategy

internally and externally, and the structure of an organization can either help or hinder
this communication. The way that an organization is configured can therefore impact on
strategy implementation, how stake- holders are served, on strategy creation and
development, what environ- mental signals are noticed, and what resources and skills
are developed. Organization structures are also useful to the analyst because they give
clues to those roles and activities that the company considers important; organization
structures are symbolic in that they indicate functions and active that are considered
important to the organization.

Individual Business Analysis

Developed a view on the organization's corporate strategy through the answering of

the preliminary corporate analysis questions, our attention now shifts to the analysis
of individual businesses within the corporate ‘whole'. When each business has been

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analyzed, the corporate analysis can be resumed and issues such as shared
competences and resources, and the nature of the fit between businesses.

It is a good idea to identify the people and/or organizations that purchase the business
unit's products and wherever possible to classify them into groups or segments. By doing
this we can produce data to estimate the proportion of the available market that the
organization serves. The data can also be used to compare the performance of the
company to that of its competitors, which can be an ongoing comparison if the data is
collected regularly.
A market segment has been defined as a group of consumers who can be classified on
specific dimensions. consumers may be individuals, in which case classification is along
dimensions such as age, income, life style, and socio-economic group. consumers can
also be organizations, in which case classification is along dimensions such as volume
usage, manufacturing or service process and inventory control process.

A description of an organization's products and the market segments that use them is a
description of the organization's product market mission. In consumer markets the
person who uses the product is often the person who pays for the product. In industrial
markets purchases are made by organizations and the people in manufacturing and
purchasing departments are key decision-makers. In public sector organizations the
purchaser and the user can be different; for example, school pupils and their parents as

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distinct from local and national government. In any strategic analysis it is important to
identify purchasers as well as users.

Customers buy a product because they perceive that its purchase will improve their
ability to achieve desired objectives (meet needs). An issue for a purchaser is that this
requirement is met at an acceptable cost. Different customers will also have different
perceptions of their needs and these needs will be conceptualized within their utility
potential. Put simply, some purchasers will be prepared to pay for a basic product and
no more, whilst others will be prepared to pay a premium for a differentiated product; that
is, they will be prepared to pay for benefits that derive from additional features. Models
that are useful in discussing these topics are those concerned with identifying product
and service competitive advantage. They are also useful when we try to develop
explanations for organizational performance.

In order to supply services and products an organization requires resources. These can
include skills and knowledge that are held tacitly within the organization. Strategic
analysis should therefore seek to understand the relationship between market success
(the sale of products and services) and the resources that are utilized to produce and
deliver those products and services.

An analysis of a company's organizational environment provides a platform for

understanding how a company's business strategy is related to the overall corporate
strategy, and whether there is synergy or allergy between business units in the
performance of their operational activities.
In our analytical approach we have outlined how corporate and business strategies
are interwoven. The purpose of the analysis is to determine the overall strategic
strengths and weaknesses of each business and the corporate whole, so that we can
assess the prospects for the organization based on the available information.

Summative Corporate Analysis

Research by Campbell et al. (l995) indicates that successful organizations develop

relationships between the parent and its subsidiary that vary from the distant to the
close. They have developed a typology that classifies these relationships as:

➢ Strategic Planning Relationships

➢ Financial Control Relationships
➢ Strategic Control Relationships

Strategic Planning Relationships are defined as relationships in which the center

actively participates in strategy development and implementation. This is an

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appropriate relationship when the portfolio is made up of related businesses and center
managers have a ‘feel' for the businesses in the portfolio.

Financial Control Relationships are defined as relationships in which the center's

main concern is setting financial targets but delegates strategy development to the
business unit. It is appropriate for corporations that are unrelatedly diversified, where
the direction and control from the center is targeted at motivating managers.

Strategic Control Relationships are considered intermediate, lying somewhere

between financial control relationships and strategic planning relation- ships. In these
relationships, strategies are developed by the business units and approved (or not) by
the center. The constraints found in the financial control style can also be found in
strategic control relationships, yet the emphasis on short-term financial performance
can be offset by the incorporation of strategic objectives into the agreed strategy.

To know more information about Strategic Business Unit,

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To know more information about Business Analysis,

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To know more information about Corporate vs. Business Strategy,

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Strategic Management and Business Analysis / David Williamson, Wyn Jenkins,

Peter Cooke and Keith Moreton