Defining and Managing Strategic Business Units (UENs)

Posted on Mar 30, 2025 in Business Administration and Management (BAM)

What is a Strategic Business Unit (UEN)?

A strategic business unit, hereinafter UEN, is defined as follows: it is a unit or corporate body consisting of one or more specific products serving a well-defined common core market. It is overseen by a manager responsible for integrating all functions via a strategy aimed at competing against identifiable competitors. Key characteristics derived from this definition include:

  • A unique and differentiated mission
  • Easily identifiable competitors
  • A clearly defined total market
  • Control over its core business functions

How to Delimit the UEN

Given this definition, a primary practical question is how to delimit the UEN. How a company is divided into UENs depends on the reference market. Defining the relevant market can be based on two factors:

  • The breadth of the product offering.
  • The scope of the market.

Levels of Strategy

There are typically three levels of strategy:

  1. Basic or corporate strategy: Defines the broad, future course of the entire enterprise.
  2. Strategies for the UEN: These are market-oriented (not solely production-focused) and based on distinct units called Strategic Business Units (UENs), which are similar but not identical to traditional production divisions. The corporate strategy guides the formulation of UEN strategies. The UENs should be managed as a business portfolio, where each unit serves a clearly defined product-market segment with its own specific strategy. Capital resources and management attention will be allocated across this portfolio according to the company’s overall interests. The portfolio must be designed and managed to align with the corporate strategy. This highlights the importance of defining UENs correctly when developing the overall strategy.
  3. Functional strategy: Affects the company’s traditional functional departments (e.g., manufacturing, finance, human resources, marketing), which execute operational processes. Their role is subordinate to the market orientation defined by the corporate and business strategies. Therefore, developing functional strategies is a deductive process derived from these higher-level strategies. While applying across the enterprise, its goal is to harmonize the implementation of different business strategies, ensuring a consistently articulated structure for the company.

Example: Top-Down Planning

InterTransport provides an example of top-down strategic planning. Top management initiates the corporate strategy formulation process and directs the business units (UENs) and functional units to develop their own strategies as a means of implementing the corporate strategy.

RailTransport UEN Example

RailTransport, the railway UEN, set an objective specifying how many thousands of kilometers of track would be abandoned or sold in the coming years and developed a strategy to achieve this objective.

AirTransport UEN Example

AirTransport similarly set targets. These specified the number of new customers to attract and the required increase in tonnage transported for existing customers to meet the overall corporate objective.