Strategic Business Units: Analysis, Management, and Environment
Strategic Business Units
Strategic Business Units (SBUs) are sets of activities that are sufficiently self-contained to formulate a separate competitive strategy. They are characterized by heterogeneity and different environments per activity.
Phases of Strategic Management
The phases of strategic management include strategic analysis, formulation, and implementation.
Responsibility: Top management has specific duties, including guiding the process and obtaining resources.
Rationality in Decision-Making
The rational process is considered the ideal process. Assumptions include:
- Intentional process
- Objectives are clear and can be quantified
- Extensive information search
- Strategies evaluated according to objective techniques
The process offers the best strategy following objective criteria.
Limitations of the Rational Process
- Decision-maker’s bounded rationality
- Learning in the process
- Political aspects of the process
- Chance
Approaches to Strategic Management
The proliferation of strategic management studies originated various schools of thought, including:
- Rational approach
- Organizational approach
- Holistic approach
The holistic approach links rational and organizational aspects, emphasizing the complementarity between deliberate and emergent strategies, and between rational and not-so-rational aspects.
Strategic Analysis
Mission
Reflects the identity and personality of the firm; why it exists, what is the essence of the business, and what do we want it to be?
Vision
Future perceptions. What will we be, what should we be, and what do we want to be in the future?
Strategic Objectives
Help overcome the gap between the future the firm pursues and its present reality. How will we become what we want to be?
External Analysis
The environment refers to all factors outside the company that cannot be controlled and affect the results and success of its strategies.
General Environment
Identify what factors from the socioeconomic system affect the firm’s operations and performance, using PESTLE analysis and considering industrial districts.
Stages for Analysis
- Define limits of the environment (geographic).
- Identify key variables to be considered within each critical dimension of the environment.
- PESTLE: Political, Economic, Sociocultural, Technological, Ecological, Legal.
- Develop the strategic profile (list all factors, assess them from 1-5, highlight threats and opportunities).
Strategic Profile of the Environment
Similar characteristics of the environment may have different effects in different industries. The impact of the general environment varies even among companies from the same industry. Not all variables in the general environment have a significant impact on a specific firm.
Industrial Districts
Determine how a company’s location affects its competitiveness. Reasons include increased productivity, innovation, and new start-up development.
Specific Environment
Includes all external factors related to the industrial sector in which the company operates. Objective: examine industry attractiveness.
Steps
- Establish boundaries of the competitive environment.
- Assess industry attractiveness.
- Identify those segments that represent more specific competitive environments.
- Analyze the practices and behaviors of rival firms.
Greater intensity of competition leads to a lower possibility of obtaining higher returns. Attractiveness of an industry decreases with:
- Number of competitors and equilibrium among them.
- Industry growth rate.
- Mobility barriers.
- Exit barriers.
- Product differentiation.
- Costs due to change in suppliers.
- Cost structure of the firm.
- Competitors’ diversity.
- Strategic interests.
Higher entry of new competitors in an industry leads to greater intensity. A greater number of substitute products lowers attractiveness. Greater bargaining power of suppliers and customers lowers industry attractiveness.
Limitations
- Static image of competition.
- Does not take into account the existence of complementary products.
- Doesn’t consider other stakeholders.
- Not all forces have the same importance.
- Excessive emphasis on the structure of the industry to explain firm performance.
- Relevance of internal analysis.
Industry Segmentation
Identification of smaller competitive areas. Identify relevant strategic dimensions (price, quality), develop a map of strategic groups, and analyze each group applying the 5 forces model.