– Thoughts on Strategy and Management

Strategic Planning for Different Business Units

Larger companies normally have a number of different strategic business units (SBUs). Depending on the degree these SBUs differ from each other, there will be distinctive strategies for them. Those SBU-strategies should ideally be aligned around the overall corporate strategy and vision. On the other hand, they have to be specific enough to fit the individual market situation, customer preferences and driving forces of each particular business unit. In most cases, the corporate strategy will provide a framework that gives direction – but also limits – for the SBU-strategies. It can become a demanding task to balance the different requirements of corporate center and business units.

I remember the time when I worked for a global player that was in such a situation.

There is an extended version of this post at Themanager.org

It was a leading industrial and automotive supplier with a wide product range. In general, all (most of) their products had in common that they were high-precision metal parts. The company built its competitive advantage on its engineering expertise. Thus it tried to compete in the fields of quality and innovation and to avoid price competition. Despite these commonalities, the company had around 50 SBUs with fairly diverse characteristics at that time. They had a matrix structure that was organized either around product groups, customer groups, or applications of the products. In some segments they had a comfortable market leadership position in terms of volume and technology – sometimes nearly a monopoly. In other segments they were threatened by low-cost competitors from far-east. And, of course, there was everything in-between. They had products in every section of the Boston Box: Stars with high future potential, cash cows that did not require much investment but provided a secure stream of revenues, dogs that had fallen behind and some question marks that would need some effort to reposition them. Obviously, SBU-strategies were quite different too. They did not only depend on each segments specific situation, but also from the skills of each SBUs management. Some of them had a really strategic mindset with a vision and enough foresight. Others had excellent product and market knowledge, but lacked the ability to transform this knowledge into a strategy.

I guess I just described the typical situation of most large companies. As many others, our example company realized that they had to improve their strategic planning on corporate and SBU level. Until then, each SBU-management was free to set up their strategic planning as they felt comfortable with. As long as their performance met expectations, everything was accepted. That was not enough anymore. Top management decided to set up a group-wide consistent strategic planning process with an annual strategic planning meeting that was mandatory for each SBU. Besides the organizational effort, the main problem was to develop a standard strategic analysis that would lead to meaningful results for all the diverse SBUs. The intention was to have an analysis that allowed comparing the strategic situation of all SBUs by a common scheme and with common measures. At the same time, we at the strategic planning department had to make sure that the analysis gave enough space for all the individual characteristics of each SBU. That was imperative because

  • You would not come up with meaningful results if you leveled out specific sources of competitive advantage or specific threats
  • You would never gain any acceptance for the process among SBU managers without taking into consideration their individual situation.

In order to achieve this, we focused on some standard strategic analysis tools. We started with a questionnaire that covered general things like market situation, market volume and expected growth rate, our market share and competitive situation, comparison of our own products with competitive offers (in terms of quality, price, technological level etc.) and more. The results of those questionnaires we used as a basis for a standard presentation for each SBU. Each presentation contained the same set of charts and figures, mainly on our positioning in relation to our competitors. Those standard figures were accompanied by a number of empty boxes for commentaries and explanations. That was an important feature to give each SBU the opportunity to present its individual specifics and to support the standard charts with individual background information. The storyline of the presentation was structured in a way that led from external to internal analysis. Results were to be summarized in a SWOT-chart. After that, SBUs were asked to present their proposals for strategic developments, together with a rough estimate of the financial expectations.

This process did not work perfectly, but rather good. It was the first time that the company made efforts to compare different SBUs in their current position and their future prospects. Of course, not everything went well. In the first cycle we realized that not all SBU managers had enough strategic knowledge for such an exercise. They were good managers who knew their products and their markets, but many lacked the ability to summarize this knowledge in the required way. One lesson for me was that many people claim to know a SWOT-analysis, but few are able to do it correctly. In the second cycle, we from the strategic planning department offered SBU-managers much more help. We had them do the questionnaire and some initial comments in the presentations. Then we set together with each one of them and went through the whole presentation step-by-step. Basically, it was a structured interview. We asked them for the relevant information and helped them to identify the really important aspects within their wealth of knowledge. Like a sparring-partner we discussed with them the implications of major findings and trends as well as of their strategies. On that basis we did most of the strategy-writing. That improved results significantly, and thus satisfaction of all participants increased too.

Even if it still wasn’t the perfect consistent group-wide process, we had made a step forward and had achieved as much as we had hoped to achieve.