Defining Business Scope and Strategic Units

Defining Competitive Territory and Boundaries in Mission Statements

• **Industry:** Companies may operate in one or multiple industries, including industrial goods, consumer goods, or services.
• **Products and Applications:** Firms define the range of products and applications they will offer.
• **Competence:** Companies identify their core competencies and leverage them.
• **Market Segment:** The type of market or customers a company targets.
• **Vertical:** The number of channel levels in which a company participates, from raw materials to distribution.
• **Geographical:** The regions, countries, or country groups in which a company operates.

Establishing Strategic Business Units (SBUs)

Companies can define themselves in terms of products or customer-satisfying processes. A strategic market definition considers both current and potential markets.

A business can be defined by three dimensions: customer groups, customer needs, and technology.

SBUs have three characteristics:

1. They are separate businesses that can be planned independently.
2. They have distinct competitors.
3. They have a manager responsible for strategic planning and profit performance.

The purpose of identifying SBUs is to develop separate strategies and allocate funding.

Assigning Resources to Each SBU

Once SBUs are defined, management must allocate corporate resources. Portfolio-planning models assist in investment decisions.

The GE/McKinsey Matrix classifies SBUs based on competitive advantage and industry attractiveness. Management can decide to grow, harvest, or hold the business.

The BCG Growth-Share Matrix uses market share and growth rate to classify SBUs as dogs, cash cows, question marks, or stars.

Portfolio-planning models have become less popular due to their oversimplification and subjectivity.