A business unit is an organizational entity which in all essential respects acts as an independent enterprise for business purposes. A business strat-egy should be formulated for business units if they are to compete and be successful in the market. In order to be called a business unit, an orga-nizational entity must:
1. satisfy customer needs in an external market.
2. work to compete with external companies.
3. have its own business strategy and business concept.
4. be performance driven and take responsibility for profits and losses.
5. be decentralized from the parent organization (even if certain resources and business interests are shared).
It has become popular in large organizations to create business drive and entrepreneurship through the organization of activities into strategic busi-ness units, known as SBUs. By the establishment of busibusi-ness units, responsibility can be decentralized and given over to a number of leaders who will then be able to focus on competing and meeting goals within a limited area. A business unit is structured so that the parent company has the role of portfolio administrator and owner. Business units normally have their own boards on which both representatives from the parent company and external board members are represented.
The father of business unit thinking may well have been Alfred P. Sloan, who during his time in the different positions of Manager, Managing Director and Group Chief Executive of General Motors (GM), looked for ways to enlarge the company while at the same time making it flexible.
When Sloan took over, GM was a complex structure where different makes of car competed with each other in much the same way as with their biggest competitor, Ford. Sloan’s solution was to organize the company into five car divisions and three component divisions. Each division had a manag-ing director with commercial and strategic responsibility. This led to innovative business development where, for example, the component divi-sions began to sell components to external players. This structure was introduced in the 1920s and by 1925 GM had surpassed Ford to become number one in the automobile business. Sloan’s organizational model, which he called ‘federal decentralization’, was firmly based on business unit thinking and came to be a model for many other businesses.
Nowadays, it is mostly the rule, rather than the exception, that large compa-nies are constructed around business units. Sloan’s ideas came to be honoured and promoted by such management gurus as Peter Drucker and Alfred Chandler.
Gradually however, GM came up against problems that led to big reverses during the 1960s. By then, their organizational structure had generated a morass of bureaucracy where central units wanted to be all-powerful, controlling the divisions. As a result, separation of the company into divisions ended up contributing to the organizational sluggishness that it had been supposed to counteract.
Both academics and workers in the field today agree that group manage-ment should not get involved, if at all possible, in the day-to-day activities
of business units; they should avoid bothering them with unnecessary bureaucracy and simply keep out of the way.
RECOMMENDED READING
1. Alfred P Sloan Jr, My Years With General Motors.
2. Michael E Porter, Competitive Strategy: Techniques For Analyzing Industries And Competitors.
Businessmanship
The old concept of the businessman has once again come into favour.
According to a dictionary definition, a businessman is a person whose work involves financial transactions on a professional basis. In the modern world of finance, the term ’businessman’ can be defined as follows:
”A businessman is a person who is able to understand the structure of needs of his customers, combining this with knowledge about the rational use of capital and costs, so that economic value can be created.
The businessman can creatively combine needs and production resources, and will have the capital, costs and energy to allow a business to get started.
The businessman can function in a market economy, that is, one in which the customer has a choice between different alternatives.”
The problem with businessmanship is that it is not a discipline in the usual academic sense. Meanwhile, certain disciplines associated with business-manship have progressed; these include accounting, financing, marketing, distribution, and so on.
During the 1900s, businessmanship was influenced by different sciences.
Mathematics has been necessary for accounting and cost-benefit analy-sis. Biology has been very influential through cybernetics, as has psychology and, from time to time, even religion and philosophy.
Little research has been dedicated to businessmanship as a whole because of its very complexity.
Our intention is to show the reader that businessmanship involves the ability to have a comprehensive understanding of creating value for customers while making a rational use of resources.
A rather different kind of businessmanship is characterized by the ability to see structural solutions. A certain type of financier has the ability to purchase companies, dispose of assets or separate business units in a company, and divide it up so that its different businesses end up with a more efficient structure. This has less to do with customer-experienced value and more to do with an ability to perceive optimal business structures.
Businessmanship is in short supply in big companies and technocratic envi-ronments. The demand for businessmen is sharply increasing at the moment, and this is sure to put a premium on expertise.
It is not uncommon for the terms ‘business transaction’ and ‘business rela-tionship’ to be confused. People lacking in solid business experience sometimes have a tendency to attribute an element of trickery to business-manship that in the short term could maximise their own advantage to the detriment of another party. In a business transaction, such as selling a bike or a car to someone, where we are unlikely to do business again, it is possible to maximise short term self-interest.
However, it is more common to build up a business relationship in the belief that it will last and prove of value to the parties involved.
There has been a considerable movement against deregulation and expo-sure to competition from the latter half of the 1980s into the new millennium and, at the same time, an increasing demand for businessman-ship and businesslike behaviour. Individuals who have toiled within a planned economy as ‘bureaucrats’ sometimes betray a misapprehension concerning the significance of the term businessmanship. Those sectors of society which have previously escaped the rigours of value creation and competition from others must now be brought to understand and master the building blocks of management and indeed, of businessmanship.
Returning to our definition, we could replace the word ‘businessman’ by the phrase ’person responsible for a business’ and apply it to senior employ-ees in the public sector, or to the entire organizational world for that matter.
Perhaps the last sentence in our definition could be modified to read: ”The
businessman functions in a market economy where customers have a choice between different alternatives”.
If we look at other sectors of society, we see that this element of choice is not primarily one between comparable alternatives. Here people can choose between, say, membership of a society and something completely different. In situations involving the pure exercise of authority, our concept must be modified further if it is to be applicable, mainly because of the complexity of the needs structure and the fact that we are then operat-ing in a monopoly-type situation.
Study points in this section are:
1. The definition of businessmanship
2. The complexity of competences and the lack of academic treatment 3. The difference between business relationships and business
transactions
4. Changing societal conditions which place similar demands in other environments, such as the public sector and non-profit organizations
RECOMMENDED READING
Robert T Kiyosaki and Sharon L Lechter, Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!