A business unit is a segment of a company with strategic objectives separate from the parent company but enhances the overall performance of the enterprise. It is set up to perform a specific business function to a specific market which requires a management specialty that is not within the parent company.
How to ensure the business units are successful
Empower the unit manager: The success of a business unit depends on the leadership provided in the particular unit. The manager is in charge of the unit but is also under the main organization’s top management. For the manger to perform well, you must empower him and trust his decision-making capabilities. Besides, he is the one on the ground so he is in the best place to suggest changes and strategies that will work well for the unit. Since the success of a unit contributes to the success of the organization, you should empower all unit managers so that the units become successful.
Sharing between different units: The business units must be willing to share the available resources. Therefore times when one unit will need more resources that the others, what do you do in such a situation? The managers must be ready to share. When the resources are not enough for all the needs presented, then managers must learn to prioritize their needs.
Flexibility: The organization must allow the business units some flexibility. It is important as the unit is in direct control of their products and market. The organization should be supportive of suggestions brought forth from the units. A good example is a situation when a unit manger identifies an opportunity. If the unit deal with baby diapers and then the manager realizes that mothers who buy diapers want baby wipes also, then the organization should be supportive. The strategy will require more financing, but it will also increase the amount of profits earned.
Importance of Business Units
Organization: Business units exist purely as units of specialization. When you create units within the organization, then you maximize on time management. Business units allow you to see the organization more clearly. If you were to have one manager handling more than three products at a go, then he or she will be unable to operate them effectively. Besides, he will not have time for innovation and h will not be able to organize his time well.
Micro-management: It is easy to manage small units within an organization. Every manager will be able to take care of even the smallest details. Every detail of the unit will, therefore, be attended to. The top management can track progress in the various units. This will lead to better decision making.
Profitability: For a product to perform well in the market, then it has to meet the needs of the market. So, the units need to find a way to continuously gather feedback from the market, identify a target market, target the market and position the product accordingly. If one person is assigned product, he or she will be able to give valuable contribution regarding the target market. Unfortunately, if one person is assigned more than two products to handle, the work might be too much, and it might affect his effectiveness. The financial statement for every unit is prepared separately. This enables the top management to keep tabs on the return on investment of every unit. They are also able to have a general overview of the organization’s profitability.
Decision making: When it comes to making decisions about in the organization of the units, the top managers can rely on the numbers from the financial statements. When a new unit is about to be set up, then better performing units take charge of the process. When it comes to allocation of resources, the top management uses the financial statements.