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CMA Intermediate · Operations Management and Strategic Management · Introduction to Strategic Management

A corporate planning team groups its businesses into SBUs. Which basis for forming an SBU is most consistent with the standard approach?

SBUs are formed by grouping businesses that have a common set of competitors, customers and a distinct mission, so each can be planned independently of other units. Location, headcount or accounting year-end are administrative features and do not define a strategic business.

  1. AGroup products only by the plant location where they are manufactured
  2. BGroup by the number of employees in each department
  3. CGroup businesses that share a common set of competitors, customers and a distinct mission, so that planning can be done independentlyCorrect
  4. DGroup all businesses with the same accounting year-end together

Explanation

An SBU is formed around a distinct business with its own competitors, market and mission, which can be planned separately from other units. Plant location, headcount and year-end are administrative attributes that do not define a strategic business. Grouping by these would not allow independent strategy formulation.

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