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CHAP 12 HM : BUSINESS SEGMENTATION. By : Candra Wahyuni P Ery Ardono S Heru Agung P. Business Segmentation. The first step of strategic planning process is the segmentation of the firm’s activities into business unit Business segmentation is one of the most critical corporate strategic task

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chap 12 hm business segmentation

CHAP 12 HM :BUSINESS SEGMENTATION

By :

Candra Wahyuni P

Ery Ardono S

Heru Agung P

business segmentation
Business Segmentation
  • The first step of strategic planning process is the segmentation of the firm’s activities into business unit
  • Business segmentation is one of the most critical corporate strategic task
  • Business segmentation will do after performance enviromental scan, which allows to frame all the external forces that will impacting the firm, and after the statement of mission of the firm, which defines the business scope and the unique competencies
  • The business segmentation of the firm which require grouping the firm activities into coherent categories that will allow a most effective management of the firm’s resources
  • Strategic business unit (SBU) as an operating unit or planning focus that sells a distinct set of products or services to a uniform set of customers, facing a well defined set of competitors
business segmentation1
Business Segmentation
  • Business segmentation is important for all the sttrategic tasks of the firm
  • Corporate strategy delas primary with the shrewd management of the portofolio of businesses, which includes the proper allocation of resources among them, the sharing of these resources across them, and the use of the organizational resources and capabilities for thedevelopment of new business
  • Firm focus proper attention on the development of each business to its maximum potential, whhich is the essence of business strategy
  • Functional strategies are intended to develop and cultivate the capabilities of the firm that will support the corresponding business strategy
business segmentation2
Business Segmentation
  • When defining the business unit, top manager are creating the domains in which the strategy of the firm will become explisit
  • This is mora powerful way of conveying the sense of direction and priorities that will lead the overall managerial decision making process, because it is not just a verbal declaration of intent, but an actual manifestation of the prespectives selected by the firmto compete in the markets in which it participates
key dimensions that could be legitimate candidates for business segmentation
Key dimensions that could be legitimate candidates for business segmentation
  • The set of products of the firm. SBU can define according to product lines. In some specific circumstances, market, functions, and geographical areas could be equally valid dimensions of business segmentation, because of the significance that they bring to strategic positioning
  • It does not have to be based on one single predominant criterion. The essence of segmentation is the identification of all matters demanding focused strategic attention. Most likely, having an array of product, market, functional, and geographical dimensions to take into consideration.
business segmentation3
Business Segmentation
  • Consequently, business segmentation is a complex and multidimensional representation of the organizational purpose. It’s help to selected as focuses of organization attention
  • Business segmentation requires continuous redefinition and adjusments to align the business definition with the permanent transformation in today’s rapidly changing environment. It’s help organization to expansion into global market
  • The business entities that result from the segmentation process should not be treated independently and run autonomously. The tasks are horizontal and vertical integration. This mean that immediately after having defined the business, we will ask the degree of interelationship they should have, as well as how much value added will be provided to these businesses within the corporation
the core competence and the challenge to the sbu concept
The Core Competence and The Challenge to The SBU Concept

C.K Prahalad and Gary Hamel in their article “The Core Competence of The Corporation” in Hax and Majluf,1996.

  • They state that the roots of competitive advantage derive from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products
  • They postulate that the tangible link between identified core competencies and end products is what they call the core products-the physical embodiment of one or more core competencies
  • They state that senior management should spend a significant amount of its time developing a corporate-wide strategic architecture that establishes objectives for competence building
the core competence and the challenge to the sbu concept1
The Core Competence and The Challenge to The SBU Concept

The basic messages in these viewpoints are

  • That the central source for strategic advantage resides at the corporate level, where core competencies are developed
  • That core competencies are not directly applied to end products
  • That developing the strategic architecture is what guides competence building
the core competence and the challenge to the sbu concept2
The Core Competence and The Challenge to The SBU Concept

Concept of core competence :

  • It calls for an elevation of the strategic issues of the firm to the corporate
  • It forces a reflection for top managers to understand the fundamental foundations of competitive engagement
  • It focuses the technological and production skills of the firm to concentrate on a long lasting, farreaching set of outputs
  • It identifies as a priority agenda for top managers the development of the strategic architecture and capabilities of the firm
matching organizational structure and business segmentation
Matching Organizational Structure and Business Segmentation
  • Business segmentation is strongly influenced by the principles commmonly used for designing the organizational strcuture of a firm
  • The process that leads toward the final organizational structure of the firm is only posible through the wise exercise of a large number of tradeoffs and compromises.
  • Because of the inherent limitation of the span of control, identify just very few critical dimension as the basis primary segmentation. That is what the first organization charrt the firm
  • It continues to flow through finer and finer segmentation, until we have a subordinate hierarchy incorporating all of the critical dimensions that address the overall allocation of resposibilities and authorities
matching organizational structure and business segmentation1
Matching Organizational Structure and Business Segmentation
  • Business segmentation process is applied at different hierarchical levels in organization. This is span of control issue when identifying business from the corporate perspective
  • The corporate segmentation in a large firm is rather broad and aggregated
  • SBU are composed by plularity of products and markets, which have to be properly identified by a secondary segmentation taking place at the business level
matching organizational structure and business segmentation2
Matching Organizational Structure and Business Segmentation
  • Two processes of business segmentation and organizational strcuture design do not have the same final objective, they are strongly linked
  • This match would greatly facilitate the formulation and implementation of strategy, the congruency between operational and strategic commitments, and the resultant accountability in both modes
  • Considerable efforts would have to be made to match strategy and structure
  • If there is mismatch between organizational design and the business focuses that lead to a proper business segmentation, it will need an infrastructure of horizontal coordinating mechanisms.
  • There are : assigning a manager as liaison, formation of task forces and committees, appointing either temporary or permanent coordinating managers, recognizing formally the dual resposibilities and authorities by mean af matrix organization
making explicit the business segmentation
Making Explicit The Business Segmentation
  • Regadless of the final dimensions selected to resolve the way the business segmentation process is conducted, it is important that top managers reach a final consensus on the resultant business units, the rationale for segmentation, and the identification of the individuals responsible for formulation and implementation of the corresponding business strategy