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Business Unit Strategy: Core & Critical

Welcome to the next Strategy Skills podcast. This is a video version that will be released as part of the Firmsconsulting TV video series on iTunes, which will also be accompanied by an audio version released through our Strategy Skills iTunes channel and Strategy Skills app.

Of course, if you want to see the entire study, with all slides and training videos released to date (more will be added over time), you can join the Executive Program and it will all be there.

In today’s video we will focus on business unit strategy within the context of a corporate strategy study. We will talk about the role of the business unit strategy stream within a corporate strategy study, a very particular and crucial role.


Business unit strategy stream

The corporate strategy team will determine what the strategy is going to be, and what skills are required to play in that market, region and part of the value chain. The business unit strategy team will then go through all the business units and decide which of these 100 odd business units are absolutely essential to implementing the new strategy. We call them core. They will also decide which of these are not essential but directly support the core businesses. We call them critical.

If it is just a business unit strategy study, without the corporate strategy alignment, then you could go and identify the individual business units, map them, categorize them and figure out how to create value. But if it is part of a broader corporate strategy study you first have to determine which parts of the business stay and which go. That is a cataloguing process. And that is what we will focus on in this article and corresponding video.

Core vs non-core

So basically, when we are going through the study, the business unit strategy team has to answer a few questions for us. Corporate strategy will tell the business unit team what the company wants to do. The business unit strategy team has to then figure out which businesses are now core.

And this is not an easy task. When you are dealing with a company that builds power stations, transmission lines and so on, many things seem core but they are not core. Other things seem non-core but they may very well be core.

Our job is to find the core businesses and if they are non-performing we have got to fix them. And that obviously becomes the biggest part of the work.

Critical vs. non-critical

If something is non-core our job is to decide what we will do with it. When it is non-core we can split it down in two areas. Is it critical to the business or non-critical?

Now, here our view is that if something is critical you should try not keep it within your business. You can outsource it.

The reason we are doing that is because its going to take so much effort and energy to focus on your core business that we don’t want to tie up resources (capital, money and management time etc) focusing on something that is critical but is not essential to keep in-house.

Obviously, things that are non-critical should be also outsourced, sold or in other ways removed pretty quickly.

Performing vs. non-performing

We also separate non-core into performing and non-performing. If something is performing we don’t have to spend so much time looking at it. If something is non-performing then we have to manage it in a different way. We have to get it up to speed. We have to understand why it is non-performing.

If something, for example, is critical but non-performing that becomes a problem for us. Because then we have to ask ourselves, “Do we need to find an external service provider? Who can best manage this? Can this be managed? Should this be managed in-house?” So you can see that the options are complicated.

Business unit strategy by itself vs. within a broader corporate strategy study

And when it comes to business unit strategy this is a lot of the work you are doing. When people think of business unit strategy they think, “Well, we need to create a strategy for the business unit.” That is correct but only if you are working on one business unit.

When you are working on these huge corporate restructurings and turnarounds, which is what this study is, you are typically working with a basket of business units and before you get to developing a strategy for one business unit, which is a study we will do in phase II when we start preparing for implementation and which is scheduled to be released to Firmsconsulting Insiders, you have to first begin cataloguing them all and figuring out, broadly speaking, which are going to stay and which are going to go.

And then once you get broad agreement on that clustering you can go through them in more detail to figure out if they should go or if you missed something in this broader clustering.

So if business unit strategy needs to be developed within a broader corporate strategy study it is not just about analyzing one business unit. It is about understanding which business units go and which stay and, once you understand which business units stay, only then is it about developing the business unit strategy for the individual business units.

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Image from Ari Helminen under cc, cropped.


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