Download CHAP 12 HM : BUSINESS SEGMENTATION

CHAP 12 HM :
BUSINESS SEGMENTATION
By :
Candra Wahyuni P
Ery Ardono S
Heru Agung P
Business Segmentation
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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 Segmentation
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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 Segmentation
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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
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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 Segmentation
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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
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 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 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
Two Conceps of The Corporation :
SBU or Core Competence
SBU
CORE COMPETENCE
OUR COMMENTARY
Basic for
competition
Competitiveness of today’s
products
Interfirm competition to
build competencies
The SBU is the depository
of the core competencies
of the firm
Corporate
structure
Portofolio of businesses
related in product market
terms
Protofolio of
competencies, core
products and
businesses
Horizontal strategies
Status of the
business unit
Autonomy is sacrosanct; the
SBU owns all resources
SBU is a potential
reservoir of core
competencies
The SBU should not be an
autonomous entity
Resource
allocation
Discrete businesses are the
unit af analysis; capital is
allocated business by
business
Businesses and
competencies are the
unit af analysis; top
management allocates
capital and talent
Resource development
and resource allocation
should be done from a
corporate and business
perspective
Value added of
top management
Optimizing corporate return
through capital allocation
trade offs among business
Enunciating strategic
architecture and
building competencies
to secure the future
Strategic management
addesses the prosper
integration of strategy,
structure, processes,
performance, adn culture
Matching Organizational Structure
and Business Segmentation
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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 Segmentation
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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 Segmentation
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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
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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
Business segmentation-case of P&G
No
Business unit
Rationale for segmentation
1
cellulose
Unique competitors, technology, and customers
2
Tissue and paper towel
product
Unique competitors and technology
3
Disposable diapers
Largest unit, unique competitor and technology
4
Coffee
Different suppliers and customers. Most profitable
food segment
5
Cake mixes
Unique competitor and technology
6
Shortening oil
Unique competitor and technology
7
Potato chips / peanut
butter
Unique competitor and technology
8
Drinks
Different R&D and competitor. Separated to
facilitate possible divestment
9
Cosmetics
Well defined set of customers, competitors, and
technologies
10
Oral care
Different customers and competitors
Business segmentation and assigment of
managerial responsibility-the case of NKK
Business Unit
Responsible Manager
Rationale for segmentation
High end carbon and
low alloy steel
Executive director, steel div
Different customers and independent
strategic actions
Low end carbon and
low alloy steel
President, Toa Steel
Different customers and independent
strategic actions
Stainless steel and
scecialty steel
General manager, specialty
steel product dept
Independent strategic actions
Polymer product
General manager, polymer
product dept
Different competitors and independent
strategic actions
Titanium, alumunium,
and specialty metals
General manager, titanium
and advanced metal dept
Independent strategic actions
ferroalloys
General manager, toyama
works
Different competitors and customers,
independent strategic actions
Chemicals
President, ADCHEMCO
Different competitors and customers,
independent strategic actions
Precision metal
products
president., NKK Seimitsu
Corp
Different competitors and scustomers,
independent strategic actions