Definition of business unit


A well-defined organizational structure may aid a company in streamlining its operations and achieving its objectives. Within a larger organization, business units are created to act as autonomous departments. You can advise on the creation of business units if you know what they are and how they operate. This article will define a business unit, describe its qualities, explain how it differs from a subsidiary, address some commonly asked issues, and provide an example of a business unit.

What is “business unit”?

A business unit is a functional group inside an organization that creates and executes its own unique plans. Although they operate independently, these departments tend to be in line with the core functions of their parent companies. Let’s say, for the sake of argument, that a machinery manufacturer also has a division dedicated to making home appliances and electrical gadgets. The firm’s management could hope that all departments adhere to corporate guidelines and consider the company’s guiding principles while formulating new plans.

As a firm grows to a certain level, dividing it into several divisions may help it flourish. The establishment of decentralized departments inside a corporation may have the following advantages:

After determining the characteristics of the firm’s clientele, introducing new business units may assist the company better cater to the demands of its whole target market. Demographics refer to the quantifiable and objective data about a market, such as the age, gender, and employment status of a company’s prospective clients.

Business efficiency is improved when functions are separated into separate “business units,” which function much like their own organizations.

Distinctive features

Usually, a business unit will have characteristics that set it apart from similar organizations, such as:

Independent strategy

Planning for operational aspects like marketing and growth is often done on an autonomous basis by individual business units. It’s possible that each section has its own set of ideal customers. Let’s say for the sake of argument that a company makes home appliances. It might contain separate divisions for each product, such as video game consoles aimed at teens and household appliances aimed at adults. In most organizations, departments handle procurement, materials, and personnel.

Individualized Rivals

Businesses have unique sets of rivals to deal with since they often operate in separate marketplaces from the rest of the enterprise. This has the potential to stimulate new product development and cutting-edge advertising strategies. It’s possible, for instance, that a parent company’s key rivals in the footwear industry might vary from those of a subsidiary whose primary concentration is on boot manufacture. There is a good chance that these companies will start making more comfy boots to compete in the market. The parent firm may have some say in how this new development is managed, but otherwise remain out of the way.

Expense and income totals are recorded separately.

Profit and loss statements are often kept separately by each business unit. This might be helpful for a parent firm that wants to see how much money each product or service is bringing in. Let’s say, for argument’s sake, you work for a company that makes many different brands of automobiles. In order to determine whether or not to keep producing a certain automotive brand, executives may look at sales data broken down by division.

Autonomous from other company departments

There are often several separate departments or divisions inside a company. Business managers may maintain the independence of each department while strengthening ties to the company as a whole using this method. A clothes company, for instance, may have many distinct brands or lines of apparel that cater to diverse target audiences.

Comparing Subsidiaries to Business Units

Subsidiaries are separate businesses that are wholly or partly owned by another corporation, known as the parent. Here are several ways to tell them apart from departments:

Investment in stock

One approach to tell separate business divisions and subsidiaries apart is to look at their stock prices. Holdings in a company are measured in shares. As a rule, the parent firm will own the majority of the shares in a subsidiary, giving it more say in how the subsidiary is run. When compared, divisions of a firm are self-sufficient, operating under their own share structure and rules.


Analyzing the management structures of the various business divisions and subsidiaries is another option. Managers are often appointed to supervise a business unit’s activities and report back to the parent firm as needed. A subsidiary’s management team continues to report to the parent company’s executive team on a more regular basis since the subsidiary is still under the parent’s direct supervision. The success of programs or major subsidiary efforts may depend on the coordination and oversight of this group.


Subsidiaries and other organizational subunits may have their own goals and missions to serve a variety of needs. A unit may decide to join a new market or pursue other growth opportunities on its own, for instance. In contrast, a subsidiary’s goals will often be a natural outgrowth of the parent company’s overall purpose. It’s not uncommon for a subsidiary to be tasked with helping a parent firm break into new markets abroad and raise its profile in existing ones.

Organizing Principles

Human resources, sales, support, and even payroll are often separate entities from other parts of a company’s operations. In contrast, a subsidiary may adopt the internal structure of its parent firm or develop its own. As a means of keeping their subsidiaries under management, many corporations provide financial aid to their child firms. Depending on the scope of the parent company, a subsidiary may also have operational divisions.


Most often, a company’s business divisions will develop into new areas of dominance inside the company’s existing markets. In contrast, a subsidiary’s expansion into new markets is often a necessary step in fulfilling a parent company’s goals. A firm may establish overseas branches in order to expand its operations to other territories. Through this method, the corporation may streamline its international operations and better serve its local clients by catering to their individual preferences.

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