One feature of modern business is specialization. Specialization is production of a limited range of goods by an individual person, firm, region or country. Specialization happens when people and businesses concentrate on producing what they are good at, or even better, the best at. For example, Starbucks specializes in serving standardized coffee while KFC specializes in fried chicken and chicken hamburgers.
We, as managers, businesses and governments, must make choices about what to produce. All of us must do this because of scarcity of goods and services which results from limited factors of production, resources. For this reason, it is very important that we do not waste factors of production by producing the goods and services that consumers do not need or want to buy, but instead, we use limited resources effectively.
Types of specialization
Labor specialization. Labor specialization is now commonplace in the workplace and is an important part of production. In business, the production of a product requires several workers. Production is divided into separate tasks among workers who each concentrate on a limited range of tasks. Instead of workers producing one product from start to finish, they focus on just one of those tasks, one skill. The production of a product now requires several workers, each using their unique skill. People, or group of people, specializing in different tasks and skills, which is also called division of labor, allows them to concentrate on the task or skill at which they are best.
Because different workers have different knowledge and experience, they specialize in doing only the work they are the best at. Since each worker is now specializing, they become far more efficient and this increases the productivity of labor. For example, a business management teacher at the international school only teaches business classes instead of teaching both business, biology, computer science or psychology.
In the past, most of the products were made by workers with only simple tools and equipment. The development of sophisticated machinery and advances in technology have changed the production process. Machinery and equipment have become far more specialized and this has also greatly increased the efficiency of capital.
Departmental specialization. Different departments in a business organization specialize in different activities such as marketing, operations, personnel and finance. Human Resources department specializes in managing people, Finance department specializes in handling money matters, Marketing department specializes in coordinating between products, prices, promotion and distribution aligning the whole Marketing Mix with markets and customers, and Production department specializes in producing the products and controlling quality.
Business specialization. This is the production of limited range of goods by a business. Entrepreneurs have realized the benefits of specialization as well. Many businesses specialize in the production or supply of just one type of good or service in order to increase their competitive advantage. For example, McDonald’s provides a limited range of fast foods, Ford manufactures cars, Heinz processes food products like ketchup, mustard and sauces, and Bank of America provides financial services and investment banking. Another good example of specialization in business is Microsoft which has been focusing on developing and producing computer software in the last few decades.
Regional specialization. Examples of regional specialization might be Sichuan province in Southwest China which specializes in spicy chili production, Bordeaux in Southwestern France, which specializes in red wine, and Silicon Valley, a region in the San Francisco Bay Area in Northern California that serves as a global center for high technology and innovation.
Country specialization. Similar to regional specialization, different countries also specialize. Examples of country specialization might be Germany which specializes in car production, France which produces one of the best wines in the world, China which specializes in high-technology manufacturing, Scotland which specializes in the distilling of whisky, Saudi Arabia in oil extraction and South Africa in the supply of gold.
Benefits of specialization
Specialization of both labor and capital helps businesses to produce more goods and services efficiently and at a lower cost:
1. The increasing specialization of factors of production means that companies are far more efficient than they once were as they are able to use less resources and ‘do the job’ faster thanks to their vast knowledge and unique skills.
2. Specialization reduces the costs of production because workers are able to produce products without costly mistakes, wasting less raw materials or the need for redoing faulty products.
3. Specialization benefits consumers as companies are able to provide more goods and services with higher quality at lower prices than before specialization took place, therefore remain competitive against rival companies.
Summarizing, these days most goods and services are produced by more than one person; supply chains are long and involve companies based in different countries around the world, and the the production process often uses tools, equipment and machinery which has been specially designed to produce a specific good.
This is different from the past when a product would have been produced by just one person using machinery and equipment which was far less specialized than nowadays.
