Specialization is a strategy developed by a business to focus on the production of a very limited range of products or services in order to gain maximum productivity, expertise and leadership in the targeted field. Companies that specialize say they get a better return on investment.
It is the opposite of diversification – when a company spreads from its core activity into new areas.
Specialization may also refer to regions of a country or even whole nations. Several countries around the world specialize in producing goods or delivering services that are native to their geographical area, and they import other goods and services.
Specializations exist in every profession. In medicine you can become a pediatrician, a biologist can become an astrobiologist, while an accountant can specialize in corporate accounts, tax, etc.
The term may also refer to an agreement within an organization, group or community under which the members most suited for a specific task or activity assume greater responsibility for its performance and execution. Police officers focus on maintaining law and order, doctors concentrate on keeping people healthy, accountants specialize in balancing the books, etc.
Specialization – division of labor
The division of labor refers to the separation of tasks in a community, organization or company so that workers or members may specialize.
People, organizations and countries are blessed with or acquire specialized capabilities and either form combinations or trade to exploit those capabilities in others as well as their own.
Adam Smith (1723-1790), a Scottish pioneer of political economy and moral philosopher, considered by many as the ‘father of modern economics’ wrote about the division of labor right at the beginning of his famous work – An Inquiry into the Nature and Causes of the Wealth of Nations.
During the 20th century, John Doe Vehicles diversified into the manufacture of trucks, motorbikes, sports car and taxis. It is now selling off those divisions and will concentrate on sedans (UK: saloon cars) – it is pursuing a strategy of specialization.
Mr. Smith foresaw the essence of industrialism by determining that the division of labor – the specialization of work duties – boosts productivity. His example was the making of pins.
The division of labor – specialization – creates specialists who need coordination. The coordination is facilitated by grouping these people with specific tasks and skills together in departments. Departments can be grouped according to functions, products, customer types, and geographic location.
Specialization is the focus of company training programs, personal career ambitions, and choices in education. A person who excels in math (UK: maths) but is not a good writer, when at college will focus on subjects that rely heavily on mathematics, and will become a mathematician, engineer, physicist, statistician, accountant, etc.
Specialization – the future for many companies
During the 20th century, the path followed by most companies was diversification – widening their range of products and services and expanding into new geographical locations.
Since the turn of the century, the tendency has moved in the opposite direction – towards specialization. More and more companies have been selling off their non-core sections and focusing resources in one direction.
Without the specialization of members of our workforce – Division of Labor – our economy would be extremely primitive. Each individual specializes in what he or she is good at.
This move towards specialization is especially evident in the pharmaceutical industry. As far as drugmakers are concerned, corporations that do not specialize are doomed.
Big pharma has been going through a very rough time, with assaults from generic drug manufacturers, the rise of low-cost drugmakers based in emerging nations, and legal challenges to patents on blockbuster medications.
P. J. O’Rourke, an American political satirist and journalist, the H. L. Mencken Research Fellow at the Cato Institute, once said: “Adam Smith pointed out that there were three things that make us more prosperous, in a general sort of way: freedom to pursue our own self-interest; specialization, which he called division of labor; and freedom of trade.” (Image: cato.org)
As a survival strategy, the largest pharmaceutical giants are building dominant positions in narrower business lines or focusing their resources on drugs that target rare diseases.
In the world of human and animal medications, specialization is ‘in’, while diversification is the kiss of death.
According to BusinessDictionary.com, specialization is:
“An agreement within a community, group, or organization under which the members most suited (by virtue of their natural aptitude, location, skill, or other qualification) for a specific activity or task assume greater responsibility for its execution or performance.”
Video – Specialization and Trade
In this Learn Liberty video, Art Carden, Assistant Professor of Economics at Samford University, explains what specialization is and how it benefits the economy.