When developing new products and services, businesses frequently identify specific niches or areas of expertise. This business strategy can provide a company with a competitive advantage. If the company you work for wants to become an industry leader, you must first understand how specialisation works and then learn how to successfully implement it. In this article, we will answer the question “What is specialisation?” as well as discuss why it is important, how it works in microeconomics and macroeconomics, provide three real-world examples, and offer tips to help you get started.
What Is Specialisation?
Consider the following information to understand the answer to ‘What is specialisation?’:
Specialisation is a business technique that involves paying close attention to one product or product category in order to become more efficient at producing it. When a business commits to this approach, it focuses on becoming an expert in a specific area. This can help the business create higher-quality products and gain recognition in its chosen market. Notably, specialisation and diversification are opposite terms. Diversification is the business process of expanding into new markets with new products, while specialisation hones in on specific products using the resources and capabilities that are currently available.
Why Is Specialisation Important?
Specialisation has a significant impact on what products a company produces and how it distributes them. It also affects what goods are available for consumers to purchase. Here are some of the reasons businesses often choose to embrace specialisation as a strategy:
Improves competitive advantage
Companies that specialise in a certain product or product category have the ability to streamline processes and allocate their resources effectively. It also allows them to hire experts who excel in their industry. This often gives them the necessary capabilities to produce higher quality products at a larger volume than if they provided several distinct goods or services. Some of the ways specialisation can provide businesses with a competitive advantage include by:
- Increasing sales and profit margins
- Expanding the customer base
- Improving customer loyalty
- Attracting top employees
Increases brand awareness
Producing high-quality, niche products or services is a great way to gain brand recognition in a specific market. By narrowing your focus to curate the offerings your company provides, you can establish your business as the number one source for these products. This can also help you improve the customer experience, which may, in turn, result in positive reviews, testimonials and recommendations. Over time, this can increase your company’s brand awareness, help you attract new customers and increase sales.
Develops economies of scale
The phrase “economies of scale” is a common business term that refers to the ability to manufacture more products while reducing costs. Companies that use the specialisation method may develop more sustainable economies of scale because they are able to invest in employees and resources that align with the specific products they produce. They may also save money when purchasing supplies and materials because they can place bulk orders. This can help businesses reduce costs while increasing revenue, speeding up their time to market and producing more goods.
How Does Specialisation Work In Economics?
The role specialisation plays in economics can vary. The most notable differences are in the effects this business strategy has on a microeconomic and a macroeconomic level. Here is an overview of how specialisation works in both of these areas:
Specialisation in microeconomics
Businesses can undergo microeconomic specialisation. This type of specialisation focuses on individual employees and their areas of expertise. In microeconomic specialisation, team members perform niche tasks and complete assignments based on their specific skill sets, qualifications and knowledge. When businesses implement microeconomic specialisation in their workforce, they have the ability to increase the quality of their products. This often provides them with a competitive advantage because they are able to offer a premium product that is superior to other options available in the current market.
Specialisation in macroeconomics
Businesses can also implement specialisation at a macroeconomic level, which applies this same strategy on a larger scale than microeconomic specialisation. Often, entire countries use this approach. This is because certain countries have resources and capabilities that other countries do not.
For example, one country might specialise in producing coffee beans because it has the proper climate and resources to excel in this area. This gives that specific country a competitive advantage over other countries that may try to produce coffee beans. It can also give this country the ability to produce a large quantity of high-quality coffee beans using the resources that it already has.
Examples Of Specialisation
Reading through real-world examples can make it easier to understand specialisation and the economic role it plays. Here are a few examples to help you visualise this business practice:
Example 1
Authentic Health Inc. produces nutritious snacks for people who enjoy healthy lifestyles. The company currently sells pre-made smoothies, protein bars and trail mix. However, it decides to pursue a specialisation to reduce costs. Because of the success Authentic Health Inc. has had with its trail mix, it starts to focus on manufacturing this product by allocating more resources towards its production.
This allows Authentic Health Inc. to increase how many units of its trail mix it can produce every day. It also improves the quality of the trail mix while decreasing production overhead. Authentic Health Inc. quickly becomes known by consumers for its excellent trail mix, which helps it attract new customers and become a leader in the trail mix niche.
Example 2
Paper Essentials Corporation produces luxury office supplies, including notebooks, stationery and writing utensils. Its brand has become popular among writers who love the quality of the gel pens Paper Essentials Corporation produces. The company decides to capitalise on this success and specialise its production lines to focus on manufacturing gel pens.
It continues to improve the gel pen formula and changes its branding to match this new business approach. This provides the company with a competitive advantage over other businesses that manufacture and sell high-end pens. Soon, it begins selling higher-quality pens for lower prices, which increases sales and appeals to new customers.
Example 3
Blended Brews produces organic tea bags in a wide variety of unique flavours with different benefits. Some of its teas promote better immune system function, increased energy and deeper relaxation. After reviewing which of its products sell the best, Blended Brews realises that sales from the teas that promote deeper relaxation and better sleep make up the bulk of its profits.
Blended Brews decides to specialise in producing relaxation and sleep teas moving forward. Because of this, the company quickly becomes a leader in the sleep tea niche. Blended Brews updates its branding, starts producing high-quality sleep teas in several new flavours and increases its customer base.
Tips For Applying Specialisation In Business
Here are some tips to help you implement specialisation in your business successfully:
Identify your area of expertise
Start by determining what products or services your business excels at producing. Review your sales data and feedback from your customers to determine what products are their favourite. Then consider what capabilities and resources your organisation currently has available. This may involve funding, equipment and materials as well as the specific skills of your current team. Analysing these areas can help you determine the most profitable area to specialise in moving forward.
Delegate tasks to specific team members
As you shift your focus to specialise in producing a specific product or service, it is important to identify which team members have the necessary skills to complete certain tasks. Consider what capabilities your current team has and whether you need to invest in additional training or hire experts in different areas. Then delegate tasks to team members in a way that allows them to focus on the job duties they excel at so you can improve the quality of the finished product.
Cultivate your brand
Once you have determined what your company’s speciality is going to be, consider whether a brand change is necessary. Updating your brand can be a great way to communicate your specialisation with potential customers and establish your company as a leader in your chosen industry. It can also make it easier for customers to remember your company and the products you want to be known for producing.