Its main objectives of specialization strategy are: achieving highest level of skills in the field and providing a competitive advantage.
Types of specialisation strategy
Specialization may have a different form and selecting the right one, depends on the competitive position of the company and the phase of the life cycle of the industry:
- extensive specialization - increasing the volume of production by which the company experience growth in expertise,
- passive specialization - keeping the same level of development of existing business areas. It is used in maturity and decline phases of life cycle.
- restrictive specialization specialization in only one of the existing areas with a total cut off from the rest. Used in growth phase, strategy of niche market, which consists of either the verification of existing structures and activities focusing on this, in which the company can easily regain a good position. It also involves focusing on the new area by taking advantage of the experience gained in other areas. (maturity phase and difficult situation on the market)
- specialization by diversifying - used in time, when success depends on the development of technologies with which there are choices of new expertise,
- specialization by re-concentration - is related to the rationalization of operations and is necessary when the situation deteriorates and company must stop diversification. It can be achieved by market expansion or marketing diversification.
Examples of Specialization strategy
- Niche Market Focus: An organization that specializes in a certain niche market can create a competitive advantage by focusing its resources on understanding the needs and desires of that particular market. For example, an organization that specializes in selling organic pet food can focus on providing products and services that meet the specific needs of pet owners who prefer organic pet food.
- Customized Services: An organization can specialize in providing customized services to meet the specific needs of its customers. For example, a web design company can specialize in creating custom websites for small businesses. By offering specialized services, the company can build a competitive advantage by providing a unique and tailored solution that meets the exact needs of its clients.
- Product Differentiation: An organization that specializes in a specific product can create a competitive advantage by differentiating its offering from its competitors. For example, a company that specializes in producing high-end luxury cars can differentiate its product from other car manufacturers by focusing on providing higher quality materials and craftsmanship.
- Technology Focus: An organization can specialize in a particular technology in order to create a competitive advantage. For example, an organization that specializes in 3D printing technology can create a competitive advantage by focusing on providing the most advanced 3D printing solutions.
Advantages of Specialization strategy
Specialization strategy can be a great way to gain competitive advantage. Here are some of its advantages:
- It allows companies to focus on specific areas in order to become experts in those areas. This can help to create a competitive edge over competitors.
- It allows companies to create a strong brand identity and recognition. This can help to attract and retain customers.
- It allows companies to increase efficiency and productivity by focusing resources on specific areas.
- It allows companies to reduce costs by concentrating on areas where they have the most expertise.
- It allows companies to create innovative products and services that are tailored to meet specific customer needs.
Limitations of Specialization strategy
One of the main limitations of specialization strategy is that it can limit the ability to adapt to changing market conditions and customer demands. Here are some other limitations of specialization strategy:
- Limited ability to diversify and create new products or services.
- High investment costs required for specialization.
- It can be difficult to maintain a competitive edge due to the highly competitive nature of the market.
- Specialization can lead to a lack of flexibility in the organization as it focuses on a specific set of skills.
- It can also lead to a lack of innovation as it focuses on a specific set of processes and techniques.
- Specialization can make it difficult to adjust quickly to evolving customer needs.
- It can be costly to switch to another specialization strategy.
- Focus on Core Competencies: This approach involves identifying and building on the core competencies and capabilities within the organization, while eliminating or outsourcing non-core activities.
- Portfolio Strategy: This entails diversifying investments into a number of different markets, products, or services in order to spread out the risk.
- Differentiation Strategy: This approach involves creating unique products or services that are differentiated from competitors in the market.
- Cost Leadership Strategy: This involves focusing on offering the lowest cost products or services in the market.
- Innovation Strategy: This involves focusing on developing new products or services that are innovative and ahead of the competition.
In conclusion, Specialization strategy involves focusing on a specific area of expertise and developing the necessary skills and capabilities to gain a competitive advantage. Other related approaches include focusing on core competencies, portfolio strategy, differentiation strategy, cost leadership strategy, and innovation strategy. Each approach offers organizations the opportunity to gain an advantage in the market through different means.
- Mayhew, B. W., & Wilkins, M. S. (2003). Audit firm industry specialization as a differentiation strategy: Evidence from fees charged to firms going public. Auditing: A Journal of Practice & Theory, 22(2), 33-52.
- Norton, E., & Tenenbaum, B. H. (1993). Specialization versus diversification as a venture capital investment strategy. Journal of Business Venturing, 8(5), 431-442.