Specialization and Diversification


Specialization implies expertise in some particular area or field. It is experienced that as the companies expand the range of their products, manufacturing system, involves more and operations for transforming inputs into output. This often result an increase in operation cost and decline profits. The problem can be solved by identifying the products contributing to losses and then eliminate their production. This will lead to confine the production of profitable items only and consequently a reduction in number of operation required in the process. The minimization of operation can lead to use of expert knowledge,skill and techniques in production system, the nature and the type of product. Operation required manufacturing it and the nature of the market. Specialization implies reduction in the variety of products manufacturing by the organization.

Advantages of specialization are:

• Specialization and standardization leads to higher productivity.
• Incase in output and reduction in per unit cost of production ,
• Savings in purchase of raw material and improvement in the quality of the finished goods.

Disadvantages of specialization are:

• Less flexibility in adjustment to changed situations.
• Monotony and boredom may adversely affect the efficiency.


It implies policy of producing different types of products by an enterprise. Thus it is reverse of simplification are associate with the nature of the industry e.g. in the case of capital goods industry simplification is more important as the customers give preference to economy, accuracy and performance of the product, whereas in an consumer goods industry diversification leads to produce variety of goods in ;terms of style, shape, color, design etc. The establishment facing tough competition is forced to diversify this activates to capture the market. In general diversification can be adopted for the purpose the market. In general diversification can be adopted for the purpose of (a) utilization of idle/surplus resources, (b) stabilization of sales, (c) to cope with demand fluctuations and (d) for survival of the organization.

Due care and precautions should be taken in the formulation of diversification policy. Proper and extensive market analysis at different levels of the quality and quantity of the products should be done to determine the levels of profitability. This will help in selection most appropriate diversification strategy under the prevailing circumstances.

Advantages of Diversifications are:

• Increase in sales due to production of different kind of products. This also leads to increase in volume of business.
• Needs of wider section of consumer are fulfilled.
• Risk minimization’ in the case of quick and unpredictable demand variations.
• Uniform and balanced production programme can be chalked out without any consideration of wastage by production by products.
• Elimination of wastage by producing by-products.

Disadvantages of Diversifications are:

• Due to increase in number of operations the production process becomes quite complicated and some times expensive.
• Production Planning and control operation becomes complicated and time consuming requiring extra Efforts.
• The size and the variety of items in; the inventory increases with diversification introducing more problems.
• Worker of different types of skill and expertise are required.


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