My third essay.

ESSAY QUESTION:
“Since no business can be all things at once, companies that specialize in one product or service are more efficient than those that offer a diverse product mix.”

From your perspective, how accurate is the above statement? Support your position with reasons and/or examples from your own experience, observations, or reading.

YOUR RESPONSE:
I only agree partially to the conclusion that companies that specialize in one product or service are more efficient than those that offer a diverse product mix. The reason given, though, is rather naive. Yes, it is true that no business, for that matter no enterprise, can be all things at once. All businesses, regardless of the market they serve, indeed need to begin by offering one product or service. To build a niche for themselves, it is also true that they need to efficiently specialize in that one product or service. However, businesses that do not respond to the needs of the market, businesses that are not flexible to extend their services, or businesses that strictly offer only one form of a particular product - these may not survive.

Consider the Information Technology industry as an example. Companies like IBM and Dell indeed begun by manufacturing and selling computers. However, as the nature of computing changed, and as the needs of the market shifted from monolithic hard-wired computers to those built around flexible and open architectures, these companies had to necessarily extend their services to include the new requirement, without having to shed their expertise or provision of their earlier products. Similarly, when mobile phones were invented, telephone companies had to necessarily start manufacturing and selling those, to keep up with the needs and expectations of the market, and to stay ahead of competition in the telephone space.

Such a shift in the nature of product or service is also necessitated by the level of saturation of a market with a particular good. For example, Microsoft, once it garnered an incredible 95% of the market share in the personal computer operating system market, had to necessarily diversify into the gaming market, to make use of the expertise it possessed, in order to maintain a growth rate consistent with its aspirations. Diversification for Microsoft certainly did not hamper the continuing expansion of the original product, but offered a new avenue towards utilizing the competencies of its employees and its other resources, thereby increasing its revenue potential. Efficiency certainly lies more in utilizing resources than pigeon-holing them into the manufacturing of only one product or service.

To reiterate, efficiency of a company is determined by the manner in which the company utilizes its resources towards achieving its goals rather than restricting its goals, unless diversifying its goals is inherently inefficient. It is true that economy of scale is in many cases possible by restricting the scope of a product or service to one particular variety. However, this is not always the case. In essence, the statement that companies must specialize in one product or service to be efficient is a rather partial conclusion that does not weigh into account several important factors of performance.