Learn: Rationalisation - Meaning and Reasons

Welcome!You've already explored various growth strategies like mergers, takeovers, and organic growth. Today, we'll build on that by understanding rationalisation, a key concept in business restructuring.

What is Rationalisation?Rationalisation refers to reorganising business operations to improve efficiency and reduce costs. This often involves closing underperforming sites or simplifying processes. It's important because it helps businesses stay competitive.

Reasons for RationalisationBusinesses rationalise when they need to cut costs, improve productivity, or respond to market changes. For example, a company may close factories with outdated equipment or merge departments to reduce duplication.

Methods of RationalisationCommon methods include downsizing staff, merging overlapping teams, outsourcing non-essential tasks, or closing inefficient facilities. These changes aim to streamline operations.

Advantages of RationalisationRationalisation can lower operating costs, improve efficiency, and increase profitability. For instance, closing underused facilities allows resources to be focused on high-performing areas.

Disadvantages of RationalisationIt can lead to job losses, lower employee morale, and disruption during the transition. If not managed well, it might harm customer service or brand reputation.

Examples of Rationalisation in ActionA supermarket chain may rationalise by closing smaller stores in favour of larger ones. Similarly, a manufacturer might centralise production in one factory instead of operating across multiple sites.

Review Time!Great work! You've learned about the meaning of rationalisation, its reasons, advantages, and disadvantages. Let's test your understanding with a few more questions.