Learn: Rationalisation - Meaning and Reasons

Welcome!You've already covered various growth strategies, including mergers, takeovers, and organic growth. Today, we'll explore rationalisation, a key concept that businesses use to improve efficiency and cut costs. Let's dive in!

What is Rationalisation?Rationalisation refers to restructuring a business to improve efficiency and reduce costs. This often involves closing underperforming locations, reducing staff, or streamlining operations. It’s a deliberate process aimed at making the business more competitive.

Why Do Businesses Use Rationalisation?Businesses use rationalisation for several reasons, including reducing unnecessary expenses, increasing profitability, and adapting to changing market conditions. It allows firms to remain competitive, especially during challenging times.

Methods of RationalisationCommon methods include reducing the workforce, consolidating operations, outsourcing, or eliminating redundant processes. These actions aim to make the business leaner and more efficient.

Benefits of RationalisationRationalisation can lead to lower costs, improved efficiency, and a stronger competitive position. However, it may involve short-term challenges, such as employee redundancies and resistance to change.

Examples of RationalisationImagine a retail chain with several underperforming stores. Closing these stores reduces costs and allows the chain to focus on profitable locations. Similarly, a manufacturer might consolidate production into fewer factories to save on operational expenses.

Review Time!Great work! You've learned about the meaning of rationalisation, its reasons, methods, and benefits. Now, let's test your understanding with a few questions.