Learn: Rationalisation - Meaning and Reasons

Welcome!Building on what you've already learned about various growth methods in business, today we'll explore rationalisation. This builds on your understanding of strategy and decision-making in business contexts.

What is Rationalisation?Rationalisation refers to the process of reorganising or restructuring a business to improve efficiency and reduce costs. Businesses often use rationalisation to eliminate waste, consolidate resources, or focus more effectively on their objectives.

Why Do Businesses Use Rationalisation?Rationalisation is used to address challenges like financial difficulties, competitive pressure, or inefficiencies. By streamlining operations, businesses can remain competitive and improve profitability. However, it may involve difficult decisions, such as redundancies or closing divisions.

Methods of RationalisationRationalisation can take several forms, including consolidating departments, outsourcing non-core activities, or adopting new technologies to improve productivity. These methods aim to optimise resources and reduce unnecessary expenses.

Reasons for RationalisationBusinesses rationalise for various reasons, such as reducing operational costs, responding to economic pressures, or focusing on core competencies. It may also be used during mergers or takeovers to eliminate duplicate roles.

Challenges of RationalisationWhile rationalisation can improve efficiency, it may lead to negative impacts such as employee redundancies, reduced morale, or disruption to operations. Businesses must carefully plan and communicate changes to minimise these effects.

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