Learn: Rationalisation - Meaning and Reasons

Welcome!You've already studied strategies, growth methods, and integration in business. Now, let's build on that to explore rationalisation, why businesses use it, and how it can affect their operations.

What is Rationalisation?Rationalisation refers to the process of reorganising a business to improve efficiency, reduce costs, or increase profitability. It often involves downsizing, streamlining processes, or closing less profitable areas of the business.

Why is Rationalisation Important?Rationalisation can help businesses maintain competitiveness, especially in challenging market conditions. It allows firms to focus on their strengths and eliminate inefficiencies that might be holding them back.

Reasons for RationalisationBusinesses rationalise for several reasons:Economic pressure: High costs or falling demand may force businesses to streamline.Technological advancements: New technologies can replace outdated processes.Global competition: Firms must stay efficient to compete with international rivals.

Impacts of RationalisationWhile rationalisation can improve efficiency, it may also lead to negative outcomes:Job losses: Closing facilities or reducing staff can affect employees.Loss of morale: Remaining staff may feel insecure or demotivated.Reputation risks: Downsizing can impact public perception of the business.

Methods of RationalisationBusinesses can rationalise in different ways:Closing facilities: Shutting down unprofitable factories or offices.Automation: Replacing manual tasks with technology.Outsourcing: Moving certain processes to external providers to save costs.

Review Time!Great work! You've learned what rationalisation means, why businesses use it, and its impacts. Now let's test your understanding with a few questions.