rationalisation

Definition: Rationalisation is the reorganisation of a business in order to increase its efficiency. This reorganisation normally leads to a reduction in business size, a change of policy or an alteration of strategy relating to products. Examples of rationalisation include: • Closing of branches. Barclays Bank recently closed several underperforming rural branches. • Transferring of production. Ford stopped production of the Fiesta in the UK, instead using its Dagenham factory for engine production only. • Trimming of product ranges. Growing businesses can end up producing large ranges of products but find that many of these have little profitability. Businesses will discontinue less profitable products and ranges and focus on those that maximize sales. Boots the Chemist stopped selling pet food and increased sales space for organic products. • Incorporation of IT systems to replace paper systems. The government is currently trying to increase efficiency of the NHS by computerising all its patient records. Although rationalisation is supposed to achieve increased efficiencies in a business it can result in uncertainty, resistance from staff, loss of jobs and cause insecurity for employees. Rationalisation schemes are often fought against by those likely to lose out from the changes and this reaction can lead to industrial action. Rationalisation schemes must therefore be well planned and thought through. The objectives must be clear, as well as the means of achieving these objectives.