Rationalisation

• what is the definition of rationalisation : 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.
• what are examples of rationalisation?

  • Closing of branches e.g barclays Bank recently closed several underperforming rural branches.
  • Transferring of production e.g abroad
  • 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.
  • Incorporation of IT systems to replace paper systems.
• Drawbacks of rationalisation:

  --> 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.
• what are 3 advantages of outsourcing?

  • less investment risk ->instead of investing in new production facilities, let the outside supplier take the risk of investing --> capital needs are reduced because there is less investment, there is less need to raise finance.
  • lower costs increase profits giving more capital for research and development, therefore speeding the development of new products.
  • significantly reduced staffing costs ---> well trained staff provided by company will reduce costs e.g recruitment + training, specialist employees -> increased quality
• what are 3 disadvantages of outsourcing?

  • existing employees may feel demotivated if they believe their jobs are at risk --> this demotivation can increase staff turnover and reduce productivity.
  • potential loss of quality -> work is done by an external organisation, could lead to customer dissatisfaction and damage to brand reputation.
  • problems of control and coordination --> often difficult for functional departments to talk to each other when they are not in the same building.
• what is off-shoring? + benefits

  the process of moving business functions abroad e.g production or IT support --> call centres moved to India + production to China

  • lower costs + higher productivity + greater talent pool
  • enter new markets
  • overcome domestic regulations -> e.g minimum wage
• what is re-shoring? + drawbacks


  the process of moving previously off-shored business functions back to the country of origin

  • costs savings no longer so significant
  • quality issues --> customer dissatisfaction e.g call centres in India
  • infringement to intellectual property
  • shorter lead times
  • miss out on government incentives