Rationalisation,growth And Risk

Question 1

Rationalisation

Answer 1

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 particular products.

Question 2

Reasons for rationalisation may include

Answer 2

restructuring the business to increase efficiency
to turn around poor performance
to focus on core business
to sell off less profitable parts of business to improve overall performance
following a merger or takeover to remove duplication of resources.

Question 3

Examples of rationalisation

Answer 3

Closing of branches: Barclays Bank recently closed a number of 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 maximise 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.