Rationalization Concentration

Rationalization Concentration

Rationalization, the concentration of an economic activity into fewer units. In principle, the purpose is to increase efficiency and lower costs by economy in the use of resources through eliminating duplication of effort and encouraging standardization in method and output.

Within an individual business unit rationalization might mean the concentration of activities formerly dispersed; within a firm as a whole it might mean the organization of production by 'divisions'. For example, instead of making a component in scattered factories, it might be made in a single plant or in a few plants. Instead of an organization in which people had been responsible for very dissimilar activities, there might be a 'divisional' structure in which each unit would be more or less similar, although co-ordinated.

Rationalization thus exploits the principle of specialization by internal reorganization within a single enterprise or by association or merger of firms. The latter is linked with the idea of rationalization within an industry as a whole, the gains of which are, in principle, the elimination of inefficient firms and of uneconomic overlapping of activities between firms. Since large-scale mergers may require transfer in employment and redundancy, rationalization sometimes provokes hostility and in the recent years of full employment it is often accompanied by claims for compensation for loss of employment.

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