In economics, rationalization is an attempt to change a pre-existing ad hoc workflow into one that is based on a set of published rules. There is a tendency, in modern times, to quantify experience, knowledge, and work. Means–end (goal-oriented) rationality is used to precisely calculate that which is necessary to attain a goal. Its effectiveness varies with the enthusiasm of the workers for the changes being made, the skill with which management applies the rules, and the degree to which the rules fit the job.
Rationalization aims to increase efficiency by better using existing possibilities: The same effect can with fewer means, or with the same means to be obtained. In the industry, thereby, machines often designate the replacement of manpower (rationalization investment). It is reasonable and appropriate for operational conditions to increase under changing conditions; alongside the goal, productivity, and economy.
Julien Freund defines rationalization as "the organization of life through a division and coordination of activities on the basis of exact study of men's relations with each other, with their tools and their environment, for the purpose of achieving greater efficiency and productivity". According to Ulbo de Sitter, the act of organizing work tasks into work flows and processes involves the splitting of tasks into two sub-categories: parts, representing proceeding work tasks in time, and aspects, referring to work tasks that are different in nature rather than in time. This type of rationalization can be applied to physical as well as administrative work tasks.
The rationalization process is the practical application of knowledge to achieve a desired end. Its purpose is to bring about efficiency, coordination, and control of the natural and social environment. It is a product of "scientific specialization and technical differentiation" that seems to be a characteristic of Western culture. Change in human character is expected to be part of the process; rationalization and bureaucratization promote efficiency, and materialism, both of which are subsumed under Weber's concept of zweckrational.
In recent years, “rationalization” has become jargon for, or euphemism of, budget cuts or layoffs.
Economic rationalization
The concept of economic rationalism refers to the ability of individuals and organizations involved in business transactions to make logical decisions that yield net positive outcomes for all stakeholders, including ownership, employees, customers, and the community at large. Because such outcomes are the result of rational choices, it is, therefore, possible to predict with some accuracy the economic behavior of those stakeholders. In theory, this ability to forecast behavior allows decision-makers to implement strategies that will maximize potential gains and minimize losses. Colloquially, the term 'economic rationalization' is often used as an umbrella phrase referring to any business-related decision intended to improve productivity, increase profits, and/or reduce costs arrived at through an insightful analysis of stakeholder behavior.
In the classical conceptualization of free-market economic theory, the underlying assumption is that production and consumption are self-regulating in that producers and consumers ultimately behave in ways that produce the greatest benefit for society, the metaphorical invisible hand conceptualized by Scottish economist Adam Smith in the 18th century. Smith claimed that economies worked best when left unregulated, a laissez-faire approach to conducting business that was predicated upon the belief that, "businesspeople naturally invest their capitals where they believe they can generate the most value. Indeed, they are likely to be much better judges of this, understanding more about the local situation, than some distant regulator". This assumption that both the markets themselves as well as the people who participate in them will act in a logical manner would be a foundational concept in economic theory until the early 21st century.
When the global economic crisis crippled world markets in 2008, it became apparent that businesses had conducted themselves with anything but logic. Citing the failure of financial organizations and lending institutions to govern their business behavior in a prudent and sustainable manner, former chairman of the U.S. Federal Reserve Alan Greenspan conceded that economists had "made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders". Rationality is thus understood as the process through which reasonable conclusions are reached on the basis of thoughtful consideration of demonstrable proof so that the optimal result may be achieved. The fundamental cost-benefit analysis is a typical manifestation of the rationalization process in that the calculated advantages or rewards received will demonstrably outweigh the incurred sacrifice required to obtain those gains. Where the term becomes complicated is the point at which rationality is presumed to label a decision as being successful or unsuccessful, when the reality is that rational decision-making refers to the actual process of making a choice and not the choice itself. When individuals decide what is the best course of action, they do so according to what they perceive is most beneficial and/or fulfilling to them, based on whatever data they have available for consideration. So long as the outcome is consistent with the reasons for electing to behave in that way, the decision is a rational one. The comic book collector who pays thousands of dollars for a collectible issue that completes a long-incomplete series in lieu of buying groceries for the family may not be making a wise choice or even a prudent decision. If this behavior is consistent with the collector's past choices and has been a stated long-term goal, however, then such behavior is nevertheless rational. Rationality is applicable to why a choice was made and what motivated that decision rather than being applied as an evaluative assessment of the choice itself.
Rationality in Economics
In business, it is imperative that consumers and producers/providers make rational decisions based upon the logical consideration of observed behavior. Given the potentially irrational behavior of most human beings at various times and in various situations under various conditions, the ability to accurately predict such behavior is challenging but necessary if rational decision-making is to occur. By acknowledging the irrationality of governance, employee relations, marketing, customer service, spending patterns, product preferences, trends, and both public and corporate perceptions, stakeholders are more likely to make more rational decisions when it comes to conducting business. As rationalization is associated with the decision making the process more so than the decision itself, the explanation for this consumer's seemingly unpredictable choice is rooted in the human psychological need to rationalize behavior: “Everyone feels that as a rational creature he must be able to give a connected, logical, and continuous account of himself, his conduct, and opinions, and all his mental processes are unconsciously manipulated and revised to that end”. This methodical process is essentially considered a universal phenomenon and a natural attribute of the human condition, an anthropological feature of homo economicus, the calculating, negotiating, and materialistic characterization of human beings. Economists have traditionally favoured RCT because it more easily gives rise to economic models that may be used to predict human behavior on a more macro level.
There are four primary assumptions about human nature that form the foundation of RCT as a model of economic rationalization: 1). the decisions and subsequent behavior of an individual are inherently rational as a result of accurately and logically factoring both the rewards and costs of the proposed choice; 2). the reward will logically and demonstrably outweigh the underlying overheads or expenses of proceeding with the proposed action and/or for the action to be successfully completed; 3). in the event that the value of the expected reward decreases to a level below that of the costs being incurred, an individual will disengage from the action; 4). an individual in an economy is compelled to use and is limited to only those resources that are available for the achievement of the reward. In this conceptualization, RCT offers a universally applicable paradigm to explain and predict the economic decisions of individual consumers, larger cohorts of consumers, and even the intricacies of corporate entities.
One of the more often cited critiques of RCT is that human beings are unique individuals who exist within and must respond to a variety of circumstances and necessities, making a universally applicable pattern of decision-making a dubious proposition. The choices individuals will make are therefore always going to be contingent upon a number of situation-specific variables. Similarly, employee levels of independence and creativity have been reported to decrease proportionately with increased levels of rationalization, as the implementation of standard operating procedures, streamlined for maximum efficiency, reduce options, limit choice, and ultimately stifle creativity.