Last week, The Wall Street Journal published a story about the struggles of mining and oil companies. Falling commodity prices have forced these companies to aggressively cut costs.
Here’s one excerpt from the article:
“2016 is going to be another tough year” for miners, says Macquarie Research mining analyst Alon Olsha. “We have still not seen sufficient capacity and production rationalization.”
Rationalization…now that’s a fancy word. What does “capacity and production rationalization” mean? It means these companies need to cut costs to match their declining revenues. Basically, they have to shrink their businesses to minimize their losses, with the hope of surviving until prices start rising again.
But why use the word “rationalization”? Why not just say these companies need to shrink, or to reduce their capacity?
Because when you’re a publicly-traded company, you either grow or die. You can’t pitch the investment community on shrinking when the wider market is growing.
Also, sometimes you’re talking about headcount rationalization. Or workforce rationalization. Or human capital rationalization. All of which mean layoffs. Rationalization takes some of the sting out of the word layoffs.
Rationalization doesn’t necessarily have to mean reduction. In its broadest sense, to rationalize a resource is to scale that resource against what the market demands.
You might need to rationalize capacity by buying more manufacturing equipment. Maybe demand is exploding, and your existing operations are limited. The market is telling you something. You can rationalize your capacity to meet the increasing demand.
But you don’t hear about rationalization in this context. You hear about growth. Growth is sexy. Growth resonates with the investor community. Growth is a central goal for most companies.
That’s why to rationalize is to reduce. Rationalization is clinical. It’s academic. It’s muted.
It’s a good example of how word choice can help you tell a story. Rationalization calls to mind deliberation. There’s a sophistication to it. It help the audience appreciate that rationalization is a last resort. The market demanded it. It’s the only prudent action.
Growth, on the other hand, is aspirational. Management cleverly positioned the company to grow. No rationalization is necessary. The company was the actor and forced the market’s hand.
Rationalization doesn’t necessarily have to mean reduction. But in practice, it does, and the reason has to do with story-telling. Knowing the subtleties of this kind of language will help you decode what you read and hear. It’ll also help you communicate more fluently with people outside the technology organization.