2.7 Bloodletting the Bad Humours and Corporate Downsizing

During the Middle Ages, the common idea of body and health was based on the principle that a human’s body was a microcosm, that is, a minature representation of everything that happened in the universe. This notion, derived from the Greeks, led medieval people – and medieval doctors – to believe that as the universe was made of four basic elements – fire (hot and dry), water (cool and wet), earth (cold and dry) and air (hot and wet) – the body was composed of four humours which corresponded to these elements. These were choler or yellow bile; phlegm or mucus; black bile; and blood. Health could be maintained by keeping a constant balance between these humours, but sometimes one would become stronger than the others. Individuals whose blood humour tended to overcome the others were called ‘sanguine’, and their behaviour and health was thought to be related to changes in the air. Likewise, when an individual’s yellow bile was more prominent than other humours, he was said to be choleric, and influenced by fire. The same was true for the other two humours and the influences they suffered from universal elements.^[91]

Medieval people were very much like people today. When they were sick, they sought the advice of other members of the community who had a specialized knowledge of illness to find a cure so they could feel better. One of the most common methods to make individuals feel better was bloodletting. Since the Greeks, bloodletting had been seen as a beneficial curative method. Doctors equated bloodletting with the monthly changes that happened in women’s body, thus claiming that it was natural for the body to need to release blood. During the Middle Ages, bloodletting was seen as a very efficient way of combating diseases, regulating health and the humours and relieving the spirit from carnal temptations. Weak as the patient became after a long bloodletting session in which a few litres of blood were let out, they were, however, sure that their health and spiritual problems would abate.

In today’s business world, bloodletting is paralleled with the practice of downsizing. Let us analyse how downsizing became the new effective way to cure a company’s problems. The economic downturn of the early 1990s brought forth four key factors that would in turn lead to the eight-year economic recovery that followed – and is still in progress. Reengineering, downsizing, outsourcing and the marriage of GUI with the Internet have, each in their own particular way, contributed to reshaping how business is conducted. These key factors are also redefining the social contract between employer and employee. Throughout the book, we have analysed the significance of the Internet and its influence on corporate value propositions. Let us now analyse the implications of reengineering, downsizing and outsourcing to organizational behaviour.

If one subscribes to Hammer and Champy’s formal definition of‘reengineering’ as ‘the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed’,^[92] it is obvious that reengineering involves hard work. An oversimplification of reengineering is basically to unlearn the legacy of traditional business processes and rethink how a new process, given changes in people, society, technology and economic conditions, can be best designed to leverage these factors with the resources available to the company. This is not to say that the previous generation of business knowledge is no longer valuable. On the contrary, previous business knowledge presents an opportunity to leverage existing knowledge by applying the advances of science and technology.

Unlike previous manifestations of technological advances, the reengineering phenomenon was led by businesspeople who developed a growing familiarity with the capabilities of technology, and not by technologists themselves. ‘Fundamental rethinking and radical redesign’ are not simple concepts which can be implemented without altering the fabric of the corporation and its basic beliefs regarding compensation and the behaviour of people engaged in the process of business. Any change that challenges traditional thinking will have its champions, detractors and, more importantly, the wariness of the majority.

Today’s situation is similar to the shift of the later Middle Ages, in which the venerable Church witnessed changes along religious and technological fronts. During that time, segments of society began to question not the existence of God, but the dogmas of the Church. More specifically, they questioned the authority and bureaucratic infrastructure of Church doctrine which specified how one should live, worship and believe. Similar to the legacy of incumbent contemporary business rules and corporate policies, challenges to these institutionalized mechanisms met with resistance. In the case of the medieval Church structure, the consequence was the division of the Church into the Roman Catholic and Protestant doctrines (such as Anglicanism, Lutheranism, Calvinism and Presbyterianism), and counter measures such as the Catholic Reformation and the Inquisition. Today, the repercussion of the changes to institutionalized mechanisms and behaviours is downsizing, which has, for a decade, been mislabelled as ‘reengineering’.

Reengineering is indeed about the reduction, redefinition and transformation of process steps or activities which do not add or increase value to the product, service or process as a whole. Unfortunately, the reduction of steps was translated into the reduction of labour. Throughout the 1990s, many organizations saw this management trend as an opportunity to shed middle managers and other personnel, thus institutionalizing the concepts of downsizing and rightsizing. This workforce reduction is, as said above, analogous to the medieval practice of bloodletting. It is also related to the part of medieval medicine that associated one’s illness to the imbalance of good and bad humours in one’s body. Humours controlled not only bodily functions, but also attitude, behaviour and manner. Medieval doctors’ solution was simplistic: one could bring the body back to balance by adjusting the level of fluids in the body, or by bloodletting. In many cases, people were resilient enough to survive these ordeals which, as we now know, merely depleted their strength at a time when the patient was sick and strength was most needed. In some cases, the patient would die. The medieval notion of balance is not without merit, and businesses today make every effort to measure performance to goals and maintain equilibrium between corporate priorities.

Einstein noted that ‘Our theories determine what we measure’. Corporations have always conceived business processes within the context of the industrial age metaphor of the machine. Now we realize that the interconnective nature of the process of business coupled with technology is more analogous to a living system. Similar to the ways in which a living system strives to balance its resources, management today strives to keep a balance between corporate resources which are applied to the process of business, evident in management practices such as the balanced scorecard introduced by Robert Kaplan and David Norton.

In the sense of keeping a balance in the living system of the corporation, it can be said that ‘corporate bloodletting’ had several negative effects in the 1990s, highlighted by Tampoe:

Most organizations that have taken the downsizing route have done so to survive. They use the crisis to clean out the deadwood – people, stocks, assets and so on. This improves their financial situation and restores confidence in the short term. Sustaining these short-term improvements over a much longer timeframe is difficult. This is often because rapid downsizing destroys the infrastructures that sustain organizational performance. It demotivates. It creates uncertainty. It destroys informal communication channels. It saps the energy and enthusiasm of staff. It destroys trust and commitment. It destroys customer loyalty. None of this is inevitable, but it does happen.^[93]

Indeed, downsizing tends to create an atmosphere of mistrust within companies, thus upsetting the firm’s ability to produce and serve customers. However, one positive consequence of the 1990s’ bloodletting can be identified: it provided the market with highly trained, educated and experienced white-collar workers, many armed with severance packages and substantial retirement savings. These individuals were the fuel to the dot-com phenomenon. Adrian Merryman of London’s Interregnum put it to me succinctly: corporations periodically need to trim away a percentage of the workforce to remain healthy because, over time, organizations develop excess capacity during peak periods and, in the course of normal business, add personnel to improve processes by increasing the resources applied to process steps. Reducing the workforce at strategic intervals compels firms to increase productivity by reshuffling resources and, as a result, adjust their costs to be more in line with the competition. The result places talented people into the labour market who, in turn, start new firms or are engaged by other corporations needing specialized talent.

The longer term effect of downsizing and ‘reengineering’ as it has been understood by business has created a number of smaller, highly specialized firms offering clearly defined services and larger corporations whose operating division consists of talented groups able to perform discrete activities in internal and external business processes. These collectors of highly specialized labour pools are the lifeblood of outsourcing. Corporations today are realizing the operational benefits of engaging outsourcers and, to some degree, partners to perform activities traditionally accomplished by in-house staff. A prime example is technology services, which most firms are reluctant to outsource due to the perception of cost control in a vital resource. However, if we put this example into a historical context, almost one hundred years ago corporations discovered the indispensable use of electricity, as a technology that could reduce cost and revolutionize businesses. Many firms which took the electric plunge found that it required highly skilled individuals and created in-house electrical departments. Over time, the technology of electrical production, distribution and utilization matured, and the in-house departments were abandoned as external firms offered services which were competitive alternatives.

One could argue that as today’s information systems technologies mature, in time technology departments will be outsourced to the same degree as their twentieth-century electrical counterparts. Organizations that have outsourced operations are learning that the key to using external resources effectively is to outsource business process activity that is defined, established and well known to the organization. This is counterintuitive because most firms try to outsource parts of the process in which they lack talent or resources. Outsourcing is based on establishing operational criteria and measuring the external firm’s performance against operational benchmarks. Poorly designed or, to a greater extent, poorly executed process components are more difficult to outsource due to the lack of measured results. Put simply, outsourcers try hard to meet criteria typically not developed as an optimal process, and thereby never meet the firm’s expectations. Combining outsourcers, partners and other sources of talents into a strategic operating plan is discussed in detail in Chapter 5.

^[91]C. Rawcliffe, Medicine and Society in Later Medieval England (Stroud: Alan Sutton, 1995) pp. 32–4.

^[92]M. Hammer and J. Champy, Reengineering the Corporation. A Manifesto for Business Revolution (London: Nicholas Brealey, 2001) p. 35.

^[93]M. Tampoe, ‘Don’t Downsize – Improve Performance’, Strategy, November (2000) p. 23.