Reengineering (NYRB article)

Clyde Davenport (clyde@BUS.HIROSHIMA-PU.AC.JP)
Mon, 25 Mar 1996 15:13:31 +0900

In the February 29, 1996 issue of "The New York Review of Books,"
Simon Head in "The New, Ruthless Economy" (pp. 47-52) makes a number
of interesting points about reengineering.

1. Among "production and non-supervisory workers" (everyone below
the higher executive, managerial, and technical levels) who make up
80% of the workforce earnings fell by 18% between 1973 and 1995.

2. "What is occuring is a huge transfer of wealth from lower-skilled,
middle-class workers to the owners of capital assets and to a new
technological aristocracy with a large element of compensation tied
to stock values." Felix Rohatyn, senior partner of the Wall Street
investment bankers Lazard Freres

3. The loss of middle-income jobs is a consequence of the application
of information technology to both manufacturing and service industries.
In manufacturing, the system of "lean production" which originated in
Japan has now spread throughout the world. In service industries like
banking, communications and insurance, "experts called reengineers have
combined the skills of specialist clerks and middle managers into
software packages which are attached to desktop computers."

4. The lean production system used in fields like autos, auto parts,
steel, computers, consumer electronics and machine tools means that workers
need few specialized skills aside from "dexterity, enthusiasm,
and an ability to 'fit into the team.'" And companies need not pay these
kind of workers the same wages that more skilled workers generally
receive. The use of outsourcing of production also allows companies
to cut employment costs by using a pool of mostly non-union labor.

5. Employment in the service sector accounts for 80% of all
employment in the U.S. In this sector, reengineering has become
the rough equivalent of lean production. Head gives the example of
the credit department in IBM where its productivity was increased
100 fold. "Functions once divided among various departments have
now become the responsibility of a single employee who is called
the 'deal structurer'. . . . The 'deal structurer,' moreover may displace
not only many clerical workers but more highly qualified employees
who held what they thought were secure 'middle-level management'
positions." It is the computer (the hardware and software packages,
as well as indirectly the technocrats that make them) which make the
consolidation of many tasks into a single one possible in the person of
the "deal structurer."

6. The technocrat class who design, instal or modify the software
and hardware packages "are uniquely well placed to influence the
speed, direction, and scope of reengineering. But within the
corporation they are closely linked to another small group, the handful
of top executives, led by someone whom Hammer and Champy call the
reengineering 'czar,' who have the final say on investment decisions and
who also have the power to hire and fire."
"Outside the two groups that direct the reengineering effort, there
is unlikely to be any competing center of power that might represent
the interests of most of a company's employees."

7. The new class of workers using computers that simplify tasks rely
on skills that are easier to learn than the skills of the workers they
replace. Less education is necessary. And since less training is
necessary as well, companies will be able to more and more rely on
temporary agencies for workers. Social or political programs which
seek to improve the wages of workers through education and retraining
will have little impact for the reason that in the new reengineered
corporation neither a high-level of education nor a long period of
training is necessary.

8. Head cannot suggest much in the way of a solution. Governments
could enact laws to limit the negative effects of mass layoffs, etc.
Unions could also be strengthen.