What is re-engineering? Six months ago, when several members of the Center's outside advisory board suggested a subject for this issue, I knew only what everyone knows: "Re-engineering" is a business term-like "cutting out the fat". Any announcement that a corporation is going to re-engineer presages a substantial rise in the price of its stock.

Such an announcement also presages the loss of many jobs. IBM let go 63,000 employees as part of its re-engineering in 1993; Sears let go 50,000 the same year, Boeing, 28,000; Digital Equipment let go 20,000 employees as part of its 1994 re-engineering; Lockheed Martin, 15,000 in 1995. This January AT&T announced it would eliminate 40,000 positions as part of its reorganization. That's 216,000 jobs lost in just six companies in just three years. These lost jobs are, I should add, not mere "lay offs" of ordinary assembly-line workers owing to a temporary drop in demand. Neither demand nor production dropped. These are also not jobs that have gone overseas in search of cheap labor. Mostly "white collar" jobs, many well-paid managerial positions, they have just disappeared. How is that possible?

The official definition of "re-engineering" is "a radical reorganization of a productive process"-where "radical" means "increasing productivity by at least 100%". "Re-engineering" differs from "restructuring", "downsizing", and older terms for reorganizing precisely in this promise of radical improvement.

IBM Credit Corporation, which provides credit to IBM customers, is a classic example of re-engineering. Five years ago, specialists were responsible for each stage of the business. One department of skilled clerks and low-level managers logged in credit applications; another such department prepared special conditions for particular customers; a third department decided the interest rate; another gathered all information necessary for the "quote letter"; and so on. IBM Credit was a vast assembly line, taking several weeks to transform one set of forms into another.

Today a single clerk, a "deal structurer", can generally do the entire job in a few minutes. Only in rare cases must specialists still be called in. The old assembly line is now a software package inside the computer on each deal structurer's desk. Most of what the old system's clerks and managers knew is now digital code.

This, I suppose, is startling enough. But what is more startling is that productivity at IBM Credit rose not by 100 percent, but by 100 times that, by 10,000 percent. For each hundred clerks and managers who used to work at IBM Credit, there is now one deal structurer.

What interested those advisory board members who suggested the topic, executives or former executives of manufacturing companies, was, I think, the many employees re-engineering dumped onto the street, not just young workers with little seniority and plenty of opportunities, but old-timers who gave their career to a company, expecting knowledge, skill, and hard work to see them through to retirement.

Engineering and Re-engineering
That, however, was not what initially interested me. My interest was the "engineer" between "re-" and "ing". Engineers have long worked to improve efficiency. Taylorism's time-motion studies are only one example of engineering's continuing efforts to reorganize production to do more with less. Re-engineering was, I supposed, a new field of engineering. What seemed to distinguish it from older fields was the huge increases in efficiency and the huge numbers of people put out of work. Here, it seemed to me, was an especially difficult example of conflict between the duty of engineers to hold paramount the public health, safety, and welfare and their duty to be a faithful agent and trustee of employer or client.

So, imagine my surprise when I began asking engineers about re-engineering. Re-engineering, they said with some heat, has nothing to do with engineering. "Re-engineering" is a "business buzz word", useful for advertisement but devoid of content.

Those few engineers who had more to say than that made it clear that among the many questions of business ethics they thought re-engineering raised is the justifiability of connecting "engineering" to an activity in which engineers are not in control-and often not even involved. What (they asked) did the term "engineer" add to older notions of "downsizing", "restructuring", and so on? They did not wait for my answer. Everyone (they said) expects what engineers do to succeed. Hammer and Champy invented the term "re-engineering" to poach on engineering's reputation. Re-engineering is business-school stuff, big ideas with no science, the few successes reported, the many failures forgotten.

But perhaps the separation between engineering and re-engineering is not so clean. Peter Meiksins, a sociologist who has done significant work in the history of engineering, argues that, though illegitimate, re-engineering is one of engineering's offsprings, the unwanted consequence of too close a connection with management.

The engineers nonetheless set me to re-thinking re-engineering. I soon concluded that what any discussion of re-engineering needs most is not the usual Success Story but life's ordinary mix of success and failure. In "Re-engineering: A Case Study," Fran Gaik describes her own work as a "re-engineer". She re-engineered (that is, radically restructured) the health division of an insurance company, an organization in which engineers are as rare as daffodils in December. Yet, her method has a family resemblance to engineering.

Re-engineering in Business
She began with a detailed knowledge of the company, developed measures of input and output for each process in the health division, qualitative as well as quantitative, and then re-organized each process to decrease input and increase both the quality and quantity of output. This re-organizing depended in part on computers, in part on simplifying paper work, and in part simply on giving work to those who could do it best.

It did not, however, depend on letting employees go. Most of the employees her re-engineering displaced were re-trained for other jobs within the company. Gaik justifies the re-training without mention of ethics or compassion: if you want change to succeed (she says in effect), you have to get those who will have to make the change to "buy in". Employees will not buy in if they expect change to make them targets for "out-placement".

Gaik, like most engineers, was not in ultimate control of what happened. She answered to the president of the company. The president was interested in making money for shareholders, not in what happened to individual employees or even in what happened to Gaik's re-engineering once it had served its business purpose, selling the health division at a price substantially higher than otherwise possible.

But at least Gaik's president acted rationally, that is, in ways likely to make money for the stockholders. The new owners of the health division belong to another species of manager. Their "re-engineering", though brutal in a way Gaik's was not, seems to have ruined the health division. They gained nothing in efficiency by shedding large numbers of employees; instead they lost control of quality and left a remnant of employees too shocked, frightened, and embittered to be of much use.

Ethics and Retraining
When I began planning this issue of Perspectives, I asked the Center's librarian to do a bibliographic search. She found over 800 publications on "re-engineering". Of these, only one contained a discussion of the ethics of re-engineering. The author of that article was Peter French, a philosopher who has written widely and well on business ethics. His piece here argues that each business should bear the cost of retraining employees whom its re-engineering has displaced. The argument may, I think, be understood as resting on one (or both) of two foundations, one economic, the other moral.

The economic foundation is the steward's principle that all costs of production should be "internalized", that is, made to come out of any profits it produces. A productive process that becomes unattractive once all costs are internalized uses more resources than it produces. Society is better off if no one engages in it. Internalizing costs, for example, by requiring a business to bear the cost of retraining those it lays off, discourages wasteful reorganizations.

The moral foundation of French's argument is the principle that anyone who injures another should do whatever is necessary to undo the injury, if possible, or at least to put him in as good a position as before. The point of this principle is not to internalize costs (though it does that). Its point is, instead, to respect moral agents. Morality requires us to try to avoid injuring one another. When we cannot, respect for the other requires us to do the next best thing, to undo the injury insofar aswe can.

French's piece asks business to think carefully about what it can do to reduce the destructive impact of what he treats as, on the whole, a socially useful development. Gaik's piece reminds us that the label "re-engineering" does not guarantee the social usefulness of an activity. Run by human beings, business is as capable of stupidity as any other human enterprise.

-M.D.