Lessons from history: What the Dutch East India Company can teach us about modern-day organizational slack

[We’re pleased to welcome authors Stoyan V Sgourev of ESSEC Business School, France and Wim van Lent of Montpellier Business School, France, who recently published the article When too many are not enough: Human resource slack and performance at the Dutch East India Company (1700‒1795) in Human Relations.] 
HUM 70_1_Cover_ONLINE1.inddIt is only recently that scholars started to inquire into whether it makes sense to employ more workers than needed to attend to routine operations but the question appears to be much older than recognized.

As a pioneer of intercontinental trade and the largest employer in the Dutch Republic, the Dutch East India Company (1602 ‒1795) needed a large workforce to maintain and develop its shipping network. The rapid expansion of its merchant fleet in the early 18th century exhausted the local labor supply, forcing the Company to hire unskilled foreign sailors. Our analysis of data from the Dutch East India Company archives confirms that skill shortage resulted in deteriorating operational and financial performance. We find that the Dutch East India Company’s directors addressed the problem by “overmanning” the ships (boarding more sailors than what is operationally required), when foreign sailors prevailed in the ranks. The analysis attests that the Dutch East India Company’s reliance on extra sailors involved a direct trade-off, as it enhanced operational reliability (by reducing the probability of losing the ship at sea), but reduced operational efficiency  (by prolonging the length of voyages, as the ships were heavier and the crews were less experienced).

In view of the underlying trade-off between speed and safety, the Dutch East India Company’s efforts to mitigate the negative effects of skill shortage were only partly successful. The use of extra sailors to offset the adverse effects of unskilled labor was a natural solution at a time when formal training was inadequate while cheap, unskilled labor was available. But the documented trade-off has contemporary resonance. Scholarship suggests that firms can balance between effectiveness and efficiency in reaching optimum performance, yet our analysis advises caution as to the extent to which organizational practices can be optimized. The Dutch East India Company directors faced the same need to balance competing pressures for efficiency and reliability as contemporary managers, and the same difficulty of identifying the coveted optimal point.

The findings also serve as a reminder that, even when overall successful, gradual adaptation may not be sufficient to resolve long-standing problems. The documented practice was an adaptive, stopgap measure that evolved from practical experience and that functioned well under the existing constraints. It alleviated the problem of skill shortage, but in the long run, it did not help resolve the structural problems that brought about the Dutch East India Company’s demise toward the end of the 18th century.

Two centuries later, the Dutch East India Company remains a source of insights into processes of adaptation and change. Similar to contemporary managers, the Dutch East India Company directors struggled to achieve a balance between operating efficiently and retaining surplus resources, necessary to address unexpected threats and opportunities. It was the first company to internationalize its workforce and confront the difficulties of operating in multiple locations, but not the last one to have found these difficulties more persistent than expected. In some respects, management practice has not changed much since the 18th century.

You can read  When too many are not enough: Human resource slack and performance at the Dutch East India Company (1700‒1795) from Human Relations free until the end of March by clicking here.

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