It's in fact the other way around : once you're wounded your defense is lower, so you will take even more damage in combat In fact it speeds up things.
Unfortunately, that'd only encourage focus fire - sure the wounded unit is doing half as much damage, discouraging you from wanting to finish him off, but his defenses are half as much too, encouraging you to finish him off since you can do more damage to him than to a full health/defense unit .. it more or less cancels out, depending on the numbers.
Personally I like the temporary debuff, "stunned" or "shocked" or whatever, reduce damage for units that were recently attacked. Make the amount depend on damage done and limited to the biggest hit a unit receives on a given turn - i.e. get hit for 10 and your next attack does 5 less*. It makes a lot of sense - the reason why spreading out damage beats focus fire in the real-world 3v3 swordsmen scenario is because having some guy trying to kill you is a pretty big detriment to your ability to do damage. The two guys who aren't being attacked at all are free to attack, i.e. do full damage with no penalty, while the guys who have to worry about not getting killed spend time parrying and can't attack as much (i.e. damage penalty).
Technically an action point penalty would be more 'realistic,' it's not like you're swinging your sword with less strength, you just have less time to attack back if you're also defending against attacks, but I fear that messing with action points would make the balance a nightmare (it just reintroduces the counterattacks-cost-AP problem) - a damage penalty is simple and effective.
*To reduce the impact of first-guy-to-hit-wins, you could have the counterattack do full damage (that is, not affected by the penalty, it happens before the debuff gets applied) and be able to apply a similar debuff to your attacker.
The archer problem is a more difficult issue - a big reason focus fire works so well is that ranged units can focus perfectly all on one unit with no danger of friendly fire or even hitting the wrong enemy. Dominions 3 has an unusually realistic way of handling this: all ranged attacks (spells, arrows, etc) were slightly random on where they'd hit, instead of hitting a particular square you'd hit somewhere within a 3x3 grid centered on your target, with the possibility of hitting a nearby friendly/different enemy or nothing at all. It's been a while but I think your caster/archer's stats and range to target had an impact on accuracy, i.e. a skilled caster almost never missed at point blank, but tell a noob archer to hit someone across the map and anything in the vicinity of the target was at risk of getting hit.
The end result is perfect, it means that trying to focus fire is still possible but not necessarily practical - you can tell your archers to try and hit the caster standing alone in back, but most shots will miss, whereas if you target a mass of infantry you'll likely hit something (although any nearby melees of your own are at risk). It looks just like a massive battle with archers should, a rain of arrows landing amidst the enemy, few actually hitting the same guy. Focus firing a valuable unit or firing into a mass of enemies both seemed to be effective tactics, depending on the situation - how much you want to get rid of that one unit vs. do more overall damage to a larger army.
Dominion's solution may be too complicated to implement into Elemental at this point, my point was just that there are effective (and even realistic) ways to limit ranged focus fire, there must be a more straightforward way to accomplish something similar for Elemental. Maybe a percent chance (depending on, say distance to target and archer's dex) to hit a random nearby enemy instead of your target? It affects the game balance less because you needn't worry about missing entirely or hitting a friendly, but still reduces the ability of a crowd of archers to focus fire perfectly.