You would think from our rapidly obsolete laptops and ever updating phones that all new technology spreads at a breakneck pace.
You would be wrong.
“People who’ve studied technology adoption have often been struck by how slow it is,” says Eric Verhoogen, an Associate Professor at Columbia’s School of International and Public Affairs. “The technologies that make the news are the ones that move fast, but many cases — including basic industrial technology — have taken a long time to diffuse.”
Think unsexy things like “continuous annealing lines” for steel, or “lean production” (efficiency-focused manufacturing). One review of 15 industrial technologies found that countries tend to adopt them, on average, 45 years after their invention.
Why? Well, there are many reasons, one of which came to light in a Pakistani manufacturing town called Sialkot.
AN INDUSTRY IN A TEST TUBE
Forty percent of the world’s soccer balls are made in Sialkot at hundreds of factories using fairly uniform methods. The local industry is in a tight battle with competitors elsewhere in Asia, who have driven down Sialkot’s share of the global soccer ball market. Verhoogen and colleagues at the Lahore School of Economics saw an opportunity to use the city as a test tube — a rare real world experiment — to test the spread of cost saving innovation.
So the economists offered a group of factories a leg up: a technological innovation.
It was a die to cut pentagons with which to make soccer balls. More specifically, the cutting blades were arranged in such a way so as to create less waste. Nothing as magical as an iPhone, but “we’re talking about something like 12 percent increase in profits from adopting this,” says Verhoogen.
Incidentally, Verhoogen got the idea serendipitously by watching Youtube videos of Chinese competitor factories. “Industrial espionage via Youtube,” he calls it.
The economists gave the die for free to one group of firms, gave the cash equivalent to another group, and a third group received neither. Shamyla Chaudhry, Associate Professor at the Lahore School of Economics, recalls that “initially we thought we had a breakthrough idea and we were very convinced that the minute we give the die to the manufacuters, they will switch on and see the cost advantages.”
In reality, the uptake was slow; 15 months later, only six firms out of 135 in town had adopted the technology.
RESISTANCE FROM THE BOTTOM
The economists didn’t have to look far to find a reason:
“I told the owner that it’s not going to work,” says Mohammed Iqlal Urfnana, a worker at one of the soccer ball firms. He is a cutter, meaning he operates a die-press to cut out the hexagons and pentagons that are sewn together to make a soccer ball. Like many workers, Urfnana didn’t like the new die. “For us cutters, this means lower daily wages.”
That’s because Urfnana, like most cutters in Sialkot, is paid by the piece. Learning how to use the new die would slow him down, so he would make fewer pieces and therefore less money. While it was in the factory’s interest to save money by cutting the fake leather more efficiently, it was not in the worker’s interest.
GETTING ON THE SAME PAGE
To realign the incentives, Verhoogen, Chaudhry, and their colleagues then offered a bonus for workers who learned the new die. It worked. About half of the firms where employees were offered a bonus adopted the die.
Verhoogen points to one firm in particular when talking about a misalignment of interests and incentives blocking the adoption of new technology. It’s a large firm, employing 1,000 people, and was the only firm to adopt the die technology that had not been given the technology directly. What set it apart was how it paid its workers – not by the piece, but a simple hourly wage (with some bonuses).
“Employers need to think about what incentives are being built into the payment scheme visavis innovation. Do workers have an incentive to adopt innovation or not? That’s the broader message we’re getting out of this study,” says Verhoogen. “Workers have to expect that they will share in the gains of innovation in order to cooperate in the process, and if they don’t cooperate then innovation might not happen.”
NOT A SOCCER BALL PROBLEM, NOT A PAKISTAN PROBLEM
“It’s not unique at all…any time there’s change, we have a natural resistance to change because people are used to doing what they’re doing and they’ve been successful when they were doing it,” says Hal Sirkin, senior partner at Boston Consulting Group.
“You always have to share with the workers” to bring them along, he says. “It can be a small amount but they need to benefit as well otherwise you’ll have even more resistance, and the change won’t work.”
As a management consultant, Sirkin says the incentive mismatch is familiar to him. “In one consumer products business,” Sirkin recalls, “they started to evaluate people by the number of pounds they sold. So people went from looking at the higher margin products to now the things that are the heaviest. Of course that created a very deleterious problem on the bottom line of the company.”
NOT SO SIMPLE EITHER
“Some conflict of interest is a conspicuous and ongoing feature of all organizations,” says Robert Gibbons, professor at MIT’s Sloan School and coeditor of “The Handbook of Organizational Economics.” The conflicts can be complex. Senior employees might block a new digital innovation because younger workers would be better at it. Bankers paid by the loan might take more risks than their managers prefer. The sales department might want less inventory on display than the marketing department.
Further complicating the entire question is trust. Do workers or factory managers trust one another? Is the new technology actually more efficient? Will it cost jobs? Unlike the Sialkot experiment, “most of the time it’s not demonstrable,” says Gibbons. “You get to questions, is my boss leading me down the path here, are there unforeseen questions about this new chemical, and so forth.”
“All of these make it enormously more difficult to think you’ll implement a new tech with a simple bonus,” he says.
And not all conflicts of interest can be easily resolved with a bonus.
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