Innovation Isn't Enough: Employees Need the Right Incentives to Adopt New Technologies

NEW YORK, Oct. 18, 2017 /PRNewswire/ -- Your company has devised an improved manufacturing technique and left it up to employees to put it into practice. But, if there is no obvious benefit to those employees, are they going to embrace the new technique? 

New research from Columbia Business School explored this question by introducing a new method for cutting waste in the production of soccer balls at factories in Pakistan. The researchers, which include Amit K. Khandelwal, the Jerome A. Chazen Professor of Global Business at Columbia Business School, found that employees began to use the new method only after receiving a material incentive.

"It turns out there really may be an 'I' in team," said Khandelwal.  "When it comes to making soccer balls, and no doubt in other areas of manufacturing, employees want to win just as employers do, but often times they have different ways of keeping score.  This can and should serve as a lesson to firms looking to embrace new technology."

To examine how an innovative technology takes hold, Khandelwal and his colleagues –  David Atkin of the Massachusetts Institute of Technology, Azam Chaudhry and Shamyla Chaudry of the Lahore School of Economics, and Eric Verhoogen of Columbia's School of International and Public Affairs – conducted a study in the city of Sialkot, where more than 100 companies turn out 30 million soccer balls a year. The manufacturing process is simple and roughly the same across all companies, so this industry and city served as an ideal laboratory to examine this question and better understand barriers to technology adoption in manufacturing. 

As reported in "Organizational Barriers to Technology Adoption: Evidence from Soccer-Ball Producers in Pakistan," published in the Quarterly Journal of Economics, the researchers acquainted cutters and printers – workers critical to the process of producing soccer balls – with a way to save material, reducing overall production costs by one percent, a significant amount in a business with low profit margins.  The new technology produced a savings for the average manufacturer of $1,377 a month. The method involves cutting pentagon-shaped pieces of material from a sheet of artificial leather in a way that packs the pentagons in the densest pattern known. Mathematicians identified the pattern in a 1990 paper, the authors noted, and a YouTube video shows the pattern being used to make soccer balls in China, yet only one firm in Sialkot apparently was aware of the pattern.

To test the willingness to adopt the new production method, 35 treatment firms (randomly chosen) were given the equipment to execute the new method, 18 others were given the cash value of the equipment – about $300 – and 79 others received no cash or equipment. To the authors' surprise, the method did not catch on appreciably within the treatment group, despite producing the expected savings in costs and materials. After 15 months, only five of the 35 companies that received equipment had adopted the method.

"Despite the clear net benefits for nearly all firms," the authors observed, "after 15 months take-up remained puzzlingly low."

In interviews with the firms, the researchers discovered that employees were reluctant to use the new method, even to the point of misinforming bosses about its effectiveness, because of the personal cost born from the new method. It turned out that while it was less wasteful, the production method was slower, which meant less income for workers, who were typically paid piece rates.

To alleviate this "misalignment of incentives," a second experiment was conducted among the treatment firms that had received the equipment and details of the production method in the first experiment. Two workers at half of those companies (again chosen at random) were offered bonuses equal to about a month's pay if they could show the owner that they were proficient at using the equipment. Subsequently, after six months, five of them began to use the new technology while none of the companies in the control group, where the incentive pay plan was not offered, did.

Khandelwal and his colleagues focused on a cluster of soccer ball manufacturers in one city in Pakistan, but they highlighted three ways that their findings can be applied to the spread of commercial innovations more broadly:

• Successful adoption of new technology depends on broader organizational changes;
• How employees are paid, and the relationships between them and employers in general, may have to change before innovations can catch on at a company, especially in industries with technologically stable environments;
• Employees need to see that they will gain personally and tangibly if a new technology is adopted.

"Our technology had obvious, measurable benefits, so it was puzzling to us that it wasn't being adopted," Khandelwal said in a discussion of the research and its implications. "It was only when we gave employees the right incentives that we were able to increase adoption significantly. That shows it's not enough to introduce an innovative technology; companies have to be open to changing the way they operate generally, particularly in how employers and employees communicate with one another."

To learn more about the cutting-edge research being conducted at Columbia Business School, please visit www.gsb.columbia.edu.

About Columbia Business School
Columbia Business School is the only world-class, Ivy League business school that delivers a learning experience where academic excellence meets with real-time exposure to the pulse of global business. Led by Dean Glenn Hubbard, the School's transformative curriculum bridges academic theory with unparalleled exposure to real-world business practice, equipping students with an entrepreneurial mindset that allows them to recognize, capture, and create opportunity in any business environment. The thought leadership of the School's faculty and staff members, combined with the accomplishments of its distinguished alumni and position in the center of global business, means that the School's efforts have an immediate, measurable impact on the forces shaping business every day. To learn more about Columbia Business School's position at the very center of business, please visit www.gsb.columbia.edu.

SOURCE Columbia Business School

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