But its factories remain very inefficient, even though there are cost-saving technologies available. Why?
It would seem a given that efficiency-enhancing technologies spread rapidly, seeing as smoother production often leads to higher profits. That’s not always the case, though: A 2008 survey of the past two centuries found that on average, countries have adopted revolutionary technologies such as steel production and electricity 47 years after they were invented. How and why technology spreads—or rather, doesn’t spread—is a bit of a mystery.
For example, why did so many soccer ball factories continue to use an inefficient cutting mechanism when there was a better one out there? That's the question that a team of researchers from Yale, Columbia, and LSE (that's Lahore, not London) tried to answer in a study of Sialkot, Pakistan, where 40 percent of the world's soccer balls are produced.
(How Sialkot got its market share is worth a momentary digression. Its origins as a hub of soccer ball-production date back to British colonial times, when Britons eager to play soccer grew impatient waiting for shipments of balls to arrive by sea. In 1889, a British sergeant asked a Sialkoti saddlemaker to repair his punctured soccer ball, and, pleased with the results, put in an order for a batch of balls to be made. Production took off from there: By 1982, Sialkot-produced balls were used in the World Cup.)
Today, more than 100 firms produce soccer balls in Sialkot, a city of 1.6 million. Since Sialkot faces tight competition from China and East Asia, the team of researchers figured that manufacturers would be hungry for technologies to make their plants more efficient. After happening upon a new manufacturing process that would increase profit margins by about 13 percent—it involved changing the arrangement of pentagons on a sheet of artificial leather in a way that reduced waste—they wanted to know how quickly the method would spread. They introduced it to a control group of firms. They waited.
But after 15 months, only five of the 35 factories in the control group adopted the technology—a rate the working paper calls “puzzlingly low.” So the team put on hold its original question and started investigating why the technology didn’t catch on. They noticed that one firm outside of the control group adopted the new pentagon arrangement, and that the firm did something most others didn’t: What was going on with that one firm? It turns out, that firm paid its workers by the hour, rather than by the ball. The researchers hypothesized that a worker paid per ball might be resistant to trying out a new technology because, in the short run, as they were learning to use it, it would slow down their productivity and decrease their earnings.
In hopes of erasing the workers' short-run qualms and encouraging them to share innovative information, the team offered them an extra month's worth of wages on the condition that they learned how to use the new cutting technology. After this cash infusion, the researchers saw the probability of adoption increase from 16 percent to 48 percent. This lump sum, which they considered “small from the point of view of the firm,” was the extra push needed for adoption.
The best explanation for this, according to Eric Verhoogen, a professor at Columbia’s School of International and Public Affairs and an author of the paper, is that without the lump sum, the incentives of the worker and the company don't match up. “The general lesson is that workers have to share in the gains for innovation to be successful,” Verhoogen says. In fact, the workers’ incentives were so far divorced from those of their managers that some workers lied to their superiors about the technology’s efficacy in order to prevent its adoption. (Naïf that I am, I found this surprising. Verhoogen didn’t. “What I was surprised about is not so much that workers might try to mislead their managers, but that their managers would believe them,” he says.)
The study isn’t an unqualified endorsement of hourly wages over piece rates in manufacturing, but it does constitute a stab at answering the question of how companies might extract knowledge from inside its workers’ heads. “Even on assembly lines in the U.S., in auto factories for instance, paying fixed wages, many times workers will come up with ways of doing their jobs faster, but they won’t tell the firm about that, because they can just do the job faster, and they can have longer breaks,” Verhoogen notes. He points to Rivethead, a 1992 book by an employee of the General Motors plant in Flint, Michigan, which described the ways workers could game the system: If one employee managed to be twice as productive, another employee could take the day off and go fishing.
A 2008 article in Harvard Business Review pointed to Toyota as an example of a firm whose success is in part due to listening to its employees. HBR explains:
The company views employees not just as pairs of hands but as knowledge workers who accumulate chie—the wisdom of experience—on the company’s front lines. Toyota therefore invests heavily in people and organizational capabilities, and it garners ideas from everyone and everywhere: the shop floor, the office, the field.
Says Verhoogen, “There’s a ton of knowledge out there that’s being wasted because workers don’t have any incentive to share it.”
This story originally appeared on The Atlantic.