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January 21, 2015

WEF 2015: Incubating Innovation

Posted by Rajesh K. Murthy (View Profile | View All Posts) at 9:59 AM

Davos 2015 -- What to expect [Source: https://www.youtube.com/watch?v=HH_ENRldd0E]

The world has been a troubling place lately. I don't need to go into the details if you've read even one newspaper or watched a newscast on the web or TV during the last week. But, as they say, it's always darkest right before the dawn.

It's in that spirit that the world's business, political, and cultural leaders will converge on a quaint Swiss town of Davos this week to discuss how they can, collectively, improve the state of the world. That's been the World Economic Forum's slogan for decades now, and its prestige as a conclave of problem-solvers increases every year. This year, among the many challenges and issues its attendees will be discussing, is innovation and how best to incubate it.

There is a fascinating new study by business professors at the Lahore School of Economics, Columbia, and Yale that shows how innovation might be right in the face of you and your enterprise. It's just a matter of capturing it that's the challenge. The example they used in their study involved soccer balls. Did you know that 30 million soccer balls - some 40 percent of the global production - come out of the Pakistani city of Sialkot?

The academic research honed in on a production issue: Every time the laborers stamped the hexagons and pentagons that must later be stitched together to form a ball, they leave behind scrap material that can't be used for anything. So the professors decided in their experiment to fashion sheets of Rexine, the leather-like substance that soccer balls are made of, to fit more pentagonal and hexagonal stamps so less waste material wound up on the floors of the manufacturing plants. They figured this one shape change would translate into 1 percent in cost savings for each ball manufacturer.

Because soccer balls usually have profit margins of around 8 percent, their new innovation to the stamping process could eventually bring a 15 percent increase in profits. They gave their new innovation away for free to 35 randomly selected factories. Recently, when they came back less than a year and a half later, they found that just six companies were using the innovation - even though it indeed had proven itself as a cost-saver. What was going on? Well, it seems that soccer balls in this Pakistani city are made mostly by hand, and laborers are paid by the number of pieces they cut. It didn't matter to them if there was a little less scrap material lying around at the end of the day.

What world leaders attending the WEF in Switzerland can learn from this interesting study is that an innovation is only as good as its effective use. The problem in the case of the soccer balls was that the owners of the factories were not incentivizing their employees to use the new stamping patterns and sheets to save on scrap. Those that did found considerable cost savings.

I hope that this week, participants who are trudging through the snow of Davos on their way to the Congress Hall can talk about ways they and their companies and countries can team up to make the innovations that we have more effective. We live in a complicated world. Let's team up at the WEF and learn how to put innovation to work to improve the state of it.

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