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«Abstract We conducted a qualitative study of Nokia to understand its rapid downfall over the 2005–2010 period from its position as a world-dominant ...»

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he ‘‘kept saying that we need new people,’’ and another TM added:

Some people can explain things more clearly, like ‘‘this is what we should be doing.’’ And others seem indecisive and talk nonsense. And then there’s the plus that someone had a clear plan that these things should be done. Of course you listen to those people more, especially in a crisis, than to people who theorize issues endlessly. It comes down to action in the end.

As longer organizational tenure was typically associated with lower internal fear, however, Nokia TMs inadvertently paid less attention to MMs who had lower internal fears and were thus more honest about organizational limitations and proposed action plans that were less simplistic and less ambitious. TMs’ external fear might have led them to perceive MMs who reported problems as pessimists or naysayers and thus to discount their warnings.

MMs’ over-optimistic reporting. Based on the extant literature, we might expect that if TMs issued suboptimal directives because they lacked operational knowledge, MMs would help TMs improve their decisions through joint sensemaking (e.g., Joseph and Ocasio, 2012). This did not happen at Nokia.

Instead, MMs’ internal fear made them promise to deliver what TMs were requesting, even though they privately doubted the feasibility of TMs’ requests.

Though political perspectives might describe such behaviors as calculated cognitive approaches for gaining power (e.g., Pfeffer, 1981), our analysis reveals an alternative or complementary explanatory mechanism: MMs reacted emotionally in particular situations as fear drove them to make over-optimistic promises and reports. These empty promises brought short-term emotional relief to both MMs and TMs: MMs did not have to admit their limitations and risk 24 Administrative Science Quarterly XX (2015) sanctions in the short term, while TMs’ fear of losing to external competition was allayed. In addition, low external fear convinced MMs that there was little need to have a difficult debate with TMs about a non-critical issue. Thanks to MMs’ submissive stance and over-optimistic reporting, TMs developed the perception that their ambitious requests were feasible and the company’s longterm development was viable.

MMs in product units explained to us how they behaved in situations that

triggered fear for their own well-being and access to resources inside Nokia:

[A central factor influencing whose proposal got resources was] the timeframe—how long it took [to develop the product]. You can get the resources by promising something earlier, or promising a lot. It’s sales work really, you make an offer [TMs] can’t refuse. It’s a challenge to get resources if there are competing teams, so [you oversell]. When you promised something, the most important thing was the momentary fulfillment of needs; saying ‘‘yes’’ here and now. The benefit of doing that was so much greater than saying ‘‘it can’t be done’’—[even if you were] right. (MM#3) The message about each product area had to be kept positive so [the units] would be allowed to continue [to operate]. If the message was that this hasn’t progressed with these resources, [MMs] would be afraid that [their project] would be discontinued.... One source of fear was that many good projects had been discontinued. It was known [throughout the company] that Nokia had discontinued many good product concepts that could have been successful—for one reason or another. (MM#16) Some MMs also described how intense internal fear silenced them during review meetings: ‘‘I remember one meeting where they had an insanely optimistic deadline for one subproject that was critical for [the whole product].... I thought I should point it out, but the thought of challenging [TMs] made my heart race, and then I just kept quiet’’ (MM#8).

MMs in the Symbian software organization felt pressure from both TMs and product unit directors. Fear made them agree to TMs’ demands, even when they did not believe they could be met. The typical interaction sequence was as follows: MMs voiced their concerns, TMs continued putting pressure on

them, and MMs complied:

The software people tried to say that things weren’t going so well, but the pressure to give the ‘‘right’’ answer [e.g., the next software version would be ready by a given date] to top management was high. Concerns were ignored during the conversation.

The interaction was fragmented. If you were too negative, it would be your head on the block. If you said something couldn’t be done, then it’s about whether we should replace you. (TM) They [higher level MMs in charge of specific aspects of software] accepted interface concepts as targets [as requested by TM] without going over whether it could be done and how fast. They accepted the concept and set the target that it’d be in stores within a certain time, so it was ‘‘go for it’’—and then the guys started thinking about how they’re gonna build it. (MM#18, software) They [TMs] thought that if they just put pressure on the product-development organization, they would execute it. So maybe the product-development area should have been more assertive and said, ‘‘What you’re asking for is impossible.’’... In product development, people didn’t have the courage to say, ‘‘Listen, it’s like this. We can’t give you anything more.’’ In Nokia’s R&D, the culture was such that they wanted to please the upper levels. They wanted to give them good news... not a reality check.

Vuori and Huy 25 There was a lot of top-down guidance. We’d be showing a schedule, then when we talked to middle management, we’d ask, ‘‘Why did you promise that? Why did you say yes?’’‘‘Well, because it will be a hassle if we say it’s late... we can’t say that.’’ We needed a truth commission so people could tell them things without the fear of punishment, to say what was really going on. (UMM#7) When problems started appearing, MMs did not inform TMs of potential delays or missing product features. Fearing TMs’ immediate negative reactions, they

remained silent or filtered information:

[In our unit] we wouldn’t say anything about this [anticipated delay to TMs] because we thought that [another unit] was going to slip first. So we’d let them slip first, and then we could say, ‘‘Oh well, in that case we’ll take an extra six weeks.’’ So there was an element of brinkmanship and trying not to be... the one to slip first.

(UMM#10, software) The information flowed downwards, but the information did not flow upwards. Top management was directly lied to. They were misled. I remember examples when you had a chart, and the supervisor told [you] to move the data points to the right [to give a better impression]. Then you did that and your supervisor went to present it to the higher-level executives. There were situations where everybody [on our level] knew things were going wrong, but we were thinking, ‘‘Why tell TMs about this? It won’t make things any better.’’ We discussed this kind of choice openly. And it was possible to give them embellished reports because they did not understand the software. (MM#19) MM informants also reflected how their behavior had been driven by fear

rather than cold, affect-neutral self-interest calculation:

Question: Would you say that this [not telling about problems] was because of pure cognitive self-interest calculation?

MM#12: No.... I knew that it would hit me harder later. I knew it would be better to talk about it early. But I couldn’t make myself do it.... It was like going to the dentist; you know that the situation is only going to get worse, but you still postpone it.... I think it was fear.

Question: When people gave optimistic promises, do you think they did it calculatingly, out of political self-interest, or was it an emotional reaction?

MM#13: In those situations, there were lots of people talking in a meeting and things moved really quickly. You just went with your gut. It’s very complex. You can’t work out how each and every person will react, and weigh up what would be best for you in the long run. It’s more based on feeling.

TM–MM Assessment Gap As a result of decoupling interactions between TMs and MMs, an assessment gap between the two groups arose. TMs’ perceptions of what Nokia would be capable of doing differed substantially from MMs’ perceptions, which in retrospect were closer to reality. Table B4 in the Online Appendix provides additional data demonstrating the assessment gap.

–  –  –

OS software. Even though Nokia’s TMs had an accurate understanding of the

market needs, their interactions with MMs gave them an over-optimistic understanding of Nokia’s capabilities. As Nokia TMs noted:

I only realized [I was getting filtered reports] later on. There was a change in the business environment: we got rid of the hardware competitors and had software and internet competitors instead. But our organization’s area of expertise was [not in these new areas]. People [in Nokia] learned to speak the [new technical] language quickly; they became quasi-experts. They gave the impression that they understood [this new area], but [I realized later] it was only skin deep. I was too ready to believe that these people could change. (TM) The products were always late, but they were never late in [reporting] conversations.

They came out one or two years late, but in conversations it was always that [our smart] phone would be ready in one or two months. And because it was said that it would be ready in one to two months, you never initiated bigger improvements that would have required six months. That would have created a long delay based on the understanding that prevailed then. You always imagined that the products would come out soon. (Another TM) Beyond noting that MMs’ communication was positively biased, Nokia’s TMs also reflected that their own emotional states might have influenced how they

interpreted signals from MMs and contributed to the emergence of their overoptimistic capability perception:

Making a big change takes such a long time that you don’t want to believe it....

This is related to admitting things to yourself. So even if you understood on an intellectual level, you still won’t accept it.... No matter what level you were at— employee, supervisor, middle or top management—it’s extremely difficult to truly accept [that you cannot fix Symbian rapidly], even though you might understand it intellectually. (TM) One reason we believed we could [develop software capabilities and smartphones as described by some MMs] was that the alternative [scenario was] horrible. The alternative, which Nokia [was forced] to adopt later, was to focus only on hardware and buy the software outside. [We would become] a pure hardware manufacturer.

(Another TM) Because TMs had an over-optimistic perception of capability development, they continued pressuring MMs to work faster because of their external fear of competition. A vicious cycle leading to declining product quality arose. Pressure from TMs hurt long-term OS software development by forcing MMs to take short cuts, and it amplified MMs’ internal fear, which made them submit overoptimistic reports, maintaining TMs’ over-optimistic perception.

TMs’ low technological competence. Because organizations often hire outside executives from unrelated industries (e.g., Forbes, 2009), and most cognition research focuses on TMs’ perceptions of external market needs (e.g., Eggers and Kaplan, 2013), one might expect that deep technological knowledge is not critical for top-level executives’ effectiveness. Our data suggest the opposite: TMs’ low technological competence made them more dependent on MMs’ communication and thus amplified the effects of the fear-based communication on TMs’ perception of organizational capability. When MMs showed them Vuori and Huy 27 technological demos or early prototypes, TMs were not able to directly assess what progress was truly being made and had to rely on what MMs reported: ‘‘A sufficiently competent guy can just look at the phone and how it works and see what’s still to be done. Just by looking and testing it, [he knows] what’s going on. But if you don’t have a technical background, you just can’t understand; you

can’t get it’’ (MM#18, software). TMs’ low technological competence also influenced how they could assess technological limitations during goal setting, particularly in the absence of critical feedback from technological MMs:

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