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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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If you consider Apple, the TMs are engineers. They tried to recruit [a senior Nokian] to Apple. He came back from having met Jobs and everyone and he said, ‘‘Nokia is business-case driven. We make everything into a business case and use figures to prove what’s good, whereas Apple is engineer-driven. It was pure technology and the top management was immersed in the technology.’’ That’s often how it is in a product company, you have to understand how the product is built.... You have to make a lot of product decisions based on what’s possible and what’s not. Of course you must have stretching goals, but just deciding to build a product [will not work]. (UMM#7) Nokia’s TMs also admitted that, as one TM told us, ‘‘there was no real software competence in TMT.’’ The chairman likewise stated, ‘‘[the CEO] said himself that he wasn’t a software expert. That was true, [and] I wasn’t a software expert either’’ (Ollila and Saukkomaa, 2013: 458). Another TM said, ‘‘The real lesson [from the Nokia case] is that you should not appoint someone who does not understand the technology... in a deep way, but only [knows it] through numbers, to be the CEO of a technology company.’’ Ironically, several informants also questioned the technological competence of this TM, whose background was not in technology. A third TM also admitted, ‘‘When the business changes you have big masses of people, including people in top management, whose competence is not quite at the core here. Then, this kind of faith is formed that is partly based on the missing competence.’’ Thus it seems that Nokia’s TMs had low technological competence, which amplified the effects of the various fears on their decoupling interaction with MMs and contributed to the development of their over-optimistic capability perception.6 In addition, it is possible that TMs’ low technological competence had a direct effect on Nokia’s innovativeness. Had the TMs had higher technological competence, they would have made more informed and thus more optimal choices regarding technology.

As a counterfactual (a situation in which TMs have high technological competence), consider Steve Jobs’ influence at Apple, which seemed to have a somewhat similar (if less extreme) fear profile as Nokia. Jobs felt high external fear regarding Apple’s long-term success; he was very upset when Google announced Android and worried that it would destroy the iPhone (Isaacson, 2011: 511). He was also notorious for instilling fear among MMs (Apple Insider, 2013). But Jobs seemed reasonably in touch with the technology used in the iPhone and was closely involved in its development. For example, he spent ‘‘part of every day for six months helping to refine the [iPhone] display’’ (Isaacson, 2011: 469) and was extremely demanding about technological quality.

Consequently, Jobs was likely able to make stretching yet realistic demands on product developers, and MMs, however scared they were of him, could not mislead him technologically. This pattern changed when Jobs stepped down: Jobs’ successor, Tim Cook, had lower technological competence and might thus have been less able to critically assess his subordinates’ communication. This might help explain why Apple launched its maps application in 2012 with so many errors that the company ultimately advised its customers to use Google’s or Nokia’s rival applications while Apple fixed its own (Apple, 2012).

28 Administrative Science Quarterly XX (2015) Innovation Underperformance Innovation underperformance at Nokia followed TMs’ over-optimistic capability perception. As the TMs had an inaccurate understanding of their organization’s capabilities, their decisions regarding resource allocation to various innovation processes were decoupled from organizational reality. Temporal myopia resulted, as illustrated by the additional data in table B5 of the Online Appendix.

Nokia allocated disproportionate attention and resources to the development of new phone devices for short-term market demands at the expense of developing the OS software; TMs took little corrective action. One might infer that this ‘‘rigidity’’ occurred because threat perceptions caused TMs to think in narrow ways (cf. Staw, Sandelands, and Dutton, 1981), but this was not the case.

Rather, rigidity in the form of temporal myopia came about because the information that the TMs received from MMs indicated that their current actions would lead to success. Nokia’s TMs thus made boundedly rational decisions based on the inaccurate understanding that they had sufficient time, resources, and capabilities. Gradually, product quality declined.

Extant research suggests that modularity in software (e.g., MacCormack, Rusnak, and Baldwin, 2006) enables higher-quality development in the long term, although it does take time to develop such modularity. At Nokia, pressure to introduce new phone models in the short term deprived the Symbian unit of

the time they needed to make the OS more modular:

[The Symbian OS software] had a very antiquated architecture in many ways, which [software developers] could never modernize and they weren’t given the time to modernize. They tried to make very different kinds of products based on that architecture, which meant that they had to bolt on all sorts of things to make an individual product happen. And a terrible technical complexity emerged through that process. All sorts of product-specific things piled up in there that they could no longer maintain.... [For example,] the way the user interface was done, it was really old. A totally antique system. So doing anything with [this old system resulted in] very slow [performance].





Then instead of saying early on that we have to get rid of this [old system], it’s not worth fixing it, they had just been patching it up. It might help in getting the next product out, but it doesn’t solve the [core] problem. (UMM#7) Another element of the problem was that Nokia’s structural arrangements did not prevent product units’ immediate needs from overwhelming the long-term needs of the Symbian software unit. In ambidextrous structures, the unit focusing on long-term development should not have short-term pressures (Christensen and Bower, 1996; Gilbert, 2005; Taylor and Helfat, 2009). But in Nokia’s case, because of the emotional dynamics, TMs did not perceive a real and urgent need to change the structural relationship between the software

unit and PUs. Instead:

–  –  –

good things that come from integration are that you get complementarities and the ability to keep things connected, but the negative side is that speed and flexibility suffer.... Structure must follow strategy. The strategy was to offer integrated solutions so the organization also needed to be integrated. It required a lot of coordination in the development. Retrospectively one can see that it was slow. In the end it was concluded that it was not possible [to develop software and hardware in the way Nokia was developing them]. (TM) Nokia could have used several approaches to correct its temporal myopia, such as taking more time to improve Symbian or improving its capabilities to speed up long-term development. (Additional examples are described in Online Appendix table B5.) But TMs did not take any significant corrective action until they realized that Symbian had become unfixable.

The quality of Nokia’s high-end phones gradually declined—although the firm continued to produce dozens of successful medium- to low-end phones, which required less-advanced software. For example, in 2007, Nokia launched the N95 smartphone, which had full music features, GPS navigation, a large screen (not a touch screen), and full Internet browsing capability. Even though some ‘‘compromises [in software were] accepted to get the product ready on time’’ (Laukkanen, 2012: 71), it was still seen as a huge leap forward and went on to be the most profitable Nokia phone ever. But more serious quality problems soon emerged. In 2008, Nokia launched its first touch-screen phone, the 5800, at a lower price point than the iPhone. It was a commercial success, but ‘‘it was about one and a half years late’’ (TM) because of difficulties in software development. In 2009, Nokia launched the N97 to overthrow the iPhone and, according to an EVP, ‘‘change how people think about mobile devices’’ (Symbian-Freak, 2009), but the phone was a ‘‘total fiasco in terms of the quality of the product. Not just [in terms of] user experience, but anyone who used the product could see that it simply did not work’’ (TM). Another TM admitted that ‘‘N97 was a cold shower. It was so sudden and unexpected, that something was very wrong—that came as a surprise.’’ In 2010, Nokia launched the N8, another purported ‘‘iPhone killer’’ with a touch screen. Its original intended launch date had been a year earlier. During the development process, the phone ‘‘was extensively tested [to ensure high quality], and it got delayed [repeatedly], and when it was tested again, the conclusion was that it still wasn’t good enough. These delays proved fatal [i.e., prompted the company to search for a new CEO]’’ (TM). In addition, the N8 failed to match the competition: ‘‘Usability is where the Nokia N8... falls short the most... if you are coming from webOS, iOS, or Android, things are likely to feel kludgy to you’’ (Mobile Burn, 2010). Nokia had been also developing its Linux-based OS, MeeGo, in parallel to Symbian, but it suffered from major development delays. A new CEO hired in September 2010 decided that Nokia would be better off buying software from external firms and thus struck a strategic alliance with Microsoft in February 2011. Microsoft ultimately acquired Nokia’s phone businesses in 2013.

DISCUSSION As summarized in figure 2, the structural distribution of attention at Nokia and TMs’ past aggressive behaviors generated external and internal fear among TMs and MMs, respectively, and these different types of fear caused Figure 2. Shared fears and innovation underperformance.

–  –  –

decoupling interactions between groups of TMs and MMs. These interactions produced an assessment gap of organizational capability between TMs and MMs that contributed to Nokia’s innovation underperformance. In particular, internal and external fear led to TM–MM interaction cycles that led TMs to believe they could allocate resources to short-term developments without compromising long-term developments. The outcome was that long-term software development suffered, which hindered Nokia’s ability to implement its strategy successfully. We also identified how MMs’ dependence on organizational status amplified their internal fear; how a feedback loop from different groups’ perceptions had the same effect; and how TMs’ low technological competence increased their dependence on MMs’ reporting, amplifying the effects of fearbased interactions.

On a broader theoretical level, the model presented in figure 2 suggests how organizational structures can influence micro-level factors such as emotions, TM–MM interaction, and cognition, which influence choices made during the innovation process and thus contribute to innovation outcomes at the organizational level. The model also includes the possible direct effect of top managers’ low technological competence with a dashed line. By identifying these macro–micro–macro linkages in the model, we provide textured multilevel theorizing on innovation, strategy, and organization.

Structurally Based Fear Our findings suggest that the structural distribution of attention in an organization (Ocasio, 1997) could lead TMs and MMs to experience external and internal fear, respectively, and that these emotions can have a substantial influence on behaviors and communication patterns in the innovation process. Our findings suggest that external fear might result when a group’s organizational role is to focus mainly on threats in the external environment. Internal fear might result when a group’s organizational role is to focus mainly on implementing and responding to other members’ directives and requests. External and internal fears are primarily related to the focal group’s roles in the organizational structure and could be more generally labeled as structurally based fear.

In contrast to prior research, which has investigated attention structures and their effects mainly from an unemotional, information-processing perspective (e.g., Ocasio, 2011; Gavetti et al., 2012), we have shown how attention structures could generate shared emotions among groups. Emotional reactions occur because when groups attend to information, it is not merely processed analytically to determine a satisfactory course of action but also triggers appraisals of the person–environment relationship that generate emotional reactions (Lazarus, 1991). During such appraisals, groups do not just process events through a retrospective lens but may also use the information to anticipate a future outcome (cf. Gavetti and Levinthal, 2000). Previous research has shown how such anticipation can happen through analogical reasoning (Gavetti, Levinthal, and Rivkin, 2005), discussions with venture capitalists (Maula, Keil, and Zahra, 2013), or collective sensemaking among members of the groups (Balogun and Johnson, 2004), but it has not investigated how the processes also trigger emotional reactions and how they influence subsequent behaviors.



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