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Identity & Employee support

Example of how groups can slow down organizational development:

Employees

• Dis-identification with organizational development: If employees feel disconnected from the goals of sustainability or feel that these initiatives threaten their current job roles, they may resist change and slow down implementation

S3V0

In times of constant change, organizations must adapt. They must consider external change factors and incorporate change internally. In this video, we are asking how organizations change and how organizational culture and leadership affect this change.

We have three learning objectives for today's session. First, we want to explore the roles of identity, culture, leadership, and psychological safety in influencing employee attitudes towards change. We want to understand what influences whether employees are open to change or not. Second, we will identify strategies for supporting employees and reducing resistance during change. After examining why employees are open or not open to change, we will look at ways to help them become more open. Third, we will address how leadership impacts the sources of change and creates a positive environment for adaptation.

Let's start with a brief example. Consider Kodak, a film company operating in the analog photography industry during the 1980s and 1990s. When photography shifted from analog to digital, Kodak failed to adapt. Researchers have identified several factors behind Kodak's failure. Employees strongly identified with the traditional film industry, their skills and legacy were tied to it, and they resisted redefining the business model. They were confident—perhaps overconfident—about their market leadership in the film industry.

Kodak's organizational culture favored tradition, leading to groupthink. Opinions questioning the company’s established norms were not accepted. Leadership challenges existed throughout the organization. The firm needed immediate profitability, especially after global competition intensified. Leaders delayed crucial decisions regarding investments in the new technology, thus delaying the transition.

There was also a lack of psychological safety at Kodak. Psychological safety means trust that one can voice opinions and speak up about issues that might not be widely valued. Without it, employees with critical perspectives were reluctant to challenge the dominant opinion. Innovation and creativity suffered, and fewer new ideas emerged.

Today, organizations face similar challenges, especially with changes related to sustainability and digitalization. We ask: How do we ensure that all staff members are on board with sustainability efforts? How do we prevent resistance to change and keep everyone aligned?

This leads to four key questions we will discuss in this session:

1. Whydosomeorganizationslosetheiremployeesduringchange? 2. What role do identity and culture play in promoting or preventing change? 3. How do organizational leaders affect change in their organizations? 4. How can organizations create environments where employees feel safe to raise their voices?

We will have four separate videos. The first video focuses on resistance to change—understanding why employees resist and what psychological reasons stand behind that. The second video discusses identity and culture, examining how they shape self-conception, values, and openness to change within an organization. The third video looks at leadership and how leaders inspire employees in times of change and help overcome resistance. The fourth video focuses on psychological safety, crucial for open communication. When it is lacking, employees remain silent, hindering change.

In summary, we learned that changing towards sustainability is a must in today's business environment. However, organizations must bring staff and stakeholders on board, ensuring alignment and support. While organizations may be eager to change, it can be difficult to align all staff members with transformation processes. This challenge applies not only to sustainability efforts but to any major change. Organizations must consider the critical roles of identity, culture, and psychological safety to prevent silence and resistance. Leadership is critical in establishing a foundation that encourages willingness to change.

Stay tuned for our next video.

S3V1

Why does resistance to change happen, and how can we manage organizational conflicts? In this video, we will address these questions. First, we want to understand the psychological, emotional, and sociological factors contributing to resistance to change. We will explore different types of resistance—logical and rational, emotional, and social—and how they manifest within organizations. Finally, we will learn strategies for overcoming resistance and managing conflict during periods of organizational change.

Let's start with an introductory example. Consider Thomas Edison, an amazing inventor who pioneered direct current (DC). One of Edison's employees, Nikola Tesla, invented alternating current (AC). Tesla argued that AC was the only scalable solution for lighting entire cities, while DC worked well only for small tasks. Edison hated the idea so much that he launched a campaign against Tesla. He could have embraced Tesla's invention, but instead he hired a PR firm to badmouth AC and even funded the first electric chair using AC to show how dangerous it was. He did many awful things simply because he loved his own invention so much that he could not see the usefulness of something else that came from someone who worked for him.

While Edison's mistake is extreme, we must ask ourselves if we make similar errors by falling too much in love with our own ideas. Is this just an extreme case? Historically, we have seen many examples in science. Galileo rejected Kepler's idea that the moon influences tidal motions, and Davy rejected Dalton’s atomic theory. Such examples are common throughout scientific history.

We call this the "not invented here" phenomenon. It refers to a bias where individuals reject external knowledge, not because it's unhelpful, but because they have a negatively shaped attitude toward that knowledge. External knowledge might cross various boundaries—organizational, spatial, disciplinary—and resistance can increase with the number and complexity of these boundaries.

Consider a scenario where two colleagues in the same department, sitting next to each other, exchange ideas (type 1). This involves no external boundary. Compare that to a scenario with different companies in different countries, with different professional backgrounds and languages (type 8). Knowledge here crosses multiple boundaries, increasing the likelihood of "not invented here" bias and resistance.

Change often involves new ideas coming from different sources. People might resist change for several reasons. Let's consider some common drivers of resistance:

Reluctancetolosecontrol:Peoplemayfeelforcedintochange,losingtheirsenseofautonomy.

Cognitive rigidity: Some individuals are not flexible in their thinking, making them less willing to adapt.

Lack of psychological resilience: Change is stressful. People who are less resilient struggle with uncertainty and the adjustment period.

Intolerance of uncertainty: Some cannot cope with the uncertain learning phase required by change.

Preference for low levels of stimulation and novelty: Individuals comfortable with routine may dislike new frameworks.

Habitual comfort: Familiarity breeds comfort. Learning new habits creates stress.

We can group resistance into three categories: logical or rational, emotional or psychological, and sociological or social. Rational resistance may involve disagreement with facts or logic. Emotional resistance might stem from fear, mistrust, or a threat to self-identity. Sociological resistance might arise when group norms or values are challenged.

In organizations, people rarely admit fear or emotional reasons. They often present rational arguments instead, making it harder to identify the true source of resistance.

This resistance can lead to conflict. Conflict is defined as antagonistic interaction between parties whose actions negatively affect each other's interests. Conflict can be healthy when it focuses on tasks, values, perspectives, and expectations. It can be unhealthy when it involves competition over power or resources, personal grudges, or faulty communication.

The impact of conflicts varies. Destructive conflicts harm cooperation, increase differences, and can lead to irresponsible behavior. Constructive conflict resolution can clarify problems, generate new solutions, release stress, and build cooperation and understanding.

So, how do we manage conflicts constructively? We can consider different conflict resolution styles based on cooperativeness and assertiveness:

Avoiding: Low assertiveness, low cooperativeness. Maintains relationships but doesn't solve the problem.

Accommodating: High cooperativeness, low assertiveness. Maintains relationships but sacrifices some opinions.

Competing: High assertiveness, low cooperativeness. Quick decisions but risks aggression and damaged relationships.

Compromising: Moderate assertiveness and cooperativeness. Quick solutions, but possibly suboptimal outcomes.

Collaborating: High assertiveness, high cooperativeness. Everyone is heard and involved, but it takes time and effort.

To negotiate conflict, separate people from the process. Focus on issues, not positions. Identify and rank goals, generate alternatives that provide mutual gains, and view the problem from multiple perspectives. Use objective criteria to evaluate alternatives, resist pressure, establish monitoring criteria, and learn from each conflict to handle future issues better.

In summary:

Resistance to change can stem from various psychological and situational factors.

Resistance can be rational, emotional, or social, and may not always be openly acknowledged.

Effective conflict management and negotiation are crucial. Techniques like collaboration, compromise, and focusing on shared interests can help overcome resistance.

Maintaining positive relationships while implementing change is essential for organizational success.

Thank you for watching.

S3V2

Today we're talking about organizational identity and culture. We want to better understand the importance of identity and culture for organizational change. To do so, we have the following learning objectives:

1. Understandtheconceptoforganizationalidentityandseehowitmightdriveresistancetochange. 2. Examine the role of organizational culture and its interrelation with identity. 3. Explore how identity threats might lead to disengagement from the organization.

Let's start with an example of how organizations shape identity: Patagonia. Patagonia’s mission is “We’re in business to save our home planet.” The company clearly focuses on environmental sustainability, creating a workplace where employees actively participate in environmental causes. By encouraging employees to engage in environmental projects, providing programs like environmental internships, and emphasizing transparency and responsibility, Patagonia enhances employees’ identification with the organization as environmental protectors.

How can we explain that employees identify with their organization? We can turn to social identity theory. According to social identity theory, individuals strive to maintain a positive social identity. Part of one’s self-concept and self-worth is derived from belonging to valued groups. Organizational membership can be one of these groups, making organizational identity a form of psychological attachment to the defining characteristics of the organization. This attachment can affect employees’ commitment, cooperation, and effort, as well as their decisions.

We can consider three levels of self-concept: personal, relational, and collective.

The personal level: People define themselves by their personal attributes and unique characteristics.

The relational level: People define themselves by their relationships with others.

The collective level: People define themselves by their memberships in social groups, such as their organization, profession, or ethnic group.

Identification often involves social categorization, identification, and comparison. Individuals categorize people into groups, identify with certain groups, and compare their in-groups with out-groups to achieve positive distinctiveness. Organizational membership can provide a source of positive identity if the organization is well-regarded and aligns with the individual’s values.

How does organizational identity relate to organizational culture? Organizational culture can be defined as a pattern of basic assumptions, shared beliefs, and values that guide members’ behaviors and provide meaning. Culture consists of visible elements (artifacts like office layout, dress code, ceremonies) and invisible deeper structures (values, norms, ethical standards). Culture and identity are closely linked. A strong culture provides members with a clear organizational identity.

A strong culture is characterized by specificity (clearly defined values and beliefs), adoption (the entire workforce embraces the culture), and implementation (cultural values are part of daily practice). A strong culture can have functional effects, such as behavioral consistency and a clear sense of identity. It can also have dysfunctional effects if it leads to pressure to conform, creating barriers to change.

Why might identification lead to resistance to change? Organizational identity threats occur when changes challenge the distinctive attributes of an organization with which members identify. For example, a corporate scandal or a technological shift might threaten members’ sense of what the organization stands for, leading to either solidarity (standing together) or disengagement (falling apart).

Employees may respond to identity threats through:

Social change: Working harder to improve external perceptions of the organization.

Social creativity: Shifting reference groups or reframing how they view the organization to maintain a positive identity.

Social distancing: Distancing themselves from the organization, possibly leading to turnover.

The nature of the threat (internal or external, stable or unstable, controllable or uncontrollable) influences whether employees choose social change, social creativity, or social distancing as a response.

In summary:

Organizational identity represents a psychological attachment. Members adopt the defining characteristics of the organization, influencing their behavior and cooperation.

Employees categorize themselves and others into groups, shaping roles, motivation, and self-esteem.

Organizational culture shapes behavior through visible and invisible elements (artifacts, values, assumptions). A strong culture provides consistency and identity but can also lead to resistance if threatened by change.

We look forward to our next video.

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Let us continue to explore the domain of organizational management ▪ Is the role of leadership and identity for change clear? ▪ Do you have questions regarding the video content? Video Review Case Study Project Work ▪ What can we learn from the downfall of Nokia? ▪ How can we transfer this knowledge into practice? ▪ extract from the case? ▪ What can we transfer from this case to your own project? ▪ How can we transfer this knowledge into practice? 4 Discussing four key questions in this session 1 2 3 4 Why do some organizations lose their employees during change? What role do identity and culture play in promoting or prohibiting change? How affect organizational leaders change in their organization? How can organizations create environments where employees feel safe to raise their voice? 5

Focusing on these central topics of this lesson Culture Resistance to Change Resistance to change hinders adaptation to new structures and processes. Identity & Culture Identity and culture shape the self- conception and values of the organization. Leadership Leadership Leadership provides guidance and inspires employees to achieve common goals. Psychological Safety Psychological safety promotes open communication, while silence often signals reserve. Leadership 6

Do you have questions regarding the video content? How can employees react to innovation and organizational change? What could be reasons for employees to refuse to change? Contrasting levels of resistance Logical or Rational Resistance ▪ Disagreement with facts, rational reasoning, logic and science ▪ Occurs because of time and effort which is needed to adjust to change Psychological or Emotional Resistance ▪ Based on emotions, sentiments, attitudes ▪ Employees’ attitude and feeling about change, fear of the unknown, mistrust in managements’ leadership, feel threatened in security or self- esteem Sociological or Social Resistance ▪ Product of a challenge to group interests, norms and values 9

What are the basic concepts of social identity theory? What could be examples of identity threats and what could be possible personal and organizational consequences? Contrasting concepts of social identity theory SOCIAL CATEGORIZATION ▪ Positive self-assessment as a basic need of individuals SOCIAL IDENTIFICATION ▪ Self-assessment is influenced by group membership and the (social) assessment of this group (e.g. prestige) SOCIAL COMPARISON ▪ Evaluation of a group by comparisons with other relevant groups (in-group vs. out-group) Positive distinctiveness as overall goal 11

Reacting to identity threats Social change ▪ To protect their self-concept, employees may either seek to change outsiders’ perceptions of the organization’s identity ▪ Form of behaviors directed at improving the public perception and performance of an organization Social creativity ▪ Includes attempts to maintain a positive perception of the organization ▪ Covers an array of cognitive and behavioral tactics for dealing with social identity threats, including reframing, recalibrating, and refocusing, self-stereotyping, or derogation ▪ Tactics are intended to maintain a favorable perception of the organization Social distancing ▪ Employees try to dissociate themselves from the organization ▪ Encompasses both physical and cognitive separation such as turnover and disidentification Piening et al. (2019) 12

What is organizational culture? What are advantages and disadvantages of organizational culture? Defining the concept of organizational culture Selected Definitions ▪ “A pattern of basic assumptions – invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration – that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.“ (Schein 1984) ▪ “The pattern of shared beliefs and values that give members of an institution meaning, and provide them with the rules of behavior in their organization.” (Davis 1984) Key Features ▪ Visible Surface Elements that are a visible part of the work environment (e.g. office layout, dress code, ceremonies, awards, symbols, etc.) ▪ Invisible Deep Structures Elements that are mostly known to members of an organization (e.g. fundamental values and beliefs, behavioural norms and expectations, ethical standards, etc.) ▪ Organizational Culture vs Climate Culture: Basic beliefs, assumptions & norms Climate: Staff perceptions of - and emotional responses to - their work environment Davis (1984); Schein (1984) 15

Decomposing the concept of organizational culture Elements Examples ▪ Architecture, office layout and dress code ▪ Firm charters, code of conduct, employee orientation material and key stories ➔ Visible, but hard to interpret ▪ Expressed vision and mission ▪ Guidelines for staff behavior ▪ Voiced standards of interaction ➔ Only espoused values accessible ▪ Beliefs about nature of competition ▪ Beliefs about role of business in society ▪ Beliefs about interpersonal risks ➔ Unconscious and hard to access Schein (1984) 16 + ▪ Artefacts ▪ Patterns of behaviour ▪ Key symbols ▪ Public documents ▪ Values ▪ Philosophies ▪ Goals, norms and standards ▪ Strategies ▪ Basic Assumptions ▪ Taken for granted beliefs ▪ Habits of perception, thought, feeling and interaction - Level of Awareness Advantages and disadvantages of strong cultures Characteristics of Strong Cultures ▪ Specificity ▪ Clearly defined values and beliefs ▪ Closely aligned staff behaviour ▪ Adoption ▪ Uniqueness of organizational culture ▪ Adoption by entire work force ▪ Implementation ▪ Culture more than a buzzword ▪ Culture part of daily practice Implications ▪ Functional Effects ▪Creates behavioral consistency ▪Conveys identity and sense of direction ▪Serves as a social incentive for appropriate behavior ▪Serves as a social control mechanism ▪ Potentially Dysfunctional Effects ▪Reduces heterogeneity of perception ▪Risks increasing pressures for conformity ▪Risks creating strong boundaries between the firm and its environment 17

How does the leader-member exchange emerge? What are antecedents and consequences of leader-member exchange? Exploring the developmental process Member Behavior and Attributions Leader Response Leader Attributions Leader Characteristics Initial Interaction Leader Delegation Member Characteristics Nature of Exchange Dienesch & Liden (1986) 19

Analysing LMX antecedents Follower Characteristics Leader Characteristics Interpersonal Relationship ▪ Competence ▪ Agreeableness ▪ Conscientiousness ▪ Extraversion ▪ Neuroticism ▪ Openness ▪ Positive affectivity ▪ Negative affectivity ▪ Locus of control ▪ Supervisor’s expectations of followers ▪ Contingent reward behaviour ▪ Transformational leadership ▪ Extraversion ▪ Agreeableness ▪ Perceived similarity ▪ Affect / liking ▪ Ingratiation (supervisor reported) ▪ Ingratiation (subordinate reported) ▪ Self promotion ▪ Assertiveness ▪ Leader trust LMX Quality Dulebohn et. al. (2012) 20

Exploring LMX consequences ANTECEDENTS CONSEQUENCES Follower characteristics Leader characteristics Interpersonal relationship Turnover intentions Overall organizational citizenship behavior Job performance Overall organizational commitment General job satisfaction Satisfaction with supervisor Satisfaction with pay Procedural & distributive justice Empowerment Perceptions of politics Role ambiguity Role conflict LMX-Quality Dulebohn et. al. (2012) 21

Why does top management often not become aware of shortcomings and irregulatories? Looking at origins of organizational silence Managers' fear of negative feedback ▪ Managers feel a strong need to avoid embarrassment, threat, and feelings of vulnerability or incompetence ▪ Managers tend to avoid any information that might suggest weakness or that might raise questions about current courses of action. ▪ Managers are especially likely to avoid negative feedback from subordinates Implicit managerial beliefs 1. Employees are self-interested and untrustworthy 2. Management knows best about most issues of organizational importance 3. Unity, agreement and consensus are signs of organizational health, whereas disagreement and dissent should be avoided (“unitary view”) Morrison & Milliken (2000) 23

What are the effects of organizational silence for organizations and employees? Examining the effects of organizational silence Organizational Silence c Negative effects on the organization → monotonous climate Negative effects on the employees →low working comfort Less effective organizational decision making Poor error detection & correction Low commitment and trust Less effective organizational change process Low motivation Higher probability of sabotage, stress, and turnover c Morrison & Milliken (2000) 25

What is psychological safety and how can leaders establish a psychological safe climate? Establishing psychological safety Setting the Stage Inviting Participation Responding Productively Frame the Work ▪ Set expectations about failure, uncertainty, and interdependence to clarify the need for voice Emphasize Purpose ▪ Identify what’s at stake, why it matters, and for whom Demonstrate Situational Humility ▪ Acknowledge gaps Practice Inquiry ▪ Ask good questions ▪ Model intense listening Set up Structure and Processes ▪ Create forums for input ▪ Provide guidelines for discussion Express Appreciation ▪ Listen ▪ Acknowledge and thank Destigmatize Failure ▪ Look forward ▪ Offer help ▪ Discuss, consider, and brainstorm next steps Sanction Clear Violations Shared expectations and meaning Confidence that voice is welcome Orientation toward continuous learning Edmondson (2019) 27

Your Turn! Find suitable arguments to refute prejudices and resolve conflicts. Looking at today‘s scenario Task: Community Relations Strategy for Renewable Energy Projects • You are the Public Relations Officer for a large energy company, planning to install wind turbines and solar panel fields in a local area. Tomorrow, you’ll attend a town hall meeting where community members may voice their concerns. Based on previous meetings, you’ve identified common worries that residents have, and your goal is to be well-prepared to engage constructively and diplomatically. Your assignment: 1. Prepare counterarguments 2. Clarify misinformation - Think about misconceptions that could be influencing community resistance, and plan clear ways to address these. 3. Consider the roots of concerns - Reflect on why community members might feel concerned. 4. Shared Interests - Think about interests that both your company and the community might share Please prepare your arguments. We will discuss the results later. https://tinyurl.com/2dn2v4t7 29

Reflecting the concerns & guiding questions Wind power is the main cause of bird deaths. Take Germany as an example and research the main causes of bird deaths & compare them with windmills as a cause of death. Burning houses with photovoltaic systems are not extinguished by firefighters. How do firefighters engage with burning photovoltaic systems? Are there any rules or guidelines? Forests store more CO2 than is avoided through wind power. How much CO2 is stored per hectare of forest? How much energy does it generate on average per year? What is the CO2 footprint of the German energy mix, and how does this compare to forests? Assume that a wind turbine occupies 0.5 hectares Wind and solar installations do not save CO2. What are the CO2 footprints of different energy sources (including production and building of facilities). Compare Wind and solar energy with other CO2 emitting sources. Wind turbines endanger groundwater. How are wind turbines grounded, and how deep are their foundations? Solar farms displace valuable agricultural land. How much energy is produced per hectare, and how much agricultural land would be needed to produce the same amount of energy with crops for biogas production? 30

Negotiating conflict Separate people from process Focus on shared interests Develop many opinions on the problem Evaluate using objective criteria Try again  Handleissuesandrelationshipsseparately.  Diagnosethecauseofconflict.  Encouragebothsidestorecognizeandunderstandtheiremotions.  Focusonissues,notonpositions.  Identifyhoweachsidecangetwhatitwants.  Haveeachsideidentifyandrankitsgoalsintheconflict.  Generatealternativesthatprovidemutualgainsforbothsides.  Lookforareasofsharedinterest.  View the problem from alternative perspectives.  Develop objective criteria for decision-making.  Talk through the issues to eliminate unimportant issues.  Donotgiveintopressure.  Establishmonitoringcriteriatoensurethatagreementsarekept.  Discusswaysinwhichtheteamcandealwithsimilarissuesinthefuture. Levi (2001) 31

Let us continue to explore the domain of organizational management ▪ Is the role of leadership and culture clear? ▪ Do you have questions regarding the video content? Video Review Case Study Project Work ▪ What can we learn from the downfall of Nokia? ▪ How can we transfer this knowledge into practice? ▪ extract from the case? ▪ What can we transfer from this case to your own project? ▪ How can we transfer this knowledge into practice? 34

Investigating the failure of incumbents Smart phones Mobile phones Capabilities t Cognition Inertia Window of Opportunity 35

Discussing one possible explanation of the failure of Nokia “Distributed attention and shared emotions in the innovation process: How Nokia lost the smartphone battle.” Administrative Science Quarterly (2016) Timo O. Vuori ▪ D.Sc. in work psychology and strategy from Aalto University – Finland ▪ Assistant Professor in Strategic Management at Aalto University. Focus on cognitive and emotion dynamics in organizations Quy N. Huy ▪ Ph.D. in Strategy from McGill University – Canada ▪ Professor of Strategic Management at INSEAD since 1998. Focus his research on the relations between social–emotional factors, organizational innovation, and creation of new companies. 510 overall citations 7034 overall citations 36

Introducing Nokia Nokia evolved being known for its mobile phones into a leader specializing in telecommunications, IT, consumer electronics • Nokia’s primary focus today is on network infrastructure, including 5G technology, network software, cloud solutions, and enterprise services. Nokia's core business areas are Mobile Networks, Network Infrastructure, Cloud and Network Services, and Nokia Technologies. • Nokia was founded in 1865 in Espoo, Finland and operates today in over 130 countries, with approx. 87,000 employees (as of 2023). • Nokia has been active in deploying 5G networks globally, partnering with major telecom operators, including AT&T, Verizon, and China Mobile. In 2023, Nokia announced new cost-cutting measures due to a challenging market environment and lower-than-expected demand for 5G. Source: Nokia (2024) 37

Investigating the case RQ: How do emotions influence the organization’s ability to sense internal and external threats and what effects do emotions have on the communication structure? Inductive Approach Existing Literature/Theory – R. Question – Observations of patterns – Hypothesis – Explanation (Theory) Industry Case Based Based in understanding Nokia’s rise and fall in the smartphone industry between 2005 and 2010 Empirical Study Collection & analysis of primary data based on direct obs. Deep contextual data helps understanding the event Qualitative Study Analysis and generate meaning from the data set collected during the research 38

Modelling the attention structure of Nokia External F. >> Internal F. External Pressure / iPhone External Fear Top Management Reports on Capabilities and Progress Internal Pressure Strategic Goals Internal Fear Internal F. >> External F. Middle Management 40

Investigating the case of Nokia Organizational Culture: • How would you describe the organizational culture at Nokia during the time of its decline in the smartphone market? • What aspects of Nokia’s culture might have contributed to its inability to adapt to the rapidly changing smartphone industry? • In what ways did Nokia's culture both support and hinder innovation within the company? Psychological Safety: • How did the lack of psychological safety impact the decision-making process at Nokia? • Can you identify instances in the case where employees might have been discouraged from sharing concerns or proposing new ideas? How did this affect the company’s ability to innovate? • What measures could Nokia's leadership have taken to foster a greater sense of psychological safety among its employees? Leadership: • How did leadership at Nokia influence the company's strategic direction during the smartphone transition? • Reflecting on the case, what leadership qualities might have helped Nokia better navigate the challenges it faced in the smartphone market? • If you were a leader at Nokia during this period, what would you have done differently to address the internal challenges described in the case? Let us continue to explore the domain of organizational management ▪ Is the role of leadership and culture clear? ▪ Do you have questions regarding the video content? Video Review Case Study Project Work ▪ What can we learn from the downfall of Nokia? ▪ How can we transfer this knowledge into practice? ▪ extract from the case? ▪ What can we transfer from this case to your own project? ▪ How can we transfer this knowledge into practice? 42

CrisEís Crisis a t Silberlauf River Economic - SUSTAINABLE BUSINESS PRACTICES - Announcing your task for today • You know the situation at the Silberlauf river • Employee Voice & Safety: − How does your organization ensure that employees feel safe to speak up during the crisis? What mechanisms are in place for employees to contribute ideas or concerns? − Identify any internal barriers that might prevent employees from speaking openly about the crisis. How can your organization address these barriers to improve decision- making? − How can your organization leverage employee input to develop a more effective response to the situation at the Silberlauf River? − In preparation for the crisis meeting, how can your organization’s approach to psychological safety be used as an argument for its reliability and openness to collaborative solutions? • Leadership: − What role should your organization’s leadership play in guiding its response to the crisis at the Silberlauf River? − How can leadership within your organization demonstrate commitment to the long-term health of the river and the communities that depend on it? − In the context of the crisis meeting, how can your organization’s leadership inspire collaboration and collective action among stakeholders? • Identity & Culture: − What is your organization standing for? What is its organizational identity – remember, this might also lead to an external image of your organization that the other stakeholders at the Silberlauf have in mind. Do you need to adapt your organizational identity? How can you signal that to staff members and the public? − How can your organization leverage its cultural strengths to build trust with other stakeholders during the crisis meeting? − What aspects of your organization’s culture might need to be highlighted or adjusted to align with the ecological, economic, and social needs of the region? • Resistance to Change: − In the context of the crisis meeting, how can you position your organization as adaptable and open to change when engaging with other stakeholders? • Use any other relevant content presented in the videos where you see fit! • Give a brief pitch 44

References used Davis, S. M. (1984). Managing corporate culture. Ballinger Publishing Company. Dienesch, R. M., & Liden, R. C. (1986). Leader-member exchange model of leadership: A critique and further development. Academy of Management Review, 11(3), 618-634. Dulebohn, J. H., Bommer, W. H., Liden, R. C., Brouer, R. L., & Ferris, G. R. (2012). A meta-analysis of antecedents and consequences of leader- member exchange: Integrating the past with an eye toward the future. Journal of Management, 38(6), 1715-1759. Edmondson, A. C. (2009). Psychological safety and learning behavior in work teams. Administrative Science Quarterly, 44(2), 350-383. Levi, D. (2001). Group dynamics for teams. SAGE Publications. Morrison, E. W., & Milliken, F. J. (2000). Organizational silence: A barrier to change and development in a pluralistic world. Academy of Management Review, 25(4), 706-725. Nokia. (2024). Nokia logo. Nokia. Retrieved November 5, 2024, from https://www.nokia.com/ Piening, E. P., Baluch, A. M., & Salge, T. O. (2019). The relationship between employees' perceptions of human resource systems and organizational performance: Examining mediating mechanisms and temporal dynamics. Journal of Management, 45(2), 545-566. Schein, E. H. (1984). Coming to a new awareness of organizational culture. Sloan Management Review, 25(2), 3-16. © Dr. Christina Dienhart & Prof. Dr. David Antons 45 Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle Timo O. Vuori1 and Quy N. Huy2 Abstract Administrative Science Quarterly 2016, Vol. 61(1)9–51 Ó The Author(s) 2015 Reprints and permissions: sagepub.com/ journalsPermissions.nav DOI: 10.1177/0001839215606951 asq.sagepub.com We conducted a qualitative study of Nokia to understand its rapid downfall over the 2005–2010 period from its position as a world-dominant and innovative technology organization. We found that top and middle managers’ shared emo- tions during the smartphone innovation process caused cycles of behaviors that harmed both the process and its outcome. Together, organizational attention structures and historical factors generated various types of shared fear among top and middle managers. Top managers were afraid of external competitors and shareholders, while middle managers were mainly afraid of internal groups, including superiors and peers. Top managers’ externally focused fear led them to exert pressure on middle managers without fully revealing the severity of the external threats and to interpret middle managers’ communications in biased ways. Middle managers’ internally focused fear reduced their tendency to share negative information with top managers, leading top managers to develop an overly optimistic perception of their organization’s technological capabilities and neglect long-term investments in developing innovation. Our study contributes to the attention-based view of the firm by describing how distributed attention structures influence shared emotions and how such shared emotions can hinder the subsequent integration of attention, influencing innovation processes and outcomes and resulting in temporal myopia—a focus on short-term product innovation at the expense of long-term innovation development. Keywords: innovation process, shared emotion, cognition, attention-based view of the firm, smartphone, temporal myopia Innovation requires highly effective information sharing between various organi- zational groups. For example, top managers are expected to translate prioritized 1 Department of Industrial Engineering and Management and Department of Management Studies, Aalto University 2 INSEAD, Singapore 10 Administrative Science Quarterly 61 (2016) strategic themes into actionable goals for middle management, while the latter are expected to coordinate with each other and report upwards on the progress of implementation to enable corrective actions (e.g., March and Simon, 1958; Ethiraj and Levinthal, 2004). Such integration of attention between organiza- tional groups (Joseph and Ocasio, 2012) is important for innovation because of interdependencies relating to a host of factors, including diverse units’ tasks, technologies, organizational capabilities, and changing market expectations (e.g., Garud, Tuertscher, and Van de Ven, 2013). Prior scholars have studied the innovation process and the related communi- cation and integration of attention mainly from structural (e.g., Henderson and Clark, 1990; Ocasio, 1997, 2011) and cognitive perspectives (e.g., Gavetti et al., 2012; Eggers and Kaplan, 2013), but these theoretical perspectives do not fully explain why various organizational groups often find it hard to integrate their knowledge through communication. Though the generation of structural channels to enable interaction between groups such as top and middle managers might foster comprehensive information sharing between them (Joseph and Ocasio, 2012), the mere existence of such channels may not be sufficient, as people may still avoid bringing up sensitive issues or refuse to listen to others during their interaction episodes. Several case studies have described the challenges of com- panies using various structural arrangements and have alluded to the persistence of poor mutual understanding between top and middle managers in the innova- tion process (Leonard-Barton, 1992; Tripsas and Gavetti, 2000; Repenning and Sterman, 2002; Gilbert, 2005). In a recent noteworthy example, President Obama said, ‘‘I would not have launched Healthcare.gov if I had known it wasn’t going to work’’ (The Verge, 2013), while many managers in his administration seemed to have been long aware of the platform’s technical problems (Economist, 2013; Washington Post, 2013). Research has also shown that middle managers’ under- standings often evolve to be quite different from top managers’ perceptions and intentions (Balogun and Johnson, 2004; Huy, Corley, and Kraatz, 2014). In addition to being influenced by structures and cognition, intergroup com- munication processes could be influenced by emotions, which have remained underexamined in research on organizational innovation (see Garud, Tuertscher, and Van de Ven, 2013; Anderson, Potocˇnik, and Zhou, 2014, for reviews). To the extent that the innovation process or its outcomes can have major consequences for people’s well-being, various groups participating in innovation may experience strong emotions (cf. Lazarus, 1991; Elfenbein, 2007). Basic research has shown that emotions influence people’s choices and behaviors (e.g., Izard, 2009; Phelps, Lempert, and Sokol-Hessner, 2014). Emotions also influence social processes in substantial ways (e.g., Hareli and Rafaeli, 2008; Niedenthal and Brauer, 2012), and scholars have found that emo- tions can significantly influence organization members’ thinking and behavior related to strategy implementation (Huy, 2011; Huy, Corley, and Kraatz, 2014). Furthermore, emotions often come to be shared within organizational groups because group members attend to similar things and share their emotions socially (e.g., Elfenbein, 2014; Menges and Kilduff, 2015). At the same time, there could be intergroup differences, as each group is primarily focused on its own task and well-being (e.g., Cyert and March, 1963; Ocasio, 1997). Shared emotions could thus provide a complementary mechanism for understanding how organizational groups communicate, coordinate, and act during the innova- tion process, influencing its outcomes.

Vuori and Huy 11 One of the dominant lenses for organizational innovation has its origins in the Carnegie School (e.g., Simon, 1947; March and Simon, 1958), which in many ways has sought to answer the question, ‘‘Given that individuals are boundedly rational, how should we design organizations?’’ A key insight has been that organizations need both specialization (leading to differentiation) and integration. Specialization is needed because no individual can handle every- thing, while integration is needed to combine different viewpoints (see also Ocasio, 1997; Joseph and Ocasio, 2012). Different levels of differentiation and integration seem to lead to varying problems. For example, as specialization increases, employees and managers have to escalate more issues further upward, which can slow down innovation (Burns and Stalker, 1961). And when communication channels are optimized for the refinement of current products, various units may fail to integrate their views during the design of radically new products (Henderson and Clark, 1990), while others may not see a critical need for them (Christensen and Bower, 1996). Unfortunately, the theoretical mechanisms underlying the structural– cognitive perspective have remained decoupled from emotions. Scholars have analyzed organizations as systems whose elements process information in an affect-free way and have remained largely indifferent to how various organiza- tion members might feel differently about the information they use or react to it in different ways (see Gavetti et al., 2012, for a review). Yet emotions could become relevant to the extent that people see the serious implications of the information they are processing, which triggers emotions when those implica- tions have personal relevance for them (e.g., Lazarus, 1991). As innovation often has significant personal relevance, participants in the innovation process could experience strong emotions in regard to the information they process and could also influence each other’s emotions as they grapple with various important situations (cf. Hareli and Rafaeli, 2008). Even though many works have hinted that emotional reactions might influence people’s behavior inside structural communication channels during the innovation process (e.g., Burns and Stalker, 1961; Fang, Kim, and Milliken, 2013; Reitzig and Maciejovsky, 2014), very few, if any, empirical field studies have examined how various groups’ emotions emerge during the innovation process and what the impacts are. Hence a deeper and more holistic understanding of the innovation process would require a joint investigation of how both emotional reactions and bounded rationality influence the innovation process and its outcomes. We carried out an inductive study of Nokia’s failure to produce a next- generation smartphone in response to Apple’s iPhone. This case allowed us to develop a deeper understanding of the emergence of shared emotions during the innovation process and their influence on innovation because it represents an extreme case for theory building. Rapid changes in Nokia’s competitive envi- ronment put severe pressure on firm members and amplified their emotions, making the influence of those emotions particularly salient. INNOVATION AND EMOTION We follow Elfenbein (2007: 315) in viewing emotion as a process that ‘‘begins with a focal individual who is exposed to an eliciting stimulus, registers the sti- mulus for its meaning, and experiences a feeling state and physiological changes, with downstream consequences for attitudes, behaviors, and

12 Administrative Science Quarterly 61 (2016) cognitions, as well as facial expressions and other emotionally expressive cues.’’ A distinguishing characteristic of emotions is that they have a target, which is a crucial element because the action tendencies associated with emotions relate to the target of the emotion (e.g., Russell, 2003; Damasio and Carvalho, 2013). For example, fear can make people either get a vaccination or avoid one, depend- ing on whether the target of their fear is the disease to be prevented or potential harmful side effects of the vaccination itself. Hence, to understand how emo- tions might influence the innovation process, it is important to investigate the tar- get of the emotion in addition to observing whether the emotion is present. Emotions activate action tendencies rather than fixed actions (Ellsworth and Scherer, 2003). For example, fear can lead to increased heart and respiratory rates, freeze or flight behaviors, and ‘‘attentional behaviors,’’ leading to atten- tion to the cause (Damasio and Carvalho, 2013: 145; see also Lazarus, 1991; Ellsworth and Scherer, 2003). Action tendencies’ main purpose is to help the individual achieve a favorable person–environment relationship in the particular situation (Lazarus, 1991; see also Damasio and Carvalho, 2013). By directing attention to the particular target that triggers the emotion, emotion facilitates actions that address that particular target, while also temporarily reducing attention to other matters. Even though emotional reactions are usually adap- tive, they sometimes cause people to prefer small short-term benefits over large long-term benefits (e.g., Phelps, Lempert, and Sokol-Hessner, 2014) or to take actions that avoid tolerable short-term harm but risk causing catastrophic long-term consequences (e.g., Kahneman, 2011: Part 4). The emotion that people experience toward a particular target depends on how they perceive that target’s implications for themselves (e.g., Ellsworth and Scherer, 2003; Russell, 2003; Izard, 2009). The target need not be physically pres- ent: recalled and imagined targets can also trigger emotion, as can abstract con- cepts such as money and power (e.g., Ellsworth and Scherer, 2003; Damasio and Carvalho, 2013). Appraisal theories of emotion suggest that people appraise spe- cific dimensions in a target that determine the emotion they come to experience (Ellsworth and Scherer, 2003). Lazarus (1991) suggested that the appraisal process has two stages: a primary and secondary stage. For example, people are likely to experience fear when their primary appraisal suggests potential harm to their well- being and their secondary appraisal suggests that the outcome of the situation is uncertain or beyond their control. Even though emotion theories do not fully agree on the details of the process through which people come to experience emotions, there is enough alignment that appraisal theories give us an effective tool for understanding and inferring how and why people experience emotions during the innovation process (see also Elfenbein, 2007, 2014; Menges and Kilduff, 2015). Emotional states can be fleeting, such as the fear triggered by a sudden loud noise, or longer lasting, such as the fear of terrorism (e.g., Izard, 2009). When an emotion is said to be longer lasting, it usually refers to people experiencing the same emotion multiple times toward the same target over a long period, repeating the appraisal process continuously until the situation is resolved (Ellsworth and Scherer, 2003). In organizational settings, emotional states that recur consistently over time are likely to have a more systematic effect on the innovation process than occasional fleeting emotions: though the former have an iterative, cumulative influence, the latter may be too rare to form accumulat- ing patterns and may also have partly opposing influences that cancel each other out when emotions fluctuate.

Vuori and Huy 13 Fear, Threat Rigidity, and Shared Emotions during the Innovation Process The innovation process can be laden with emotion in part because of the uncer- tain, prospective, yet highly consequential nature of the innovation journey. Innovators are trying to create things that do not yet exist by leveraging technolo- gical components of uncertain market potential. Because of this prospective orientation, future-oriented emotions such as hope and fear (Baumgartner, Pieters, and Bagozzi, 2008) are particularly likely to arise. Negative emotions tend to command more attention than positive ones because they evolved to help people ensure their survival, or at least avoid harm (Baumeister et al., 2001). As a result, fear—as a future-oriented negative basic emotion—could play a critical role in the innovation process (see Baumgartner, Pieters, and Bagozzi, 2008; Izard, 2009). A second reason that we might expect fear to be central to innova- tion is that other past-oriented negative emotions that people may feel during the innovation process—such as shame or envy—can turn into fear. When peo- ple experience such a negative past-focused emotion and then imagine a similar future situation, they may fear the same negative outcome occurring again (cf. Dane and George, 2014). For example, one can feel shame after having given a bad presentation and therefore fear that the next presentation will also fail. Because fear is related to the perception of threat, the literature on threat rigidity could inform us. The original threat-rigidity theory hypothesized some mechanisms that cause organizations to respond in a rigid way to an external threat (Staw, Sandelands, and Dutton, 1981), including increased emotional arousal, which narrows top managers’ thinking, constrains communication, and makes middle managers more dependent on them. The hypothesized mechan- isms of the threat-rigidity theory remain largely speculative, however, and have not been empirically verified. The original theory assumes that the whole organi- zation would perceive the threat in a similar way and develop homogeneous cognitive-emotional reactions that cause collective rigidity. Empirical tests have measured only the presence of the threat perceptions with proxies such as return on assets (Greve, 2011), bargaining cycles (Griffin, Tesluk, and Jacobs, 1995), changes in the studied firms’ funding sources (D’Aunno and Sutton, 1992), and changes in the performance of an acquired unit (Shimizu, 2007) rather than various groups’ actual perceptions of the threat and resulting beha- vior inside the organization. This is problematic because some case studies have suggested that various units in the same organization could differ in their per- ceptions of whether a new technology constitutes a threat or an opportunity— or whether it is simply irrelevant (Tripsas and Gavetti, 2000; Gilbert, 2005). Gilbert (2005) showed that different threat perceptions influenced how indepen- dent units performed their tasks. These differing perceptions could also influ- ence the emotions people feel in the different units and how these units consequently interact with one another in the organizational innovation process. Such differences in threat perceptions among organizational groups might arise due to the influence of their varied positions in the organizational structure. If groups specialize in different tasks and focus on different matters, they probably perceive things differently and regard some matters as more important than others. Differing emotions between groups may thus arise (cf. Lazarus, 1991) as a result of the structural distribution of attention (Ocasio, 1997). Because of the social psychology of organizational structures, people may also perceive threats to their status and power within the focal structure, which 14 Administrative Science Quarterly 61 (2016) can trigger strong emotions. A key characteristic of the organizational hierarchy is that it confers unequal formal status on various organization members through titles, roles, and responsibilities (e.g., Simon, 1947; Magee and Galinsky, 2008). Such formal status interacts with informal status to determine individuals’ power— the extent of their control over resources that other mem- bers value (Pfeffer, 1981). Many organization members thus value status and compete with one another to reach or maintain high organizational status (Rosenbaum, 1979; Magee and Galinsky, 2008) and may feel strong emotions if they perceive related threats (cf. Lazarus, 1991). Less is known, however, about how such potential emotions related to seeking status influence their behaviors during the innovation process. People’s status also influences the emotions they experience (Ellsworth and Scherer, 2003: 580). In particular, low-status people may have a hard-wired, evolutionary-based fear of high-status people because, in the past, individuals with higher status would have controlled resources critical for survival (Kish- Gephart et al., 2009). Status differences can also determine the sequence of emotions felt among individuals (cf. Hareli and Rafaeli, 2008). For example, sta- tus can turn anger into fear: if an employee expresses anger toward a superior, he or she is likely to respond in kind, which causes the employee to feel fear (cf. van Kleef, De Dreu, and Manstead, 2004). Status differences could thus cause people to differ in how they construe a threat and to experience different emotions, while people of similar status are more likely to perceive a threat in a similar way and to experience similar emotions. Likewise, though the structural distribution of attention likely generates between-group differences in emotions, it could foster within-group similari- ties. Members of the same group likely attend to similar things and perceive that those things have similar implications for them. Group members may thus experience emotions similar to their peers consistently over time regarding issues that they see as key to the group’s welfare (Elfenbein, 2014; Menges and Kilduff, 2015). For example, if a group is exposed to fast time pacing in product development, members may develop a shared fear of missing deadlines (cf. Brown and Eisenhardt, 1997). Thus, just as group members may share similar mental models (Mathieu et al., 2000; Healey, Vuori, and Hodgkinson, 2015), they may also share similar emotions (see Mackie, Devos, and Smith, 2000; Huy, 2011; Elfenbein, 2014; Menges and Kilduff, 2015). Shared emotions would cause many individuals to experience similar action tendencies (e.g., Elfenbein, 2014; Menges and Kilduff, 2015) and might make them behave in similar ways as a result of socialization processes (cf. Smith, Seger, and Mackie, 2007; Huy, 2011). But little empirical research has exam- ined whether and how macro-level organizational structures and other factors generate similar or different emotions within and between key organizational groups and how such shared emotions influence the organizational innovation process and its outcome. METHOD We analyzed Nokia’s rise and fall in the smartphone industry between 2005 and 2010. By the end of 2007, half of all smartphones sold in the world were Nokias, while Apple’s iPhone had a mere 5 percent share of the global market

Vuori and Huy 15 (Gartner, 2009). Nokia had bountiful economic and intellectual resources, had dominated the industry for years with a stream of innovative models, and was frequently put forward as a world-class exemplar of strategic agility (Doz and Kosonen, 2008; Steinbock, 2010). But by the fall of 2010, despite significant efforts, Nokia had failed to introduce a smartphone to match the iPhone, creat- ing the perception that it was losing the battle against Apple. Nokia replaced its chief executive officer (CEO), abandoned software development, and became a mere hardware provider. It surrendered its position as the leading smart- phone provider and ultimately exited the mobile phone business. Context The mobile phone industry has grown rapidly during the past 20 years, and its trajectory has been divided into several distinct technological phases. By 2005, the industry was moving toward third-generation (3G) radio technologies that enabled faster Internet connections. In 2007, Apple introduced the iPhone, which lacked 3G support but still promised mobile Internet, in the eyes of the mass market, with its large touch screen and advanced user interface enabled by iOS, an exclusive operating system (OS) based on the OS Apple had been developing for years for its computers. This move was a major discontinuity for the whole industry: for the first time, differentiation lay in software rather than radio technology—see table 1 for key market events and changes in market shares. This shift presented a growth opportunity to companies such as Apple and Google, which were already strong in software development; other tradi- tional players had to scramble to develop software capabilities that were radi- cally new to them. Samsung, seemingly the only traditional player to prosper after the software revolution, chose to adopt Google’s Linux-based Android OS (an open-source software). But Nokia, hoping to ensure sustainable profit, decided to continue improving its proprietary OS. Top managers’ belief that Nokia should remain autonomous in software terms was supported by its past achievements (Cord, 2014). Even its early phone models had software-enabled functions such as phone books and text messaging. By 2005, Nokia’s primary smartphone OS was Symbian, which both internal and external developers generally described as difficult to work with. Additional complexity arose from Nokia’s simultaneous development of Internet services to be integrated with Symbian. Nokia had also been exploring the use of Linux in mobile devices. The result, an OS named MeeGo, was intended to replace Symbian after several product generations. Nokia’s top managers thus believed it had all the elements in place to develop good soft- ware and remain the leading smartphone provider. But consumers’ responses to Nokia’s phones became increasingly negative between 2008 and 2010 because the improvements in product quality seemed modest compared with challengers’ offerings. Data Collection Our primary data came from private interviews conducted between November 2012 and February 2014. We carried out a total of 76 interviews with Nokia’s top managers (TMs), middle managers (MMs), engineers, and external experts, as detailed in table 2. Consistent with Huy (2001, 2011), we defined MMs as

16 Administrative Science Quarterly 61 (2016) Table1. MarketSharesandKeyEventsintheMobilePhoneSector(includingSmartphones), 2007–2010* Company Nokia Apple Samsung RIM (BlackBerry) Sony Ericsson Motorola HTC LG 2007 38% (49%) x% (3%) 13% (x%) x% (10%) 9% (x%) 14% (x%) x% (3%) 7% (x%) 2008 36% (41%) 1% (7%) 15% (4%) 2% (16%) 7% (3%) 8% (3%) 1% (5%) 8% (2%) Key market events during the year 2009 36% (39%) 2% (14%) 20% (4%) 3% (21%) 5% (3%) 5% (4%) 1% (5%) 10% (2%) Apple launches iPhone 3GS (June) Nokia launches N97 (June) Samsung launches its first Android phone, Galaxy (June) 2010 29% (34%) 3% (16%) 18% (8%) 3% (16%) 3% (3%) 2% (5%) 2% (8%) 7% (2%) Apple launches iPhone 4 (June) Samsung launches Galaxy S Android phone (June) Nokia announces (April) and launches (Oct.) first high-end, touch-only phone to match iPhone (N8) Apple announces (Jan.) and launches iPhone (2.5G radio technology) in the U.S. (June) and UK, France, and Germany (Nov.) Nokia launches N95 smartphone (with 3G technology) in March Nokia announces Ovi Internet store for software applications (Aug.) Google announces Android OS (Nov.) Apple launches iPhone 3G in 26 countries and AppStore (July) Nokia launches beta version of Ovi (Aug.) Nokia launches its first touch-phone, 5800 (Oct.) First Android phone, HTC Dream, launched (Oct.) Google announces (Aug.) and releases (Oct.) Android Market Internet store Nokia announces first "iPhone killer" N97 (QWERTY keyboard + touch screen) in Dec. * Data are presented as ‘‘all mobile phones (only smartphones)’’; ‘‘x%’’ means that the market share was too small to be reported (i.e., included in the category ‘‘others’’). Sources: http://www.gartner.com/newsroom/id/612207; Chaplinsky and Marston (2011); http://www.gartner.com/newsroom/id/1543014; http://www.gartner.com/ newsroom/id/910112; http://www.quirksmode.org/blog/archives/2011/02/smartphone_sale.html. those who were two levels below the CEO and one level above engineers and front-line workers. The interviews were carried out in three rounds, and we analyzed the data between each round to inform subsequent interviews. Several key informants who were closely involved with the mobile-phone busi- ness, including the CEO, vice presidents, R&D managers, and strategy direc- tors, were interviewed multiple times.1 We purposefully sampled the 1 Nokia had two CEOs during the period of our study. When we speak of ‘‘the CEO,’’ we refer to the second one, whose tenure as CEO lasted from 2006 to 2010. He worked in several executive positions at Nokia before becoming CEO. When we speak of ‘‘the chairman,’’ we refer to the first CEO, whose tenure as CEO lasted from 1992 to 2006. He was chairman of the board from 1999 to 2012. While the chairman was less active in daily management from 2006 onward, we bring up his role because (1) our informants highlighted how his behaviors had shaped Nokia’s culture, (2) he still exerted influence as chairman until the end of our study period, and (3) the dynamics that we describe in the findings had already started during his tenure as CEO. Vuori and Huy 17 Table2. InformantsandInterviews Level Person 0 Chief executive officer 1 Executive vice president (EVP) 1 Executive vice president 1 Executive vice presidentÀ 2 Technology officer 2 Senior vice president 2 Senior vice president 2 Senior vice president 2 Senior vice president 3 Corporate vice president 3 Vice president 3 Design vice president 3 Product vice president 3 Product vice president 3 Software vice president 3 Software vice president 3 Software vice president 3 Software vice president 4 Product unit (PU) directors (two individuals) 4 Directors (three individuals) 4 HR directors (two individuals) 4 Market intelligence director 4 Software directors (eight individuals) 4 Strategy directors (three individuals) 5 Radio engineers (four individuals) 5 Software manager 5 Strategy managers (four individuals) 5 Supply-chain managers (two individuals) X Top-level consultants (three individuals) 1st round 1 1 1 1 2 3 1 5 2 4 2 2 2nd round 1 1 1 1 1 1 1 1 1 1 2 4 2 1 3 3rd round 3 1 2 1 1 2 1 1 1 1 1 2 1 1 1 1 1 2 2 2 3 Validated inductive model?* yes yes yes (yes) no yes – – – yes yes – yes – – – yes yes yes yes – yes x yes 3 1 x no 2 2 x yes – – yes – x yes * ‘‘–’’ means that we did not show the model to the individual due to timing (early stage of the study) or schedule (short interview). À This EVP emailed us his/her thoughts multiple times and confirmed that top managers lacked understanding of technological capability, but his/her answers are not included in the count of interviews. interviewees to get both top and middle managers’ descriptions and interpreta- tions of how their interactions had unfolded and influenced organizational actions, as well as the perspectives of engineers. We contacted all of them personally and assured anonymity. An average interview lasted about 80 min- utes. All the interviews were audio-recorded and transcribed, apart from seven for which careful notes were taken. Our interview protocol is shown in Online Appendix A (http://asq.sagepub.com/supplemental). We also conducted over 200 informal conversations and follow-up conversations with the interviewees and other Nokia informants. As this is a retrospective field study, a particular concern was reducing the risk of ex-post rationalization. First, we asked various informants from multiple hierarchical levels to describe and interpret the same concrete events sepa- rately, which allowed us to validate the plausibility of their accounts. For 18 Administrative Science Quarterly 61 (2016) example, top managers told us they pressured middle managers for faster per- formance, and middle managers also told us how they felt pressured by top managers. Second, we relied on informants who were particularly knowl- edgeable about the relevant events and for whom the events were person- ally important, thus improving memory accuracy. Third, we used specific interview techniques such as precise ‘‘courtroom’’ questioning and event tracking, which provide accurate and convergent information among infor- mants (Eisenhardt, 1989). We asked individuals to describe concrete exam- ples and events, obliging them to rely on their episodic memory, which provides more comprehensive accounts (Tulving, 2002) and increases recall accuracy (cf. Fisher, Geiselman, and Amador, 1989; Miller, Cardinal, and Glick, 1997; Fisher, Ross, and Cahill, 2010). Episodic memories, which may rely on a separate memory system, complement more-generic recollections of mental states because they contain specific details of not only what was happening or felt but also exactly when and where (Tulving, 2002). In this way our data were triangulated, making them more trustworthy. For exam- ple, it is more comprehensive when a person remembers a specific instance of when and where he or she felt fear, rather than simply recalling having felt generally afraid in the past. Episodic memories may also be more reliable than retrospective survey measures because they do not oblige informants to select a discrete category to characterize their memory. We also asked informants to describe factual manifestations of mental states, which are more robust to retrospective biases than memories of mental states (e.g., Miller, Cardinal, and Glick, 1997). Fourth, we validated subjective accounts with factual and prospective sources when possible; we reviewed nearly 1,000 articles and books about Nokia, and several informants also shared confidential internal reports, presentation slides, e-mails, and notes that cor- roborated our findings. Data Analysis We used the method described by Gioia, Corley, and Hamilton (2013) to guide our data analysis. Novel understanding can often be gained by carefully investi- gating how various participants of an organizational process experience events, and the authors suggested some practices that bring ‘‘qualitative rigor.’’ As is typical of inductive research, our analytical process was iterative and over- lapped with data collection, but several phases can be recognized. During these phases, we developed increasingly refined inferences of novel theoretical mechanisms from our data. We started with open coding (Strauss and Corbin, 1998), which included reading the interview transcripts and marking codes to describe the content of the interviews. We coded nearly 2,000 segments of data. The initial codes cov- ered various topics, such as ‘‘MMs criticizing TMs for being ‘lost’,’’ but we also included emotion-related themes such as ‘‘perceived lack of emotionally appealing communication.’’ We further categorized such first-order codes into more-abstract theoretical dimensions. We also wrote numerous memos during the process to develop theoretical insights. As we iterated between coding and data, our theorizing evolved in four main steps: (1) Nokia’s failure to innovate caused by TMs’ inaccurate understanding

Vuori and Huy 19 of capabilities; (2) Nokia’s failure to adjust during the innovation process caused by inauthentic TM–MM interactions; (3) the interim outcome, temporal myopia—excessive focus on short-term innovation even though long-term activities might lead to more beneficial outcomes (Levinthal and March, 1993)—caused by TMs’ externally focused fear and MMs’ internally focused fear and low external fear; and (4) Nokia’s attention structures that in part eli- cited such fears, which created decoupling interactions between TMs and MMs, causing temporal myopia. We refined our coding procedures according to our evolving understanding (Strauss and Corbin, 1998). To code emotions more systematically, we used the appraisal theories of emotions (Lazarus, 1991; Ellsworth and Scherer, 2003; see also Huy, 2011; Huy, Corley, and Kraatz, 2014), which indicate that emo- tions result from specific appraisal processes and each basic emotion is associ- ated with a prototypical appraisal pattern. For example, fear is elicited when people perceive potential harm in their relationship with their environment and consider their coping potential as low or uncertain. We thus inferred fear when people described their concern that undesirable things might happen to them— that is, uncertain future harm—and did not feel they had full control over the threat or the ability to eliminate it. In addition, the informants sometimes expli- citly described various emotions they had felt, by using phrases such as ‘‘I was afraid that . . .,’’ or they recalled physiological reactions such as shaking or a racing heartbeat and their context, which allowed us to infer specific emotions. When multiple informants described having experienced a similar emotion and/ or reported that colleagues experienced the same emotional reaction associ- ated with a similar appraisal, we inferred that shared emotions were present. Labeling emotions felt jointly but individually as ‘‘shared’’ is consistent with the way ‘‘shared’’ is used in research on shared mental models that uses a compo- sitional view (see Kozlowski and Klein, 2000; Mathieu et al., 2000). Initially, we recognized a variety of emotions from the informants’ accounts, but we ulti- mately focused on fear because it was the emotion most commonly described, and it explained most plausibly the key dynamics that we describe in our induc- tive model. Beyond coding, we also used a practice similar to constant comparisons in grounded theory (Strauss and Corbin, 1998) to identify differences and similari- ties among various data segments. For example, by comparing an MM’s fear accounts with those of other MMs, we could see that they had experienced similar emotions associated with similar appraisals, thus suggesting shared emotions. In addition, when MMs’ expressed targets of fear differed from those of TMs, we ultimately inferred the difference between internally focused and externally focused fear and started to analyze their antecedents and conse- quences. This iterative process resulted in the data structure presented in fig- ure 1, which shows how the theoretical concepts we developed are grounded in the empirical data. We used a factual timeline of events, theoretical logic, and the informants’ descriptions, which contained various events at different points in time and relationships between the events, to identify the temporal dynamic of our pro- cess model, i.e., reflecting how some factors influence subsequent factors over time. For example, we created several causal-loop diagrams to map the links between concepts that were abstracted from the data. Likewise, we

20 Administrative Science Quarterly 61 (2016) Figure 1. Code-aggregation diagram. 1st Order Codes • MM has limited visibility to customer • TM visited customers often • MM describes how boss was the ”customer” • TM primary appraisal about external threat • MM primary appraisal about internal threat • Chairman shouting often • People share stories of the chairman‘s aggression • EVP#3 described as an aggressive person • “The chairman ruled with fear” • Many seem to fear the chairman • Outsiders report that people fear the chairman • TM’s intense fear reaction to iPhone • TMs worried about competitors’ development • TM thought “Oh shit” after Google presentation • Strong short-term pressure for quarterly results • TM’s fear about short-term Symbian sales • PU director fears losing job unless PU promises too much • MeeGo MM feels other units will fight if MM points out problems • Symbian MM fears TMs will shout if MM shares problems • Heart racing in a meeting due to fear • MeeGo MM perceiving that iPhone is a bad phone • Symbian MM feeling that Symbian is better than other OS • Symbian MM saying numbers looked fine • MM hearing EVP say iPhone not a threat • MM says limited exposure to customers gives wrong feeling • MM’s money and fame made him “not care” anymore • MM could not afford to take a risk • New person needs to adjust to the system • TM setting tough deadline • TM not going to negotiate • TM pressuring to make things faster • TM favoring ”new people” who promise more • Making demo to fake progress • Hiding negative usability test results • Waiting for someone else to speak first about problems • TM thinks people are changing rapidly • EVP thinks touchphone is almost ready, when delayed a lot • EVP surprised by the real status of development • No software engineers in TMT • Comments that CEO does not understand software • TM admits having low software expertise • Software suffered due to a device launch • Operating system fragmented due to many devices • Resources moved from OS development to devices • N95 success in 2007 • Delays in the development of 5800 in 2008 • N97 fiasco in 2009 • Not reducing product-specific modifications for Symbian • Not cutting extra work from Symbian • Not hiring new software people for long-term development 2nd Order Themes Structural distribution of attention TMs’ and MMs’ different appraisals TMs’ history of aggression Intuitive fear reactions Top managers’ high external fear Middle managers’ high internal fear Middle managers’ low external fear Middle managers’ dependence on organizational status TM pressuring MM for fast performance MMs’ over-optimistic reporting TMs’ over-optimistic perception of organizational capabilities TMs’ low technological competence Emphasis on devices over software Declining product quality Little corrective action Aggregate Dimensions Structural, attention-related antecedents of shared fear Structural- behavioral antecedents of shared fear Shared fears TM–MM decoupling interaction TM–MM assessment gap Innovation underperformance (temporal myopia) matched the informants’ fear-related statements with their descriptions of TM– MM interactions through axial coding (Strauss and Corbin, 1998). Checking the Model’s Validity We conducted a three-step member-check process to increase the validity of our inductive model (Shah and Corley, 2006). First, we presented the key ele- ments of the model individually to 23 informants who were spread across differ- ent groups and functions. As shown in table 2, 21 of these informants, including TMs and software VPs and directors, concurred that our model accurately

Vuori and Huy 21 described what had occurred at Nokia.2 Second, we sent a four-page summary of our key findings to 331 TMs and MMs who worked for Nokia during our study period, with an invitation to send us feedback, ‘‘especially if you disagree with the findings.’’ We received 37 written responses, all but three confirming our key findings. Several MMs also shared additional examples of how they had felt fear or how fear had prevented them from reporting negative information to TMs, even when they knew it would have been the right thing to do. Third, we conducted 27 follow-up phone calls and face-to-face conversations during the revision process to double-check that our informants had indeed meant that they had felt fear as an emotion (as opposed to using ‘‘fear’’ as shorthand for a cogni- tive evaluation of a situation) when describing their own experiences and their interpretations of others’ experiences. Twenty-two (81 percent) of them con- firmed that they had indeed meant the emotion fear and that this emotion had influenced their behavior. Hence Nokia informants overwhelmingly agreed with the key elements of the inductive model that we present below, in particular the role of externally focused and internally focused fear. FINDINGS Various types of fear experienced by Nokia’s TMs and MMs caused a decou- pling interaction pattern between the two groups that harmed Nokia’s innova- tion process. Two factors influenced TMs’ and MMs’ fears: Nokia’s structural distribution of attention produced differences in appraisals and shared fears among TM and MM groups, and TMs’ past aggressive behaviors—and widely shared stories about them—triggered intuitive fear reactions in MMs because they had a lower position in the organizational hierarchy than TMs. Structural, Attention-related Antecedents of Shared Fears Structural distribution of attention. Nokia’s organizational structure included the division of labor between TMs and MMs such that the former had a focus on the external environment and the latter on the implementation of TMs’ directives (March and Simon, 1958; Joseph and Ocasio, 2012). TMs focused on the external environment through direct interaction with customers and competitors and also through staff channels (corporate market intelli- gence). A TM told us that he had plenty of interactions with customers, espe- cially large network operators such as AT&T and France Telecom, and the CEO publicly admitted that he was ‘‘paranoid about all the competition’’ (MarketWatch, 2007).3 Nokia had clearly defined processes for managing 2 We showed a late version of the figures in this paper and explained them, after which the infor- mants were asked whether they felt the model was a reasonable description of what had happened at Nokia, in light of their own experiences. Twenty-one participants agreed with the model, and two expressed doubts: one who had a significant role in radio-technology development before 2007 and did not witness decoupling interactions between TMs and MMs in his or her area of activity, and one who claimed that Nokia did not have problems in software quality. 3 When we refer to the data from our private interviews, we have anonymized the individuals such that top managers (CEO and three executive vice presidents) are marked as TM, senior vice presi- dents and vice presidents as UMM#1.#N (upper middle managers), and directors and managers as MM#1.#N (middle managers). We also indicate the primary focus area of the individuals, such as ‘‘software,’’ with the quotes when this has theoretical relevance. When we use data from public sources, we refer to the actual titles of the people. 22 Administrative Science Quarterly 61 (2016) emerging strategic issues (e.g., Kajanto et al., 2004) and strategic agility (Doz and Kosonen, 2008), according to the CEO, even using ‘‘cultural anthropolo- gists . . . to find out what’s important in people’s lives because everything changes so quickly’’ (Korn-Ferry Institute, 2010). Nokia’s active sensing of the market was manifest in its response to the iPhone threat about one year before its launch, which it knew about despite Apple’s famed secrecy. In other words, cognitive inertia (Fransman, 1994; Tripsas and Gavetti, 2000) cannot be seen as a plausible or sufficient explanation for Nokia’s failure. As members in senior strategic positions at Nokia revealed: We knew [the iPhone] was coming out about a year in advance. We had pretty good specifications for it. . . . The first thing [a MM] flagged up [in a market review] was that we didn’t have touch screens or touch-screen development. . . . That message went right up to the top of the organization, and was well received too. [The CEO] forwarded [the] email to his subordinates. Our market analysis showed that our big- gest competitive weakness was the lack of touch-screen products; he agreed, and wrote ‘‘Please take action on this.’’ (MM#1, business) Confidential prospective documents that were shown to us confirmed that the TMs did indeed recognize this issue, gave it a high priority, and included it in their requests to MMs. UMM#1, who was working close to the CEO, likewise described how the CEO put clear pressure on MMs so that they would imple- ment what he thought would be essential: One of the first things [the CEO] brought up was the touch screen. . . . He felt it was the next big thing . . . He brought it up with the executive group every way he could. And he spoke directly with technical middle management. . . . In every single executive-group meeting, they went over our outlook with the touch screen. And this was right after he was made CEO [a year before iPhone launch] . . . I recall many such cases vividly, where he brought up the right concern [what Nokia should do], he discussed it directly with the technical middle and upper management, he went straight to the topic, put pressure on people, put it up in all possible goals [for MMs], followed up on it in every single meeting. A TM further elaborated in a private interview with us that he saw it as TMs’ task to translate market expectations into clear goals for the organization: ‘‘The tight schedule and challenges come from the markets. They put time pressure on you, and you need to pass it on to the organization.’’ Given that Nokia failed to develop an innovative offering to match the iPhone, despite TMs’ intentions and directives, we need to better understand how the implementation process unfolded within Nokia’s structural and historical context. MMs’ focus of attention was predominantly on the implementation of TMs’ orders rather than the external environment and was split between two key groups: product units (PUs) in charge of defining specific products and software units in charge of developing Nokia’s two OSs, Symbian and MeeGo, and modifying them to meet the needs of specific phone models based on requests from the PUs. Although the primary communication channel flowed from TMs to PUs to software units, the software units also had direct interac- tions with TMs, both formally and informally. This suggests that a purely struc- tural explanation—lack of opportunities for interaction (cf. Henderson and Clark, 1990; Ocasio, 1997)—does not explain the assessment gap between TMs and

Vuori and Huy 23 software MMs that we describe below. The PUs’ attention was focused on TMs’ requests and narrow market segments corresponding to the specific products they were developing. Nokia had five PUs, each responsible for a spe- cific market segment such as music phones. Within each unit, there were sev- eral programs, such that Nokia had ‘‘40 to 50 product programs per year’’ (UMM#2), and program leaders were tasked with implementing their respec- tive programs. Each PU focused on delivering phones as directed by TMs. The key aspects that TMs emphasized for PUs were product segmentation, cost, and schedule. The software units’ attention was focused on satisfying both TMs’ and PUs’ requests. As our informants related: The pressure was not personified in any one [person], but came from the whole executive group. . . . For me personally and my team, the pressure was the message that ‘‘we need these phones, we need those phones, we have to have releases in such and such a time.’’ (UMM#3, software) Those [key technological decisions] were all taken to the executive group and they approved the technical choices. . . . It was like the TMs told us that ‘‘now we’re using [specific software], end of discussion, this is what we’ll do.’’ . . . Each morning we had a new strategy and each morning there was a new angle. It was very much dependent on what someone had said to [EVP in charge of the unit] on the previous day—that was the new direction. (UMM#4, software) Even in the early 2000s, the sales organization had already been changed such that the link to the customer was rather unclear. . . . There was a layer between the cus- tomer and the units developing the software. . . . This blocked transparency and also motivation. (MM#7, software) Organizational norms—an element of attention structures (Ocasio, 1997)—also intensified MMs’ internal focus. Nokia’s TMs believed that MMs’ narrow inter- nal focus would ensure effective implementation, and therefore they discour- aged MMs’ external focus. For example, after Apple had introduced the iPhone, the CEO said publicly, ‘‘I don’t think that what we have seen so far (from Apple) is something that would any way necessitate us changing our thinking’’ (IntoMobile, 2007). Likewise, when MMs asked critical questions, the TMs urged them to keep their attention focused on implementing their tasks: ‘‘. . . the answer typically was that ‘this is the direction we have chosen. Don’t challenge me, but focus on implementation’’’ (MM#2). TMs’ and MMs’ different appraisals. As a result of the structural distribu- tion of attention, different appraisals generated different emotional reactions among TMs and MMs. Whereas the TMs’ appraisals of the person– environment relationship focused on the external environment, MMs’ apprai- sals mainly focused on factors inside Nokia. TMs recognized early on that external conditions beyond Nokia’s control threatened its survival. As one of them described: [In 2007], Sergey Brin, one of the founders of Google, took something out of his pocket that I’d learned to call a ‘‘smartphone.’’ He put it on the desk, then he pulled out another, and a third. Then he turned to the audience and said, ‘‘In two or three years’ time, these displays’’—that’s what he called them—’’won’t add any value. All the value will be in the cloud, and these displays will just be a window on the cloud.’’

24 Administrative Science Quarterly 61 (2016) I’m looking at him and I’m smiling, of course—there were 500 people watching. But I’m thinking, ‘‘Oh shit!’’ because he was spelling out Google’s strategy: make the smartphone less value-adding and move the intelligence to the cloud [which would make Nokia irrelevant as its core business was making ‘‘these displays’’]. In contrast, MMs’ appraisals focused on threats perceived inside Nokia. Though PUs also made sense of their respective narrow market segments, their appraisals often focused on what TMs wanted from them. These apprai- sals included a perception of potential harm to their well-being and uncertainty over their ability to cope with it. For example, an MM from a PU (MM#3) told us: ‘‘The people who told the truth [about the feasibility of schedules put] their reputations on the line. They ran that risk.’’ Similarly, the focus of software MMs’ appraisals was on the threats and uncertainty relating to TMs’ requests. UMM#5 noted that ‘‘if you did not comply [with TMs’ unreasonable request to maintain a steady pace despite mounting technical challenges], you would be labeled as a loser.’’ In addition, Nokia’s tendency to change its organizational structures frequently to ensure effective resource allocation made MMs in both PUs and the software organizations perceive heightened threats to their well-being inside the organization (a primary appraisal of fear) and low ability to cope with such uncertainty (a secondary appraisal).4 As a software MM told us: ‘‘Reorganizations were difficult. People had to reapply for their jobs at Nokia. . . . I sent my application. Then you got an invitation to an interview . . . It was quite tough. . . . At that point, you started to wonder whether you were working at Nokia or not. I felt like I wasn’t—I didn’t have a job or a position’’ (MM#4, software). Conversely, we found very little evidence of MMs’ threat- related appraisals related to the external environment beyond PUs’ considera- tions of how well a specific product would sell in its segment. Our informants described very few appraisals related to the external environment: Our view of our competitors’ products’ usage was completely distorted in 2005– 2008. People didn’t know how good Android was, or the iPhone. . . . So, a certain small group knew, but it wasn’t known throughout the company how good the com- petitors’ products are becoming. The group of people who really knew the pain was way too small. (MM#3) Structural–Behavioral Antecedents of Shared Fear TMs’ history of aggression. A second factor that triggered fear among Nokia’s MMs was its TMs’ history of aggressive behaviors toward MMs, which was widely known inside the organization. When conducting our interviews, we were struck by how often informants referred to the aggressive behavior of Nokia’s chairman, who was also the CEO from 1992 to 2006. He was described as ‘‘extremely temperamental’’ (UMM#6) and shouting at people ‘‘at the top of his lungs’’ (top-level strategy consultant) ‘‘so hard that [the target’s] balls shrank . . . in front of 15 other VPs and SVPs’’ (MM#5, software). Thus ‘‘it was very difficult to tell him things he didn’t want to hear’’ (top-level HR consul- tant). Our informants also described several other TMs as highly aggressive. UMM#7 told how one of the EVPs once ‘‘pounded the table so hard that 4 Structural changes included both major ones (2004 and 2008) and more minor ones, such as establishing new teams and units and rotating people in different roles, which happened yearly. Vuori and Huy 25 pieces of fruit went flying,’’ and MM#6 said the same EVP ‘‘had nothing but poison running through his veins.’’ MMs’ intuitive fear reactions. Research suggests that aggressiveness often automatically triggers fear in social situations (e.g., Hareli and Rafaeli, 2008), especially when the aggressor has a higher status than the target of the aggression (e.g., van Kleef, De Dreu, and Manstead, 2004); that emotions can become associated with the places where they have been felt (such as meet- ing rooms with TMs) (Damasio, 2003: chap. 2); and that hearing stories of oth- ers’ previous aversive experiences with their leaders can intuitively activate fear toward authority figures (Kish-Gephart et al., 2009). Most of our informants reported having experienced or heard stories of the chairman or other Nokia TMs behaving aggressively, and thus intuitive fear of TMs seems to have gripped Nokia’s MMs: [The chairman] had the habit that if someone said that ‘‘things aren’t going so well,’’ then after that the person would be doing very poorly. [The chairman] had a distinc- tive style so that everyone had to tell him that things were going very well. (MM#7, software) [The chairman] was very cold and it seemed to me that many Nokians feared him. (Reporter close to Nokia) The atmosphere of fear was created through speech. The worst one was the presen- tation that [the chairman] gave at Tampere [a city in Finland] about R&D expenses. . . . He said that his only mistake had been to give us too much money, and that despite that, our products still weren’t good enough, and we weren’t making them fast enough. On top of that, he said that if things continued as they were, 15% of the peo- ple in that seminar hall would be gone by the time he came back next year. . . . This was my first encounter with [the chairman], and it left a permanent negative feeling. (MM#4, software) One TM noted that ‘‘[MMs who interacted with me] were nervous. . . . cer- tainly you could sense . . . people’s natural fear of their lord and master.’’ But he also admitted that he had not adequately realized the implications of MMs’ fear. The aggressive behaviors of the chairman and some EVPs activated a gen- eric fear toward authority figures at Nokia, in particular all powerful TMs. Shared Fears In contrast to conventional accounts (e.g., Henderson and Clark, 1990; Ocasio, 1997; Eggers and Kaplan, 2013) that depict engineers and managers as rela- tively unemotional, our informants described having felt strong emotions. Nokia’s TMs felt high external fear triggered by sources outside the organiza- tion such as competitors and shareholders, whereas MMs mainly experienced little external fear and high internal fear triggered by sources inside the firm such as superiors and peers. Our informants described experiencing fear of the same targets repeatedly—when the targets were encountered, recalled, or imagined—rather than feeling fear continuously. These fears had largely a structural rather than personal origin, meaning they were related to the focal groups’ formal position in the organizational structure. We describe these vari- ous fears below and present additional data in Online Appendix B, table B1. 26 Administrative Science Quarterly 61 (2016) TMs’ high external fear. Nokia’s TMs experienced high fear toward exter- nal entities in regard to both the long- and short-term survival of the organiza- tion. One described an intense fear reaction relating to long-term survival when reacting to news of the iPhone: ‘‘When [internal market intelligence] news of the iPhone arrived [in fall 2005], I asked which OS they were using. When I found out it was iOS, it made my hair stand on end. iOS was a bombshell. . . . It was shocking news. . . . iPhone was an extension of Mac—a Mac computer with radio added. They’d been building the applications and the OS for 35 or 40 years’’ (TM). A second TM confirmed, ‘‘I do identify with your statement that the top management felt external fear,’’ and a third one validated that TMs experienced shared fear for the long-term well-being of their firm. In the short term, TMs’ shared fear was related to the threat of cannibalization of Nokia’s current OS, Symbian. If the firm did not keep posting strong quarterly sales, the board of directors and financial markets might punish TMs. As a TM said, ‘‘Management is under huge pressure from investors. . . . If you don’t hit your quarterly targets, you’re going to be a former [executive] very fast.’’ Though TMs knew Nokia needed a better OS (MeeGo) to match iOS, they also knew that developing it would take several years. But they were afraid that publicly acknowledging Symbian’s inferiority to iOS would torpedo sales figures and shatter internal morale in the short term: I couldn’t say [publicly] that Symbian was no good and that we had to replace it with MeeGo as soon as possible, because I was afraid of the [negative effect on] Symbian sales. . . . Our organization had to have faith in it—you must believe in the gun you’re holding, because there’s nothing else. It takes years to make a new OS. That’s why we had to keep the faith with Symbian. (TM) MMs’ high internal fear. Most of the MMs we interviewed or spoke with informally admitted that they had feared their superiors. MM#3 told us that ‘‘they were rather scary moments when you had to go against [TMs],’’ and software MM#8 told us, ‘‘I felt fear,’’ and indicated that the target of his fear was TMs. Another informant said that shared fear among MMs toward TMs ‘‘describes the company very well’’ (MM#9, software). Some informants expressed manifestations of internal fear, such as MM#4 (software) who, when reporting fear of his superiors during vertical interactions, wailed loudly, almost breaking into tears. Nokia MMs also seemed aware of the fear felt by their colleagues; many described not only their personal fears but also the tendency of many individu- als to feel a similar fear (i.e., shared fear). MM#10 told us how ‘‘the atmo- sphere of fear emerged’’ in Nokia, and MM#11 described shared fear using the metaphor of a highly feared, dictatorial national leader: ‘‘General sentiment and communication ended up like North Korea.’’ Software MM#7 noted that MMs in general ‘‘were afraid of being caught.’’ Some informants also remembered specific occasions when they could infer their colleagues’ fear from observable cues or when they and their colleagues had spoken explicitly about fear. For example, software MM#12 told us that his colleague ‘‘was typically open and clear, but in certain meetings [with higher-level leaders], he became very quiet and when he spoke his voice was shaking.’’ Software MM#7 said he had sug- gested criticizing a TM’s decision, but his colleague ‘‘said that he didn’t have

Vuori and Huy 27 the courage; he had a family and small children.’’ MM#13 explained that an R&D MM had perceived that his superior was afraid of TMs; the R&D MM approached MM#13 privately after a meeting and complained: ‘‘[My boss in R&D] has got no balls. He won’t push this [technological issue] upstairs.’’ Software MM#8 said he and his colleague once discussed their shared fear toward TMs in a private gathering at a Helsinki bar, and MM#14 said she had multiple conversations about ‘‘reduced trust and higher worries and fear with my colleagues since the late nineties.’’ As well as fearing their superiors, many MMs described feeling afraid of their colleagues in other units: In those forums, there was no way you would accuse someone of not telling the truth. [Culturally, it was not acceptable to] criticize someone else’s story in any way. . . . No one wanted to fight their battles in front of [the CEO] and others, because you knew that if you put someone [else] down, they’d put you down the first chance they got. (UMM#8, software) I should’ve been much, much more courageous. And I should’ve made a lot more noise, should’ve criticized people more directly. . . . I could’ve made more of an impact. And it would’ve been breaking the consensus atmosphere. . . . Nobody wanted to rock the boat, especially [among] the middle management [level]. . . . I didn’t want to be labeled as a mean person who was constantly criticizing the hard work of others. . . . I should have been braver about rattling people’s cages. (MM#1) Beyond the key antecedents of fear described above, another reason for MMs’ fear toward their colleagues was that many MMs perceived that other MMs’ behaviors were self-centered and dysfunctional, using descriptions such as ‘‘focused only on self-interest and own career development’’ or ‘‘deceptive.’’ The MMs we interviewed further described how they felt threatened by these behaviors because they might harm the status and career progression of more- authentic individuals. These reactions seem consistent with earlier research showing that perceptions of political behaviors generate primary appraisals of threat that elicit negative emotional states (e.g., Chang, Rosen, and Levy, 2009). Prospective documentary data provided corroborating evidence of internal fear at Nokia. In a book written in 2008, a former Nokian described Nokia’s ‘‘atmosphere of fear’’ (Palmu-Joronen, 2009: 12). A news article from 2007 was entitled ‘‘Fear is driving Nokians to unionize’’ and described individuals’ fear of losing their jobs or being exploited (Taloussanomat, 2007a). A consul- tant’s report in 2007 (mentioned by the EVP of HR in Taloussanomat, 2007b) and a book written in 2009 by a former software and design director (Risku, 2010: 38, 61) both noted that a lack of courage was a particular problem at Nokia. Two Nokians’ personal notes written between 2005 and 2007 directly indicated that they had perceived others feeling fear; one indicated that he had personally felt fear. Several blog posts and online discussions that included Nokia MMs, IT professionals, and other observers close to Nokia also included statements that described or indicated fear (Finnsanity, 2007; Uusisuomi, 2008; Jarmostoor, 2009). Two confidential reports written near the end of our study period also indirectly indicated that MMs might feel fear toward TMs. There were also several reports in the Finnish media in 2008 about a rumor that Nokia was threatening to relocate its headquarters from Finland if a law

28 Administrative Science Quarterly 61 (2016) that would allow companies to read their employees’ e-mails was not passed (Wikipedia, 2015). The law became known as ‘‘Lex Nokia’’ (The Register, 2009). For many of our informants, this law symbolized the atmosphere of fear at Nokia (see also Murobbs, 2006, for related online discussions by Finnish IT professionals). Our informants also consistently noted that ‘‘no one was stupid enough’’ (MM#15, software) to mention their true feelings in e-mails because they suspected that the company was monitoring them. MMs’ low external fear. Threat-rigidity theory would predict that when a competitor poses a threat, the whole organization responds to it with emotional arousal (cf. Staw, Sandelands, and Dutton, 1981). This did not happen at Nokia. Although they deeply feared internal entities, most Nokia MMs experienced only modest external fear. A senior strategy consultant explained that Nokia’s MMs had little external fear that other firms were better because they believed Nokia had superior capabilities relative to other organizations: They [Nokia MMs] were overconfident in their own abilities. From a consultant’s point of view, it showed in how they treated [the consultant], whatever function you went into Nokia . . . to talk about, like, ‘‘Hey, have you thought about this issue like this?’’ Nokia has always been one of the most arrogant companies ever towards my colleagues, who were partners back then. It showed up in how everything was always perfect, you know, Nokians [thought that they] were the best in class. And they didn’t even want to hear how you could think about things differently. They just went into their cocoon and patted themselves on the back. Software UMM#8 noted, retrospectively: ‘‘[TMs] should have created healthy dissatisfaction among people a lot faster.’’ As MMs’ attention was focused on intra-organizational factors, the manner in which they assessed competitors’ products seemed biased by what was perceived as relevant for Nokia. MMs downplayed the competitive gap by comparing Nokia’s future developments against competitors’ past products: ‘‘[Competitors’ products] were always compared to what we knew that we were doing next. There was not much to learn from. . . . In comparison to our [future products] they were no better’’ (MM#16). Many MMs also made comparisons along dimensions that favored Nokia’s products. For example, several MMs told us they had felt that ‘‘the iPhone was a bad phone; it didn’t even have 3G [radio technology]’’ (UMM#3, software). Some wondered whether ‘‘Apple paid magazine editors to sex up the iPhone in their fawning articles’’ because ‘‘they believed [that the iPhone hype] was undeserved, irrational’’ (Cord, 2014: 86). These quotes indicate that many Nokia MMs genuinely believed that their products were superior to Apple’s. MMs remained aware of the macro measures of their company’s perfor- mance, but these measures—which again reflected the past rather than the present—also suggested that there was ‘‘nothing to worry about’’ (MM#3). As quarterly evaluations by the stock market were important for Nokia, positive market news strongly influenced MMs’ appraisals of external competition and calmed their external fears. As UMM#7 noted, ‘‘[We sold] the classic smart- phones with old-fashioned keyboards in such goddamn huge numbers that some people questioned why we should even make touch-screen phones— ’we’re doing fine as it is.’’’

Vuori and Huy 29 TMs’ actions also contributed to MMs’ low external fear. TMs’ public rheto- ric downplayed the threat of new entrants, including Apple and Google, to maintain confidence among employees and customers that Nokia would con- tinue to prosper. For example, the CEO downplayed Google’s Android strategy publicly in November 2008: ‘‘We have had that [platform and applications] for 10 years. Definitely, we are ahead’’ (Symbian-Freak, 2008). Likewise, an EVP stated publicly that the iPhone is ‘‘an interesting product but it is lacking a few essential features, such as 3G, which would enable fast data connections’’ (Taloussanomat, 2007c).5 MMs’ dependence on organizational status. In addition to the primary antecedents of shared internal fear described above, many MMs’ dependence on high status inside the organization amplified the influence of those primary antecedents on MMs’ internal fear. Not surprisingly, many MMs attached high importance to their social status inside Nokia and thus perceived negative reac- tions from colleagues as personal threats. In addition, as many MMs lived in Finland, home to few globally successful high-tech companies, they could see no better job opportunity than being part of the industry world leader. Working for Nokia conferred a prestigious external reputation or image. As our infor- mants explained: [Many people change jobs to advance in their careers, but] if you’ve been with Nokia, especially as the level of SVP, VP, or even a director, where the hell are you going, really? You’re going nowhere, so you circle around within the company. Unless you’re willing to move to the US or Asia, you have no [better] job opportunities. (Senior strategy consultant) [Nokia’s status was so high that] if you had a Nokia business card, you could get a meeting with any CEO. Any CEO. . . . Everyone had good jobs; no one wanted to leave Nokia at that point. . . . Critique [of the company] was seen as negative; the mindset was that if you criticize what’s being done, then you’re not genuinely com- mitted to it. (MM#17) For most MMs, Nokia membership was a central contributing factor to their personal status. But for a few other MMs, being part of Nokia was deemed less important. These rare MMs had already accumulated sufficient personal achievements and material resources to have a sense of individual autonomy and self-worth beyond what could be conferred by their organizational member- ship. They also experienced lower internal fear than their peers. For example, one software leader who had worked at Nokia for over 15 years, made 5 A fourth reason behind MMs’ low external fear might have been their beliefs about their own superiority relative to the members of other organizations (cf. Hiller and Hambrick, 2005; Chatterjee and Hambrick, 2007). Even though our interview data did not directly indicate that Nokia MMs had these beliefs, two contextual factors could plausibly produce them (cf. Hayward and Hambrick, 1997). First, Nokia was for a long time among the most desired employers in Finland and therefore recruited only the ‘‘best of the best,’’ making it possible that Nokians saw themselves as superior to others. Second, Nokia’s long success and market power may have made others flatter Nokians in both business and private settings, reinforcing Nokians’ belief that they were better than others. Note that we refer to MMs perceiving Nokia as a collective to be superior relative to other organiza- tions but not to how individual MMs saw themselves relative to other MMs or TMs inside Nokia, who shared the same positive reinforcement from the outside and were also among the best of the best. 30 Administrative Science Quarterly 61 (2016) groundbreaking innovations, and earned millions of euros was one of this select group. He was described by several informants as very direct in confronting TMs, and our interview with him confirmed this perception. But he was ‘‘com- pletely sidelined’’ (UMM#6), and his views—as well as the views of the few other critical MMs—were dismissed during collective interaction processes. Table B2 in Online Appendix B provides additional examples of individuals who were part of this critical group and how their views were dismissed. The table also includes more typical examples of MMs who had low to medium personal achievement at Nokia and felt high internal fear. TM–MM Decoupling Interactions In combination, TMs’ external fear and MMs’ internal fear and low external fear produced an interaction pattern between these groups that increased the decoupling between TMs’ and MMs’ perceptions of how quickly Nokia could develop new software and introduce smartphones to match the iPhone. During these interactions, TMs, driven by external fear, exerted heavy pressure and imposed challenging demands on MMs. This pressure came over and above the high internal fear that MMs were already experiencing. Instead of pushing back, MMs generally acquiesced to TMs’ demands and continued reporting optimistic progress despite mounting implementation difficulties. Online Appendix table B3 provides additional data on these interactions. TMs’ increasing pressure on MMs for fast performance. Based on the extant literature, we might expect top-level executives to appreciate the tech- nological complexity involved in innovation processes (cf. Kaplan and Tripsas, 2008; Dougherty and Dunne, 2012) and therefore to be careful not to let their own impatience compromise product quality (cf. Brown and Eisenhardt, 1997). But at Nokia we found the opposite pattern, which arose because a previously unacknowledged factor—shared external fear—influenced TMs’ behaviors. Fearful that Nokia would lose its world dominance and post weak results in the next quarter, TMs tended to act urgently, an action tendency associated with fear (Lazarus, 1991), and put high pressure on product and software units to develop new, innovative products rapidly. First, TMs put direct pressure on MMs to perform faster. One TM noted, ‘‘It was clear that we [TMs] feared the iPhone. So we told the middle managers that they had to deliver touch-phones quickly.’’ Another TM said, ‘‘The pressure we put on the [Symbian] software organization was insane, because the com- mercial realities were also pressing. You must have something to sell. And of course, when the pressure is on the R&D teams, really intensely, of course they feel that they don’t have enough time.’’ A high-level leader from the MeeGo organization also reflected: We spoke of a delay of at least six months, if not a year. We talked about it, it was brought up . . . [but TMs] just said ‘‘let’s go, you just have to run faster, we have to do this.’’ . . . They said [some short-term commitments] mustn’t delay us, but we still had to meet them. They probably didn’t realize that every time they asked us to do something, someone actually had to do it.

Vuori and Huy 31 Beyond the verbal exhortations, TMs also applied pressure for faster perfor- mance by MMs through personnel selection. Although many MMs in the soft- ware groups accepted TMs’ requests, a few did push back, as Online Appendix table B2 shows. Predictably but not ideally, TMs favored MMs who provided reassuring reports, thus temporarily alleviating TMs’ external fear, and sanctioned MMs whose accounts validated TMs’ external fear: Question: Why didn’t you explain to TMs that software development would be com- promised if you had to develop as many phones in the given time period as the TMs wanted? UMM#9, software: Someone else always said yes [to unfeasible TM demands]. All I got was the information—that’s how it was. And then my responsibilities were cut. Because there was always some lunatic who promised they’d do all these ten fine and wonderful things within the timeframe given by TMs . . . even though it wasn’t true at all [that it would be possible]. . . . TMs trusted these people when they said it’s going to work out. They had blind faith. The management team . . . knew a lot of people—but they picked some young, fast-talking guy who said, ‘‘I have this little trick, I’ll fix this thing.’’ Nokia TMs further sated their appetite for optimistic news by favoring ‘‘new blood’’ who displayed a ‘‘can-do’’ attitude. TMs confirmed that they had stressed the need for new, typically younger staff, whom TMs perceived as having the new skills and motivation needed to develop Nokia’s capability. A TM told us that 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 some- one 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 opera- tional 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 cog- nitive approaches for gaining power (e.g., Pfeffer, 1981), our analysis reveals an alternative or complementary explanatory mechanism: MMs reacted emo- tionally in particular situations as fear drove them to make over-optimistic pro- mises 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

32 Administrative Science Quarterly 61 (2016) 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 per- ception that their ambitious requests were feasible and the company’s long- term 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 some- thing 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 over- sell]. 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 discontin- ued. . . . One source of fear was that many good projects had been discontinued. It was known [throughout the company] that Nokia had discontinued many good prod- uct 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 opti- mistic 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 organi- zation, 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 33 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 soft- ware. (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 calculat- ingly, 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 retro- spect were closer to reality. Table B4 in the Online Appendix provides addi- tional data demonstrating the assessment gap. TMs’ over-optimistic capability perception. TMs relied heavily on reports from various MM groups to stay updated on the speed of development of the

34 Administrative Science Quarterly 61 (2016) OS software. Even though Nokia’s TMs had an accurate understanding of the market needs, their interactions with MMs gave them an over-optimistic under- standing of Nokia’s capabilities. As Nokia TMs noted: I only realized [I was getting filtered reports] later on. There was a change in the busi- ness 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 over- optimistic 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 intel- lectual 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 over- optimistic 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 cog- nition 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 oppo- site: 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 35 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 influ- enced how they could assess technological limitations during goal setting, partic- ularly in the absence of critical feedback from technological MMs: 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 infor- mants also questioned the technological competence of this TM, whose back- ground 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. 6 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 compe- tence 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). 36 Administrative Science Quarterly 61 (2016) 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 develop- ing 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 infor- mation 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 mod- ernize. 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 sys- tem. 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 prod- uct 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 focus- ing 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: Every PU sold the idea to top management that changes to the [OS] software were needed, or we won’t be able to deliver in time. Or we won’t be able to make a prod- uct that sells. And this led to a great decline in R&D productivity. The effort was frag- mented into multiple programs and the OS software was not integrated. (UMM#6) In Nokia’s case, where the product was integrated hardware and software, and ser- vices are built on top of the hardware, integration must be done. The offering is inte- grated so the organization must also be integrated. We reflected on this a lot. The Vuori and Huy 37 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 suf- fer. . . . 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 some- thing 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 devel- opment 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 com- pany 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 soft- ware 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

38 Administrative Science Quarterly 61 (2016) Figure 2. Shared fears and innovation underperformance. STRUCTURAL, ATTENTION-RELATED ANTECEDENTS OF SHARED FEARS Structural distribution of attention TMs’ history of aggression TMs’ and MMs’ different appraisals MMs’ dependence on organizational status MMs’ intuitive fear reactions SHARED FEARS TMs’ high external fear MMs’ high internal fear and low external fear TM–MM DECOUPLING INTERACTIONS TMs’ increasing pressure on MMs for fast performance & MMs’ over-optimistic reporting TM–MM ASSESSMENT GAP TMs’ over- optimistic capability perception TMs’ low technological competence INNOVATION UNDERPERFORMANCE Temporal myopia STRUCTURAL–BEHAVIORAL ANTECEDENTS OF SHARED FEARS

Vuori and Huy 39 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 com- promising 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 sta- tus amplified their internal fear; how a feedback loop from different groups’ per- ceptions had the same effect; and how TMs’ low technological competence increased their dependence on MMs’ reporting, amplifying the effects of fear- based interactions. On a broader theoretical level, the model presented in figure 2 suggests how organizational structures can influence micro-level factors such as emo- tions, TM–MM interaction, and cognition, which influence choices made during the innovation process and thus contribute to innovation outcomes at the orga- nizational level. The model also includes the possible direct effect of top man- agers’ low technological competence with a dashed line. By identifying these macro–micro–macro linkages in the model, we provide textured multilevel the- orizing on innovation, strategy, and organization. Structurally Based Fear Our findings suggest that the structural distribution of attention in an organiza- tion (Ocasio, 1997) could lead TMs and MMs to experience external and inter- nal fear, respectively, and that these emotions can have a substantial influence on behaviors and communication patterns in the innovation process. Our find- ings 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 inter- nal 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 struc- tures 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 apprai- sals 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. Although prior research has focused on the evolution of cognition during innovation processes, our study reveals that the same processes can also elicit

40 Administrative Science Quarterly 61 (2016) emotional reactions that cause the processes’ trajectory to diverge from the path predicted by purely cognitive accounts. A purely cognitive account might predict that distributed attention and frequent changes in MMs’ positions would enable the organization to collect more comprehensive information (with each MM focusing on his or her specialized segment) and integrate such infor- mation through communication channels (cf. Joseph and Ocasio, 2012) to avoid various types of myopia (cf. Levinthal and March, 1993). Instead, our findings showed how the emotions that emerged as the outcomes of these practices hindered the integration of attention, leading to temporal myopia. This suggests that future research could shed new light on organizational structures by exam- ining the shared emotions they create for different groups. Even if the organiza- tion in aggregate had accurate information about the environment, and TMs made choices accordingly, diverse groups’ shared emotions could still influence the quality of information exchange. Our study focused on what occurred in a traditional hierarchy, but we could think of other structural arrangements that might generate emotional reactions that harm organizational action and performance. For example, time-pacing and semi-structures (Brown and Eisenhardt, 1997) might, over time, inadvertently amplify MMs’ internal fear and reduce their external fear, thereby causing inno- vation underperformance. Time-pacing ‘‘creates a relentless sense of urgency’’ (Brown and Eisenhardt, 1997: 24–25) that, if left unmanaged at the emotional level, might translate into internally focused fear and short-termism. Likewise, the inherent ambiguity of semi-structures may exacerbate MMs’ focus on intra-organizational matters, as they strive to make sense of how and with whom they should exchange information. This excessive internal focus risks reducing the attention devoted to processing external threats, generating high internal fear and low external fear, which influence subsequent behavior. Our data also suggest that employees such as MMs may seek to anticipate how future structural changes will affect their personal status and privileges, and this can trigger further emotional reactions that are not necessarily related to general business conditions. This suggests that some earlier ideas on the benefits of frequent structural change (e.g., Ethiraj and Levinthal, 2004; Teece, 2007) might need to be nuanced. For example, although simulation-based stud- ies have suggested that frequent structural changes help avoid myopia in orga- nizational attention (e.g., Siggelkow and Levinthal, 2005), our study reveals that these changes might also elicit high internal fear among MMs and cause harm- ful deceptive behavior. Organizational structures could, moreover, influence MMs’ fears through for- mal hierarchy. Existing research has shown that people are particularly sensi- tive to the behavior of individuals of higher power and status (Kish-Gephart et al., 2009). Some of Nokia’s TMs expressed aggression toward MMs, and MMs shared stories about such instances widely. The emotional story sharing increased MMs’ internal fear toward all TMs as a powerful group. This sug- gests that one reason less-hierarchical structures might foster innovation (Burns and Stalker, 1961) is that more organic, egalitarian structures dampen the effects of hierarchy-based fear and the potentially harmful effects of more- powerful groups. When the power difference between TMs and MMs is per- ceived as modest, TMs’ aggression is less likely to amplify MMs’ internal fear and thus less likely to cause extreme protective behavior.

Vuori and Huy 41 MMs’ dependence on organizational status could also affect how strongly the aforementioned structural factors influence MMs’ internal fear. In Nokia’s case, MMs’ dependence on the status of their company was particularly high because Nokia was one of the few globally successful high-tech companies in small-population Finland. When MMs’ status is highly dependent on their orga- nization, they are likely to be more sensitive to threats inside the organization, because those threats exert a more immediate effect on MMs’ perceived person–environment relationship; this increased sensitivity evokes emotional reactions (Lazarus, 1991). Central to such dependence is the relative weight given to organization-independent and organization-dependent factors in one’s status: greater personal achievements should increase a person’s independent status, whereas the high status of the organization should increase the effect of organizational membership on personal status. For example, a junior soft- ware engineer joining Google would enhance his or her personal status because of the company’s high profile, whereas a Nobel Prize winner making the same move would receive less of a reputational boost, as he or she already had significant personal achievements. Hence, once hired, the engineer would probably experience higher internal fear than the Nobel Prize winner. This sug- gests the intriguing hypothesis that organizations might consider retaining their longer-tenured, successful MMs not just because of their rich tacit knowledge (e.g., Droege and Hoobler, 2003) but also because they are less likely to experi- ence high internal fear and are therefore more likely to communicate honestly about organizational reality to people in higher formal positions—in particular, to be the bearers of bad news. Though our data suggest how the structural distribution of attention and hier- archy can lead to different types of shared fear among diverse groups, organi- zational structures could also induce fear in other ways. For example, organizational structures that encourage groups to compete with one another likely generate different shared emotions than structures that promote colla- boration (cf. Ouchi, 1977). Likewise, functional and divisional structures expose groups to diverse groups of actors and interests inside and outside the organi- zation and could thus generate different emotional reactions. Future research could investigate more comprehensively how various structural factors influ- ence diverse groups’ emotions—both the discrete emotions that are experi- enced and the diverse targets of those emotions—and how these shared emotions subsequently influence organizational outcomes. Integration of Attention Diverse types of structurally based fear beg a deeper discussion of how such fears influence the organizational processes that are presumed to make any particular structural arrangement effective. The attention-based view of the firm emphasizes the centrality of integration of attention. This view assumes that different groups first distribute organizational attention (Ocasio, 1997) and then bring their perspectives together to facilitate high-quality decisions. Joseph and Ocasio (2012: 644) noted that this can happen through ‘‘open and frank dialo- gue’’ when appropriate channels are present (see also Henderson and Clark, 1990). But our study suggests that TMs’ external and MMs’ internal fear can foster interaction patterns that amplify rather than integrate differences in per- spective, even with regular formal and informal meetings to integrate attention.

42 Administrative Science Quarterly 61 (2016) The communication channels within Nokia’s formal structure were supposed to highlight key information; however, both MMs’ and TMs’ shared emotions reduced the accuracy of the information exchanged and biased subsequent strategic decision making. TMs’ external fear led them to exert pressure on MMs without fully revealing the severity of the external threats and to interpret MMs’ messages in biased ways. MMs’ internal fear made them mislead TMs during their interactions. The attention-based view of the firm has emphasized that organization mem- bers’ attention is influenced by various contextual and situational factors (Ocasio, 1997, 2011). This reveals the sequential and cyclical nature of atten- tion, in that what people attend to first likely shapes what they attend to later (cf. Weick, 1979). Our study reveals how various types of fear could shape this cyclical process in TM–MM interactions and extends our understanding of situational attention in organizations. Shared emotions felt in one group could influence the attention of another group: TMs’ external fear can make them exert heavier pressure on MMs, which increases MMs’ attention to intra- organizational threats; and MMs’ high internal fear makes them communicate potential problems less openly to TMs, which reduces the attention TMs pay to those issues. Likewise, MMs’ internal fear can reduce their disposition to publicly criticize their peers, which can reduce TMs’ attention to potential weaknesses in open strategic debates. At Nokia, the outcome was that TMs’ understanding of what the organization was capable of increasingly diverged from MMs’ understanding, and this assessment gap contributed to Nokia’s temporal myopia and innovation underperformance. Hence a deeper under- standing of how the integration of distributed attention occurs in organizations would require scholars to consider the shared emotions that diverse groups experience as a result of their distributed attention and how those emotions influence their motivation and ability to share their views. Our study tentatively suggests that MMs fearing external competition directly—as opposed to fearing TMs as a proxy of the external environment— might lead to more functional communication patterns (see also Grove, 1996). Though TMs might still exert excessive pressure on MMs, MMs’ external fear could function as a corrective, allowing them to pay sufficient attention to threats in the external environment. With moderate internal fear and moder- ately high external fear, MMs might resist mounting pressure from TMs more assertively and be honest about what they could realistically deliver in a given timeframe, forcing TMs to revise their expectations and take timely adjusting actions. Future research could investigate this hypothesis, explore whether it is possible to elicit salutary, adaptive external fear among MMs, and investigate the associated side effects on other stakeholder groups such as shareholders and customers. One could also speculate that TMs’ high ability to regulate (e.g., Gross, 1998) their external fear might foster higher-quality interactions with MMs. In the Nokia case, TMs’ high external fear caused them to put too much pressure on MMs and dismiss MMs’ warnings. We wonder what might have happened if Nokia’s TMs had tempered their high external fear somewhat, freeing their cog- nitive resources to consider the wider consequences of their actions. Such regu- lation of fear might have enabled them to stay attuned to the external threat while forming a better understanding of Nokia’s internal context and to flexibly co-develop a more appropriate and timely corrective action plan with MMs.

Vuori and Huy 43 Our research on the effect of structurally based fear also contributes to research on managerial cognition by identifying social–emotional processes that influence TMs’ cognition. Even though the importance of managerial cognition has been well established (e.g., Tripsas and Gavetti, 2000), how intra- organizational processes shape TMs’ cognition remains insufficiently under- stood (Gavetti et al., 2012; Eggers and Kaplan, 2013). Previous research has mainly focused on the impact of managerial cognition (e.g., Kaplan, 2008) or individual-level factors that might explain biases (e.g., Wagner and Gooding, 1997). Our inductive process model advances a social–emotional interaction view by describing how emotion-laden TM–MM interactions influenced the content of information conveyed to TMs and shaped their cognition. TMs were not just passive recipients of information; they actively shaped what would be communicated to them by influencing their subordinates’ emotions both directly (through their directives) and indirectly (through structural choices). This suggests that one predictor of the accuracy of TMs’ mental models could be their ability to influence the quality of their interaction with MMs by managing their own and MMs’ emotions. Limitations and Future Research Because it is a one-company case study, our proposed process model comes with limitations that represent opportunities for future research. We focused on a fast-moving high-tech industry in which complex software development played a central role. TMs in other industries might find it easier to observe how well their companies are developing innovations. Hence, structurally based fear might have a weaker effect on innovation processes in industries in which core production elements are more easily observable and understand- able. Moreover, the speed of feedback loops could be important: how quickly do the harmful consequences of miscommunication materialize? In business organizations, a lie might go undetected for months. But in settings such as flight decks (Weick and Roberts, 1993), navy ships (Hutchins, 1995), and emer- gency wards (Rico et al., 2008), miscommunication would lead to immediate negative consequences, triggering strong emotional reactions. Hence emo- tional reactions likely motivate honest reporting about problems in these contexts. No theory in management research could be expected to explain all of the variance observed, and we do not claim that fear was the only factor contribut- ing to Nokia’s decline. We focused on explaining how fear emerged and influ- enced TMs’ and MMs’ interactions, contributing to temporal myopia that caused Nokia to lose the smartphone battle. We expect other scholars to sug- gest other plausible and complementary accounts of Nokia’s decline. Beyond economic and structural factors that have occupied a central place in the strate- gic management of organizations, however, our study illuminates the impor- tance of shared emotions among various groups and their powerful impact on firms’ competitiveness. Acknowledgments For their comments and other help in this research, we thank Associate Editor John Wagner, four anonymous reviewers, Joan Friedman, Linda Johanson, Tom Albrighton,

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Vuori and Huy 51 The Verge 2013 ‘‘Obama: I would not have launched Healthcare.gov if I had known it wasn’t going to work.’’ http://www.theverge.com/2013/11/14/5104280/obama-i-would-not- have-launched-healthcare-gov-if-i-had-known, accessed on July 22, 2014. Wagner, J. A., and R. Z. Gooding 1997 ‘‘Equivocal information and attribution: An investigation of patterns of manage- rial sensemaking.’’ Strategic Management Journal, 18: 275–286. Washington Post 2013 ‘‘Health insurance exchange launched despite signs of serious problems.’’ http://www.washingtonpost.com/national/health-science/health-insurance-exchange- launched-despite-signs-of-serious-problems/2013/10/21/161a3500-3a85-11e3-b6a9- da62c264f40e_story.html, accessed on July 24, 2014. Weick, K. E. 1979 The Social Psychology of Organizing, 2d ed. Boston: Addison-Wesley. Weick, K. E., and K. H. Roberts 1993 ‘‘Collective mind in organizations: Heedful interrelating on flight decks.’’ Admin- istrative Science Quarterly, 38: 357–381. Wikipedia 2015 ‘‘Lex Nokia.’’ http://fi.wikipedia.org/wiki/Lex_Nokia, accessed on January 1, 2015. Authors’ Biographies Timo O. Vuori is an assistant professor in strategic management at Aalto University’s Department of Industrial Engineering and Management and Department of Management Studies, P.O. Box 15500, 00076 Aalto, Finland (e-mail: timo.vuori@aalto.fi). His current research examines the role of cognitive dynamics and shared emotions in the strategy and innovation processes. He received his D.Sc. in work psychology and strategy from Aalto University. Quy N. Huy is professor of strategy at INSEAD, 1 Ayer Rajah Avenue, 138676 Singapore (e-mail: quy.huy@insead.edu). His research explores the relations between social–emotional factors such as emotion and symbolic management and macro strate- gic processes such as strategic change, organizational innovation, and creation of new companies. He received his Ph.D. from McGill University.

Leadership & Culture Fostering organizational culture and leading effective change Outlining the learning objectives for this session To explore the roles of identity, culture, leadership, and psychological safety in influencing employee attitudes toward change To identify strategies for supporting employees and reducing resistance during change. To assess how leadership impact the success of change and create a positive environment for adaptation. © Dr. Christina Dienhart & Prof. Dr. David Antons 2

Zooming in on Kodak’s resistance to change Strong organizational identity • Legacy-bound: Identity tied to traditional film history • Resistant to redefinition: Struggle to redefine the business model • Complacent market leader: Overconfident in position Leadership Challenges • Short-term thinking: focus more on immediate profitability than long-term innovation • Hesitancy: Leaders delayed crucial decisions on investing and transitioning • Conservatism: tendency to avoid disruptive change to protect the existing business [1] Corporate Culture • Tradition over innovation: Preference for status quo • Groupthink limits ideas: lack of diverse opinions / fresh perspectives • Risk aversion: resistance to take bold steps that could disrupt the business Lack of psychological safety • Fear of repercussions: Silence on innovation • Lack of empowerment: Limited freedom to challenge • Stifled innovation: supression of creativity and new ideas © Dr. Christina Dienhart & Prof. Dr. David Antons 3

How do we ensure that all staff members are on board along the way to sustainability? © Dr. Christina Dienhart & Prof. Dr. David Antons

Discussing four key questions in this session 1 2 3 4 Why do some organizations lose their employees during change? What role do identity and culture play in promoting or prohibiting change? How affect organizational leaders change in their organization? How can organizations create environments where employees feel safe to raise their voice? © Dr. Christina Dienhart & Prof. Dr. David Antons 5

Focusing on these central topics of this lesson Culture Resistance to Change 2 Resistance to change hinders adaptation to new structures and processes. Identity & Culture 3 Identity and culture shape the self- conception and values of the organization. Leadership Leadership 4 Leadership provides guidance and inspires employees to achieve common goals. Psychological Safety 5 Psychological safety promotes open communication, while silence often signals reserve. Leadership © Dr. Christina Dienhart & Prof. Dr. David Antons 6

Summary • Changing towards sustainability is a must in today‘s business environment. At the same time, organizations are responsible for their staff members as stakeholder of the organization. • Organizations might be eager to change, but it seems hard to align all staff members in transformation processes. Transforming towards sustainability might also suffer from these issues. • Organizations need to account for the critical roles of organizational identity, organizational culture, and feeling safe to voice up during organizational change. Leadership is critical to form the basis for willingness to change. © Dr. Christina Dienhart & Prof. Dr. David Antons 7

Images used • [1] Kodak Logo: Wikipedia. Web. < https://de.wikipedia.org/wiki/Kodak > © Dr. Christina Dienhart & Prof. Dr. David Antons 8

Resistance to Change Managing organizational conflict Outlining the learning objectives for this video To understand the psychological, emotional, and sociological factors contributing to resistance to change To explore the types of resistance (logical/rational, emotional, and social) and how they manifest within organizations To learn strategies for overcoming resistance and managing conflict during periods of organizational change © Dr. Christina Dienhart & Prof. Dr. David Antons 2

Overcoming the Not-Invented-Here syndrome © Dr. Christina Dienhart & Prof. Dr. David Antons https://youtu.be/OqQQBSJj5yc 3

Giving historical examples of the NIH syndrome Historical examples of NIH ▪ Galileo rejecting Kepler Moon creating tidal motion ▪ Huygens & Leibniz rejecting Newton Concept of universal gravity ▪ Davy rejecting Dalton Atomic structure of matter An extreme case? ▪ William Thomson Lord Kelvin rejected Joseph Thomson Concept of electrons & idea that atoms are decomposable into smaller elements © Dr. Christina Dienhart & Prof. Dr. David Antons Nickerson (1998) 4

Defining the Not-Invented-Here concept We define NIH as a bias triggered by the negatively-shaped attitude of an individual towards knowledge that has to cross a contextual (disciplinary), spatial or organizational (functional) boundary, resulting in either its sub-optimal utilization or its rejection as behavioral consequences of this attitude bias. © Dr. Christina Dienhart & Prof. Dr. David Antons Antons & Piller (2015) 5

Why do people refuse to change? © Dr. Christina Dienhart & Prof. Dr. David Antons

Exploring different types of resistance Reluctance to lose control ▪ Individuals may feel that control over their life situation is taken away from them with changes that are imposed on them rather than being self-initiated Cognitive rigidity ▪ The trait of dogmatism might predict an individual’s approach to change ▪ Dogmatic individuals are characterized by rigidity and closed-mindedness and therefore might be less willing and able to adjust to new situations. Lack of psychological resilience ▪ As change is a stressor, resilience might predict an individual’s ability to cope with change Intolerance to the adjustment period involved in change ▪ A distinct aspect of individuals’ psychological resilience is their ability to adjust to new situations. ▪ People resist change because it often involves more work in the short term as new tasks require learning and adjustment Preference for low levels of stimulation and novelty ▪ Distinction between adaptive individuals, who are best at performing within a well-defined and familiar framework, and innovators, who are better at finding novel solutions outside the given framework ▪ innovative individuals generally exhibit a greater need for novel stimuli Reluctance to give up old habits ▪ Reluctance to give up old habits because “familiarity breeds comfort” ▪ When individuals encounter new stimuli, familiar responses may be incompatible with the situation, thus producing stress, which then becomes associated with the new stimulus © Dr. Christina Dienhart & Prof. Dr. David Antons Oreg (2003) 7

Contrasting levels of resistance Logical or Rational Resistance ▪ Disagreement with facts, rational reasoning, logic and science ▪ Occurs because of time and effort which is needed to adjust to change Psychological or Emotional Resistance ▪ Based on emotions, sentiments, attitudes ▪ Employees’ attitude and feeling about change, fear of the unknown, mistrust in managements’ leadership, feel threatened in security or self- esteem Sociological or Social Resistance ▪ Product of a challenge to group interests, norms and values © Dr. Christina Dienhart & Prof. Dr. David Antons 8

Defining conflicts “A conflict can be defined as any kind of opposite action or antagonistic interaction between two or more parties.” Robbins (1978) “Conflict is the process by which people or groups perceive that others have taken some action that has a negative effect on their interest.” Levi (2001) © Dr. Christina Dienhart & Prof. Dr. David Antons 9

Exploring the content of conflicts Healthy  Focus on task issues  Legitimate differences of opinions about task  Differences in values and perspectives  Different expectations about the impact of decisions Unhealthy  Competition over power, rewards, and resources  Conflict between individual and group goals  Poorly run team meetings  Personal grudges from the past  Faulty communication © Dr. Christina Dienhart & Prof. Dr. David Antons Levi (2001) 10

Analysing the impact of conflicts Destructive  Takes attention away from other important activities  Undermines morale or self-concept  Polarizes people and groups, reducing Constructive  Results in clarification of important problems and issues  Results in solutions to problems  Involves people in resolving issues important to cooperation them  Increases or sharpens difference  Leads to irresponsible and harmful behavior, such as fighting, name-calling  Causes authentic communication  Helps release emotion, anxiety, and stress  Builds cooperation among people through learning more about each other  Helps individuals develop understanding and skills © Dr. Christina Dienhart & Prof. Dr. David Antons Kogbara (2010) 11

Exploring conflict management and resolution styles Competing Collaborating Avoidance Accomodation Competition Compromise Collaboration  Advantage: can maintain the relationship between managers and subordinates  Weakness: it does not resolve conflict, members hope that it goes away by itself  Advantage: relationship is maintained, some member give up their position  Weakness: costs the team the value of some members’ opinions and ideas  Advantage: fast and correct decision-making if forcer is correct  Weakness: potential aggressions and anger towards the forcer, winning can become more important than making good decisions  Advantage: can resolve the conflict in short time, everyone gives in a little  Weakness: teams my end up with suboptimal alternatives and ideas nobody really wants  Advantage: makes all parties happy with the final decision  Weakness: takes time and effort and requires cooperativeness and respect for others‘ position Avoiding Accommodating Cooperativeness Compromising © Dr. Christina Dienhart & Prof. Dr. David Antons Levi (2001); Van de Vliert & Kabanoff (1990) 12 Assertiveness Negotiating conflict Separate people from process Focus on shared interests Develop many opinions on the problem Evaluate using objective criteria Try again  Handleissuesandrelationshipsseparately.  Diagnosethecauseofconflict.  Encouragebothsidestorecognizeandunderstandtheiremotions.  Focusonissues,notonpositions.  Identifyhoweachsidecangetwhatitwants.  Haveeachsideidentifyandrankitsgoalsintheconflict.  Generatealternativesthatprovidemutualgainsforbothsides.  Lookforareasofsharedinterest.  View the problem from alternative perspectives.  Develop objective criteria for decision-making.  Talk through the issues to eliminate unimportant issues.  Donotgiveintopressure.  Establishmonitoringcriteriatoensurethatagreementsarekept.  Discusswaysinwhichtheteamcandealwithsimilarissuesinthefuture. © Dr. Christina Dienhart & Prof. Dr. David Antons Levi (2001) 13

Summary • Resistance to change can stem from a variety of factors, including a fear of losing control, intolerance to adjustment periods, and cognitive rigidity. These reactions can hinder the successful implementation of change. • Resistance occurs on multiple levels: rational (disagreement based on facts), emotional (feelings of fear and insecurity), and sociological (challenges to group norms and values). Each requires a tailored approach for resolution. • Effective conflict management techniques, such as collaboration and compromise, can help mitigate resistance. It is essential to focus on shared interests and separate people from the process to maintain positive relationships while implementing change. © Dr. Christina Dienhart & Prof. Dr. David Antons 14

References used ▪ Antons, D., & Piller, F. T. (2015). Opening the black box of “not invented here”: Attitudes, decision biases, and behavioral consequences. Academy of Management perspectives, 29(2), 193-217. ▪ Kogbara, M. (2010). Handbook on Leadership and Conflict Resolution in Africa. Xlibris Corporation. ▪ Levi, D. (2001). Group dynamics for teams. SAGE Publications. ▪ Nickerson, R. S. (1998). Confirmation bias: A ubiquitous phenomenon in many guises. Review of General Psychology, 2(2), 175–220. ▪ Oreg, S. (2003). Resistance to change: Developing an individual differences measure. Journal of Applied Psychology, 88(4), 680–693. ▪ Van de Vliert, E., & Kabanoff, B. (1990). Toward theory-based measures of conflict management. Academy of Management Journal, 33(1), 199–209. © Dr. Christina Dienhart & Prof. Dr. David Antons 15

Identity and Culture Understanding the importance of organizational identity and culture for organizational change Outlining the learning objectives for this session To understand the concept of organizational identity and see how it might drive resistance to change To evaluate the role of organizational culture and its interrelation with identity To explore how identity threats might lead to disengagement with the organization © Dr. Christina Dienhart & Prof. Dr. David Antons 2

Cultivating a workforce that embodies environmental values Patagonia’s mission: We're in business to save our home planet. • The company's focus on environmental sustainability creates a workplace where employees actively participate in environmental causes, enhancing their identification as "environmental protectors" • Employee Engagement in Environmental Projects: Patagonia offers programs like the Environmental Internship Program, where employees can take time off to work on environmental projects, fostering a sense of environmental responsibility and activism within the workforce • Transparency and Responsibility: Patagonia emphasizes a culture of transparency and responsibility, encouraging employees to adopt sustainable practices in both their professional and personal lives. © Dr. Christina Dienhart & Prof. Dr. David Antons Untitled Leader 3

How can we explain employees’ identification with our organization? © Dr. Christina Dienhart & Prof. Dr. David Antons

Introducing organizational and social identity Social Identity Organizational Identity DEFINITION Social identity is "the individual's knowledge that he or she belongs to certain social groups together with some emotional and value significance to him of this group membership" ▪ Individuals categorise in social groups, building part of their identity based on these groups ▪ Social classification has two functions ▪ Segmenting and ordering the social environment ▪ Locating or defining him- or herself in the social environment DEFINITION Organizational identity is “a form of psychological attachment that occurs when members adopt the defining characteristics of the organization as defining characteristics for themselves“ Individuals need orientation ("Who am I") Individuals have a need for a positive self- esteem Effects include commitment, cooperation, effort, and decisions in the sense of the organization (but also: possible negative consequences) KEY ASSUMPTIONS KEY ASSUMPTIONS ▪ ▪ ▪ © Dr. Christina Dienhart & Prof. Dr. David Antons Dutton et al. (1994); Mael & Ashforth (1992); Piening et al. (2019) 5

Differentiating between levels of self-concepts PERSONAL ▪ People define themselves in terms of their personal attributes (e.g., personality, abilities, interests) ▪ One’ssenseofuniquenessand self-esteem is based on favorable comparisons with other people in a given social context RELATIONAL ▪ Self-definition based on connections and role relationships with others, with one’sself-worthbeing influenced by the quality of these relationships COLLECTIVE ▪ Defining oneself in terms of the social groups (e.g., gender, ethnic groups, professions, or organizations)onebelongsto ▪ One’s sense of self is tied to the social standing and outcomes of these groups as a whole Individual’s self-concept contains all three of these levels. Their relative importance varies from individual to individual depending on personal and situational factors. © Dr. Christina Dienhart & Prof. Dr. David Antons 6

Contrasting concepts of social identity theory SOCIAL CATEGORIZATION ▪ Process by which we group individuals based on social information (e.g., sex, race, social status, occupation) SOCIAL IDENTIFICATION ▪ Self-assessment is influenced by group membership and the (social) assessment of this group (e.g. prestige) SOCIAL COMPARISON ▪ Evaluation of a group by comparisons with other relevant groups (in-group vs. out-group) Positive distinctiveness as overall goal © Dr. Christina Dienhart & Prof. Dr. David Antons 7

How is organizational identity related to organizational culture? © Dr. Christina Dienhart & Prof. Dr. David Antons

Defining the concept of organizational culture Selected Definitions ▪ “A pattern of basic assumptions – invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration – that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.“ (Schein 1984) ▪ “The pattern of shared beliefs and values that give members of an institution meaning, and provide them with the rules of behavior in their organization.” (Davis 1984) Key Features ▪ Visible Surface Elements that are a visible part of the work environment (e.g. office layout, dress code, ceremonies, awards, symbols, etc.) ▪ Invisible Deep Structures Elements that are mostly known to members of an organization (e.g. fundamental values and beliefs, behavioural norms and expectations, ethical standards, etc.) ▪ Organizational Culture vs Climate Culture: Basic beliefs, assumptions & norms Climate: Staff perceptions of - and emotional responses to - their work environment © Dr. Christina Dienhart & Prof. Dr. David Antons Davis (1984); Schein (1984) 9

Decomposing the concept of organizational culture Elements Examples ▪ Architecture, office layout and dress code ▪ Firm charters, code of conduct, employee orientation material and key stories ➔ Visible, but hard to interpret ▪ Expressed vision and mission ▪ Guidelines for staff behavior ▪ Voiced standards of interaction ➔ Only espoused values accessible ▪ Beliefs about nature of competition ▪ Beliefs about role of business in society ▪ Beliefs about interpersonal risks ➔ Unconscious and hard to access Schein (1984) 10 + ▪ Artefacts ▪ Patterns of behaviour ▪ Key symbols ▪ Public documents © Dr. Christina Dienhart & Prof. Dr. David Antons ▪ Values ▪ Philosophies ▪ Goals, norms and standards ▪ Strategies ▪ Basic Assumptions ▪ Taken for granted beliefs ▪ Habits of perception, thought, feeling and interaction - Level of Awareness Advantages and disadvantages of strong cultures Characteristics of Strong Cultures ▪ Specificity ▪ Clearly defined values and beliefs ▪ Closely aligned staff behaviour ▪ Adoption ▪ Uniqueness of organizational culture ▪ Adoption by entire work force ▪ Implementation ▪ Culture more than a buzzword ▪ Culture part of daily practice Implications ▪ Functional Effects ▪Creates behavioral consistency ▪Conveys identity and sense of direction ▪Serves as a social incentive for appropriate behavior ▪Serves as a social control mechanism ▪ Potentially Dysfunctional Effects ▪Reduces heterogeneity of perception ▪Risks increasing pressures for conformity ▪Risks creating strong boundaries between the firm and its environment © Dr. Christina Dienhart & Prof. Dr. David Antons 11

How can identification processes explain resistance to change? © Dr. Christina Dienhart & Prof. Dr. David Antons

Looking at different organizational identity threats ▪ Can be defined as events that call into question members’ perceptions about central and distinctive attributes of an organization, and which ultimately might be jeopardizing members’ individual selves ▪ Examples: corporate scandals, environmental and organizational change Organizational Identity Threats STANDING TOGETHER can positively influence perceptions of organizational identity and create a sense of solidarity among members by developing an “us against the world” mentality FALLING APART violations of identity expectations, such as corporate statements of changing the very nature of the organizations, can lead members to distance themselves psychologically and physically from the organization © Dr. Christina Dienhart & Prof. Dr. David Antons Piening et al. (2019) 13

Responding to identity threats Threat Recognition Assessment of spillovers for individual identity Threat Attribution Threat Response Social Distancing “Falling Apart” Potential Identity Threat Threat Occurrence Potential Organizational Consequences Substantial Yes threat to individual identity? No Internal Locus of Threat? No Yes Is Threat controllable? Yes Is Threat Yes stable? No © Dr. Christina Dienhart & Prof. Dr. David Antons Piening et al. (2019) 15 No Dedicated Response No Social Change “Standing Together” Social Creativity This means, when changes might threaten the existing identity of the organizations, managers need to be careful when altering the identity, not demanding too much from employees to avoid that the organization falls apart © Dr. Christina Dienhart & Prof. Dr. David Antons

Summary • Organizational identity represents a psychological attachment where members adopt the defining characteristics of the organization impacting behavior, commitment, and cooperation. • Employees categorize themselves and others into social groups, influencing how they perceive their role in the organization and affecting their motivation and self-esteem. • Organizational culture shapes behavior through visible and invisible elements, such as norms, values, and assumptions. A strong culture provides consistency but may also lead to resistance to change. © Dr. Christina Dienhart & Prof. Dr. David Antons 17

References used ▪ Davis, S. M. (1984). Managing corporate culture. Ballinger Publishing Company. ▪ Dutton, J. E., Dukerich, J. M., & Harquail, C. V. (1994). Organizational images and member identification. Administrative Science Quarterly, 39(2), 239-263. ▪ Mael, F., & Ashforth, B. E. (1992). Alumni and their alma mater: A partial test of the reformulated model of organizational identification. Journal of Organizational Behavior, 13(2), 103-123. ▪ Piening, E. P., Baluch, A. M., & Salge, T. O. (2019). The relationship between employees' perceptions of human resource systems and organizational performance: Examining mediating mechanisms and temporal dynamics. Journal of Management, 45(2), 545-566. ▪ Schein, E. H. (1984). Coming to a new awareness of organizational culture. Sloan Management Review, 25(2), 3-16. ▪ Untitled Leader. (n.d.). Leading the way: Lessons from Patagonia's leadership in sustainability and social responsibility. Untitled Leader. https://www.untitledleader.com/lessons-in-leadership/leading-the-way-lessons-from-patagonias-leadership- in-sustainability-and-social-responsibility/

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Organizational Silence vs. Psychological Safety

Fostering psychological safety to overcome organizational silence and enhance performance

Outlining the learning objectives for this session

To understand why employees fail to raise issues in the workplace

To learn about the causes and effects of organizational silence on employee behavior and organizational performance

To identify strategies to create a psychologically safe environment where employees feel comfortable speaking up

Why do employees fail to raise issues at the workplace?

Exploring the Midstaffordshire case

▪ Provided healthcare for people in Stafford, Cannock, Rugeley, and the surrounding area

▪ Insufficient care between 2005 and 2009

▪ Relatives protested

▪ Up to 1,200 deaths that were statistically not expected

▪ Series of three governmental inquiries were conducted between

2009 and 2012

▪ Local and national media attacked the hospital

▪ Reputation plummeted

▪ Organization was announced to get dissolved in October 2014

The previous reports are clear that the following existed: a culture of fear in which staff did not feel able to report concerns; a culture of secrecy in which the trust board shut itself off from what was happening in its hospital and ignored its patients; and a culture of bullying, which prevented people from doing their jobs properly. Yet how these conditions developed has not been satisfactorily addressed.

Francis Report

... what we have found is that in some organisations where the culture is one where an error or an incident occurs, the staff member is suspended or blamed and may be put on different duties associated with the incident outcome. What we tend to find is that the other staff members worry about what happened to their colleague, and consider that may happen to them. So ... there is some concern as to whether they would then report themselves if they were either party to or witness to an incident. So we do find that the blame

culture that exists in the NHS means that some incidents are kept unreported © Dr. Christina Dienhart & Prof. Dr. David Antons

How can we explain why people stay silent and do not report incidents to top management?

Why is top management sealing off itself from concerns people raise?

Introducing organizational silence

DEFINITION

▪ A "climate of silence“ is a widely shared perceptions among employees that speaking up about problems or issues is futile and/or dangerous.

▪ When such a climate exists, the dominant response within an organization will be silence, rather than voice.

▪ Organizational silence is an outcome that owes its origins to (1) managers' fear of negative feedback and (2) a set of implicit beliefs often held by managers.

▪ Silence is a product of forces within the organization - and forces stemming from management - that systematically reinforce silence

KEY ASSUMPTIONS

Looking at origins of organizational silence

Managers' fear of negative feedback

▪ Managers feel a strong need to avoid embarrassment, threat, and feelings of vulnerability or incompetence

▪ Managers tend to avoid any information that might suggest weakness or that might raise questions about current courses of action.

▪ Managers are especially likely to avoid negative feedback from subordinates

Implicit managerial beliefs

1. Employees are self-interested and untrustworthy

2. Management knows best about most issues of organizational importance

3. Unity, agreement and consensus are signs of organizational health, whereas disagreement and dissent should be avoided (“unitary view”)

Morrison & Milliken (2000) 9

Examining the effects of organizational silence

Organizational Silence

c

Negative effects on the organization → monotonous climate

Negative effects on the employees →low working comfort

Less effective organizational decision making

Poor error detection & correction

Low commitment and trust

Less effective organizational change process

Low motivation

Higher probability of sabotage, stress, and turnover

c

Morrison & Milliken (2000) 10

How can we establish a climate where employees feel safe to speak up?

Defining psychological safety

“Team psychological safety is defined as a shared belief that the team is safe for interpersonal risk-taking.”

Edmondson (1999) 12

Reviewing zones of engagement

Accountability for meeting demanding goals

Edmondson (2009) 13

Low High

High

Comfort zone

▪ Employees enjoy working with one another but don‘t feel particular challenged. Nor they work very hard.

▪ Family businesses fall into this quadrant.

Learning zone

▪ The focus is on collaboration and learning in the service of high-performance outcomes.

Psychological Safety

Low

Apathy zone

▪ Employees tend to be apathetic and spend their time jockeying for positions.

▪ Typical organizations in this quadrant are top-heavy bureaucracies.

Anxiety zone

▪ People fear to offer tentative ideas, try new things, or ask colleagues for help, even though they know great work requires all three.

▪ Investment banks fall into this quadrant.

How can leaders establish a psychological safe climate?

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