OrganizationScience Vol. 20, No. 2, March���April 2009, pp. 441���460 issn 1047-7039 eissn 1526-5455 09 2002 0441 informs �� doi 10.1287/orsc.1080.0419 �� 2009 INFORMS Technology, Identity, and Inertia Through the Lens of ���The Digital Photography Company��� Mary Tripsas Harvard Business School, Boston, Massachusetts 02163, mtripsas@hbs.edu Obehavioral, rganizations often experience difficulty when pursuing new technology. Large bodies of research have examined the social, and cognitive forces that underlie this phenomenon however, the role of an organization���s identity remains relatively unexplored. Identity comprises insider and outsider perceptions of what is core about an organization. An identity has associated with it a set of norms that represent shared beliefs about legitimate behavior for an organization with that identity. In this paper, technologies that deviate from the expectations associated with an organization���s identity are labeled identity-challenging technologies. Based on a comprehensive field-based case study of the entire life history of a company, identity-challenging technologies are found to be difficult to capitalize on for two reasons. First, identity serves as a filter, such that organizational members notice and interpret external stimuli in a manner consistent with the identity. As a result, identity-challenging technological opportunities may be missed. Second, because identity becomes intertwined in the routines, procedures, and beliefs of both organizational and external constituents, explicit efforts to shift identity in order to accommodate identity-challenging technology are difficult. Given the disruptive nature of identity shifts, understanding whether technology is identity challenging is a critical consideration for managers pursuing new technology. Key words: technological change organizational evolution organizational identity industry emergence History: Published online in Articles in Advance March 6, 2009. Intel equaled memories in all of our minds. How could we give up on our identity? How could we exist as a company that was not in the memory business? It was close to being inconceivable. (Grove 1996, p. 90) Technological change can provide tremendous oppor- tunities for firm growth and renewal however, the challenges of capitalizing on these opportunities are significant. Existing capabilities, resource commitments, behavioral routines, and cognitive frames frequently constrain a firm���s response to external change such that the same elements that helped foster success under one technological regime become inertial forces, lim- iting adaptive flexibility and driving suboptimal out- comes in a different environment (Benner and Tushman 2002, Christensen and Bower 1996, Henderson and Clark 1990, Kaplan 2008, Tripsas and Gavetti 2000, Tushman and Anderson 1986). Part of the challenge is that technological change often has implications beyond the technology itself new customer segments with dif- ferent preferences may emerge (Abernathy and Clark 1985, Christensen and Bower 1996, Tripsas 2008) com- plementary assets necessary for commercialization may shift (Mitchell 1989, Tripsas 1997) new business mod- els may be required (Chesbrough and Rosenbloom 2002, Tripsas and Gavetti 2000) the optimal modular bound- aries and degree of vertical integration may change (Baldwin 2008, Jacobides et al. 2006) and different alliance networks may be appropriate (Rosenkopf and Nerkar 2001, Rothaermel and Boeker 2008). A firm may ultimately need to develop an entirely new organiza- tional identity whereby both organizational members and external constituents must alter deeply held assumptions and beliefs about what the firm represents. Even seem- ingly minor shifts from a technological standpoint may challenge the existing organizational identity if, by pur- suing the new technology, the organization violates the core features associated with its existing identity. Yet, despite the potential importance of organizational iden- tity as it relates to technological transitions, the terrain is relatively unexplored. Organizational identity represents both how organi- zational insiders and outside constituents perceive an organization (Hsu and Hannan 2005, P��los et al. 2002). Because distinguishing between these two perspectives can be important to understanding technology and iden- tity dynamics, I use the phrases ���internal identity��� and ���external identity��� where that distinction is relevant.1 Internal identity represents a shared understanding by organizational members regarding what is central, dis- tinctive, and enduring about an organization (Albert and Whetten 1985). It helps insiders to answer questions such as ���Who are we? What kind of business are we in?��� and guides key strategic decisions such as whether to make an acquisition, enter a new market, or divest a divi- sion. When faced with uncertainty or a challenging issue, managers view the issue through the lens of the firm���s internal identity, which guides interpretation and action (Dutton and Dukerich 1991b, Markides 2000). External identity, on the other hand, captures how outside audi- ences such as institutional actors, customers, suppliers, or 441

Tripsas: Technology, Identity, and Inertia Through the Lens of ���The Digital Photography Company��� 442 Organization Science 20(2), pp. 441���460, �� 2009 INFORMS complementary producers view the organization (Gioia et al. 2000). Having categorized an organization in a particular way, outsiders associate specific characteris- tics with it and form certain expectations or codes about how the organization should act (Hsu and Hannan 2005, P��los et al. 2002). An organization���s external identity can provide legitimacy if it abides by the rules of a clearly defined category or trigger confusion if it deviates too far (Benner 2007, Zuckerman 1999). The continuity of identity provides stability both within the organization and in its projections to outsiders, improving long-term survival (Hannan and Freeman 1984). When environmental conditions neces- sitate a shift in identity, however, the ensuing change process is risky and difficult to manage (Hannan et al. 2006a, Reger et al. 1994). Radical events, such as the separation of a business unit from its parent in a spin-off (Corley and Gioia 2004), can initiate major changes in identity, but in other situations proactive efforts on the part of top management are needed to facilitate identity shifts (Fiol 2002, Gioia and Thomas 1996). Although our cumulative knowledge of the dynam- ics associated with identity is considerable, its spe- cific relationship to technological change efforts remains neglected. I label technologies that deviate from the expectations associated with an organization���s identity as identity-challenging technologies and address two core research questions: (1) How does an organization���s iden- tity affect its filtering of technological opportunities and its ability to respond to identity-challenging technolo- gies? (2) When an organization���s pursuit of an identity- challenging technology results in a shift in identity, how does the change process unfold? I use an inductive, field-based case study of the entire life of a single firm, Linco2, to explore these issues. Linco provides a compelling example of the role of iden- tity as it relates to technological change. Upon found- ing, the firm took advantage of the emergence of digital photography to define itself as a leading supplier of what it called ���digital film������the flash memory cards that store images taken by digital cameras. By engaging in proactive communication and action, the firm estab- lished an identity as The Digital Photography Company. Although this identity was effective early on in guiding the strategic actions of the firm, it became a liability when architectural innovation in flash memory created an opportunity that did not fit with the identity. Ini- tially, organizational members did not notice the com- mercial potential of the identity-challenging innovation, and once noticed it was not initially pursued. Eventually, given environmental pressure, a new CEOwas appointed and Linco pursued both this architectural innovation and other technological initiatives that ultimately resulted in intentional efforts to shift the firm���s identity. But both internal constituents and external stakeholders were slow to recognize and internalize the shift. After a period of identity ambiguity (cf. Corley and Gioia 2004), a new external identity began to solidify, and the firm finally converged on a new identity in response to an external imperative to clearly define itself to outsiders interested in acquiring the firm. This study contributes to multiple streams of litera- ture. First, in the field of technology management, it enhances our understanding of why the pursuit of new technological opportunities can be so problematic. The filters imposed by an existing identity, as manifested in the routines and beliefs of organizational members, may blind those members to identity-challenging tech- nological opportunities. And, once identified, identity- challenging technology may necessitate a shift in the firm���s identity���a potentially traumatic and disruptive process. Identity is not just one more factor to con- sider when unraveling sources of inertia. Identity serves as a guidepost, directing the development of some rou- tines and capabilities over others and reinforcing some beliefs over others (Kogut and Zander 1996). So in those instances where new technology requires a change in identity, attempting to alter only routines, capabilities, or beliefs without acknowledging the broader implications for identity can be problematic. Similarly, any effort to change identity must reach beyond corporate rhetoric and extend deep within an organization���s processes in order to be effective. Second, this study contributes to the organizational identity literature by explicating, through unique, detailed, longitudinal empirical data, the process by which internal and external organiza- tional identity and the environment dynamically interact and change. For instance, by examining separate mea- sures of the evolution of internal and external identity over time this study highlights the primacy of external identity in transitions���when emerging from a period of identity ambiguity, external constituents in the form of financial analysts first began to converge on a new external identity followed by organizational members for whom ultimate consensus around a new internal identity was triggered by an external imperative from potential acquirers to define the firm. Third, this study highlights the importance of strategic renewal in small, young orga- nizations in contrast to the emphasis of most existing work on large, established organizations. Although start- ups are often portrayed as continuously morphing enti- ties that opportunistically adapt (Bhide 2000, Brown and Eisenhardt 1997, Rindova and Kotha 2001), Linco exhibited a period of relative stability with major reori- entation accompanying a change in leadership (Tushman and Romanelli 1985). Sources of Inertia: Technological Change and Identity The difficulty that firms encounter adapting to new technology has been well documented across a range

Tripsas: Technology, Identity, and Inertia Through the Lens of ���The Digital Photography Company��� Organization Science 20(2), pp. 441���460, �� 2009 INFORMS 443 of industries (Christensen 1997, Cooper and Schendel 1976, Tushman and Anderson 1986, Utterback 1994). The organizational reasons fall into two broad cat- egories: routines/capabilities and cognition. Existing behavioral routines and procedures, codified in organi- zational capabilities, persist in the face of change and result in suboptimal responses to innovation (Levinthal and March 1993, Nelson and Winter 1982). Established firms have particular difficulty adapting to competence- destroying technological change that requires the acqui- sition of fundamentally new knowledge and routines (Tushman and Anderson 1986). For instance, Swiss watch manufacturers were devastated by the transi- tion from mechanical to quartz movements in watches (Glasmeier 1991, Landes 1983). The web of external relationships and social commitments held by Akron- based firms in the tire industry provided an advan- tage when bias-ply tire technology was dominant but impeded change when radial tire technology emerged (Sull et al. 1997). National Cash Register���s initial poor response to the advent of electronic business machines and digital computers was partially related to the rigid- ity of its manufacturing organization���previously a com- petitive strength (Rosenbloom 2000). Even seemingly minor architectural innovations can be traumatic given the inertia surrounding organizational information fil- ters and communication patterns (Henderson and Clark 1990). Some routines, such as total quality management, that are meant to improve a firm���s efficiency in a core business crowd out more exploratory initiatives, limiting the firm���s ability to take advantage of novel opportunities (Benner and Tushman 2003). Thus, in aggregate, core competencies can turn into ���core rigidities��� or ���com- petency traps��� that constrain the development of new capabilities (Barnett and Hansen 1996, Leonard-Barton 1992, Levitt and March 1988). Even if a firm engages in exploration, cognitive ele- ments can be problematic. Interpretation of a new tech- nology as a threat can result in high investment of resources in a rigid manner that preserves existing rou- tines. For instance, newspapers that viewed the Internet as a threat offered fewer novel features on their web- sites, perceiving the Internet as primarily another vehicle for distributing the newspaper (Gilbert 2005). Manage- ment attention may also play an important role (Danneels 2003, Ocasio 1997). In the communications technology industry, less CEOattention on fiber optics was related to delayed firm entry into the emerging technology (Eggers and Kaplan 2009), and in disk drives, management focus on existing customers precluded recognition of emerg- ing segments where new techology was initially applied (Christensen and Bower 1996). Even if management is focused on the salient issues, beliefs about the fungibility of internal resources can drive suboptimal behavior, as in the case of Smith Corona, where erroneous manage- ment beliefs about the value of the brand led to inade- quate investment in the digital technologies that replaced typewriters (Danneels 2008). Finally, firms may apply outdated beliefs in the development of business models even if they are successful at developing new technical capability as in the case of Polaroid with digital imaging (Tripsas and Gavetti 2000). In the midst of this extensive literature, there remains a surprising gap: The influence of organizational iden- tity on firm responses to technological change has not been explicitly examined. This relationship would seem to hold promise for improving our understanding of iner- tial responses to technological opportunities given the importance of identity dynamics in shaping firm actions in other settings. As a point of departure, I build on and integrate two distinct but related streams of research on identity, one with origins in organizational behavior and the other in sociology. Whereas original conceptions of internal identity in the organizational behavior literature defined the con- struct as collective agreement by insiders regarding the central, distinctive, and relatively permanent features of the organization (Albert and Whetten 1985), recent work has emphasized its dynamic nature (Gioia et al. 2000, Nag et al. 2007, Ravasi and Schultz 2006). In particular, research has focused on how organizations respond to identity threats���inconsistencies between internal iden- tity and internal perceptions of external identity. When organizational members discern such a threat, they engage in a variety of strategies to restore consistency. In some cases organizations reframe the threat so that the inconsistency is alleviated without having to change internal identity. For instance, in examining how top business schools responded to the Business Week rank- ings that threatened internal beliefs, Elsbach and Kramer (1996) found that individuals used cognitive tactics, such as focusing on categories not considered in the external rankings, to retain their positive perceptions of the orga- nization. In other situations, when confronted with an identity threat, managers undertake persuasive commu- nications and actions with the goal of improving external views (Dutton et al. 1994, Gioia et al. 2000). In response to a perceived degradation of outsider perceptions result- ing from an inadequate response to homelessness, mem- bers of New York���s Port Authority eventually reframed the homeless issue and took more aggressive action to solve the problem, hoping to improve outsider views and restore consistency with insider views (Dutton and Dukerich 1991a). Sometimes a shift in the external environment or desired internal change cannot be accommodated within the constraints of an existing identity, so a change is needed. Reger et al. (1994) propose that the reason total quality management was so difficult for firms to imple- ment was that it required not only a change in organi- zational behaviors but a fundamental transformation in how an organization viewed itself. Management recogni- tion of the need to change identity and not just alter strat- egy or operational tactics is crucial if firms are to avoid