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ORGANIZATIONAL PATH DEPENDENCE:
OPENING THE BLACK BOX
JO¨ RG SYDOW
GEORG SCHREYO¨ GG
Freie Universität Berlin
JOCHEN KOCH European University Viadrina To enable a better understanding of the underlying logic of path dependence, we set forth a theoretical framework explaining how organizations become path dependent. At its core are the dynamics of self-reinforcing mechanisms, which are likely to lead an organization into a lock-in. By drawing on studies of technological paths, we conceptualize the emergent process of path dependence along three distinct stages. We also use the model to explore breakouts from organizational path dependence and discuss implications for managing and researching organizational paths.
The discourse on organizational innovation and change has become more complex. On the one hand, there is an ever-increasing demand for more flexible or even fluid “new” organiza- tional forms. On the other hand, studies stress- ing organizational inertia and the historical im- printing of decision making (“history matters”) have come to the fore in management and or- ganization theory. There seems to be a broadly shared feeling that we need to understand bet- ter how organizations can lose their flexibility and become inert or even locked in. Among the most referred to conceptions, path dependence has recently gained prominence. Many contribu- tions refer to path dependence to illuminate or- ganizational rigidities, stickiness, or inflexibili- ty.^1 But what is path dependence supposed to
mean exactly? In organization research the term is used mostly as a broad label indicating all kinds of imprinting effects of the past on orga- nizational behavior (e.g., recently, Beckman & Burton, 2008). A closer examination quickly re- veals that the predominant usage is more met- aphorical than theoretical in nature. A clear specification is usually missing. This means, at the same time, that no indicators are available that allow for examining whether or not the or- ganizational phenomena in question are actu- ally path dependent. If we want “path depen- dence” to provide more than a synonym for persistence, then we need a theoretical frame- work clarifying the notion and helping us better understand the conditions and dynamics under which organizations become path dependent. By addressing this gap in management and orga- nization research, we aim to offer a framework designed to explain organizational path depen- dence. The endeavor to explain organizational rigid- ities and structural inertia is not new in man- agement and organization research. Over the years scholars have accumulated ample evi- dence on change-inhibiting forces. Various stud- ies have highlighted cases of persistence and irreversibility of organizational strategies, de- signs, and competences by drawing, for in- stance, on awkward routines, groupthink, or fixed cognitive maps (e.g., Beckman & Burton, 2008; Burgelman, 2002; Collinson & Wilson, 2006; Gilbert, 2005; Hannan & Freeman, 1984; Helfat, 1994; Huff & Huff, 2000; Stimpert, Wasserman, &
We thank the four anonymous reviewers for their helpful comments, and we particularly thank former associate edi- tor Pamela Tolbert for her thoughtful advice. Earlier versions of the manuscript profited significantly from discussions in the subgroup on path dependence and creation at the 21st EGOS Colloquium in Berlin, 2005, and at the annual meeting of the Academy of Management in Atlanta, 2006. We are grateful to the German Research Foundation (DFG) for fund- ing the doctoral program Research on Organizational Paths at Freie Universita¨ t Berlin and to its members for providing a stimulating environment for the research. (^1) A quick search for references to path dependence in papers published between 1995 and 2008 in three leading scholarly journals ( Administrative Science Quarterly , Orga- nization Science , and Organization Studies ) showed that more than eighty papers referred to this concept. That is about 4.3 percent of the articles published in those journals over this time span—an average of 0.3 papers per issue.
Academy of Management Review 2009, Vol. 34, No. 4, 689–709.
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Jayaran, 1998; Tripsas & Gavetti, 2000). Path de- pendence, however, is supposed to mean more than the mere existence of timeworn routines, cognitive rigidities, or structural inertia. It is, first of all, a process. Its distinguishing features need elaboration. The starting point of any advanced path de- pendence thought stresses the importance of past events for future action or, in a more fo- cused way, of foregoing decisions for current and future decision making. Hence, decisions are conceived of as historically conditioned— “bygones are rarely bygones” (Teece, Pisano, & Shuen, 1997: 522). In short, the basic thesis holds that history matters (e.g., Nooteboom, 1997; Sewell, 1996). This essential insight has certainly advanced the understanding of emerging organizational phenomena and has helped to overcome the ahistorical and unbounded view of rational choice thought. We learn that history can be quite important for explaining strategic choices and organizational failures. While we appreci- ate this insight, merely focusing on the fact of past dependence (Antonelli, 1999) implies taking a fairly broad view—too broad a theoretical per- spective: if we base path dependence explana- tions on the history matters argument only, the notion is likely to become indistinct. All human activity and organizational processes are im- printed by their history in a way, so we would end up by concluding that all organizational decisions and actions are path dependent. Such a ubiquitous, all-embracing understanding of path dependence would bring us close to a tru- ism. Path dependence relates to more specific constellations; it includes features such as sus- tained persistency and lock-in, which are defi- nitely not a common characteristic of decision processes. A theory of organizational path de- pendence therefore needs a more elaborated framework, which takes us beyond the mere in- sight that past events influence subsequent actions. To gain a deeper understanding of the orga- nizational patterns considered to be path depen- dent, along with their underlying causal mech- anisms, it is instructive to explore the cases and conceptual suggestions provided by studies on technological paths. Paul David (1985, 1986) pro- vides the most prominent example of technolog- ical path dependence—the well-known stan- dard of the QWERTY keyboard and its amazing
predominance for more than 100 years. This standard has spread around the world and, puz- zlingly enough, has never been seriously chal- lenged by all the newly developed, technically more efficient alternatives. David explains this inefficient long-term predominance as being the result of a path-dependent process, which was set up owing to some initial events and ad- vanced mainly through network externalities leading to a technological lock-in early on. The QWERTY case and similar case studies from technology diffusion, economic history, and evolutionary economics (e.g., Antonelli, 1999; Callon, 1992; Castaldi & Dosi, 2006; Dosi, 1982; Hughes, 1987) offer intriguing evidence of similar persistence in national and global con- texts. Arthur (1989, 1994) was the first to model a formal theory of path dependence and to expose increasing returns as the major process driver. Later on, this thinking was extended to the eco- nomics of institutions (North, 1990). However, up to now, studies of path dependence (in this spec- ified sense) neither addressed the persistence of organizations nor explored the logic and dy- namics of internal organizational processes leading to a lock-in. We fill this gap by elabo- rating a theory of organizational path depen- dence and lock-in. Building on the evidence and insights from research on technological paths, we develop a theoretical framework to gain a better understanding of how organizational path dependence comes into existence. In pur- suing this aim, we also integrate insights from institutional economics (North, 1990), as well as from political science (in particular, Mahoney, 2000; Pierson, 2000, 2004; Thelen, 1999), theories of institutionalization (Lawrence, Winn, & Jen- nings, 2001; Powell & DiMaggio, 1991; Tolbert & Zucker, 1996), and related organization studies (Boeker, 1989; Johnson, 2007; Stinchcombe, 1965). In a subsequent section we will, however, also show where the differences to these organiza- tional approaches can be found. In essence, we suggest a framework that dif- ferentiates three developmental phases of path dependence, starting with (1) singular historical events, (2) which may, under certain conditions, transform themselves into self-reinforcing dy- namics, and (3) possibly end up in an organiza- tional lock-in. The three phases are each as- sumed to be governed by different regimes. The suggested model aims at providing an explan- atory framework but also an operational scheme
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The transition from Phase II to Phase III —the Lock-in Phase—is characterized by a further constriction, which eventually leads to a lock- in—that is, the dominant decision pattern be- comes fixed and gains a deterministic charac- ter; eventually, the actions are fully bound to a path. One particular choice or action pattern has become the predominant mode, and flexibility has been lost. Even new entrants into this field of action cannot refrain from adopting it. When more efficient alternatives are available, indi- viduals’ and organizations’ decision processes and established practices continue to reproduce this and only this particular outcome. The occur- rence of a lock-in renders a system potentially inefficient, because it loses its capability to adopt better alternatives. Figure 1 illustrates the process across the three stages. This differentiated framework is intended as a general model of path depen- dence; its functioning, however, is likely to differ from context to context according to the prevail- ing conditions, particularly market versus hier- archy. The contextual specifics when applied to an organizational context—the target field of this contribution—will be outlined in subse- quent sections.
Preformation Phase
Phase I can be characterized as an open situ- ation with no significantly restricted scope of action. From a theoretical point of view, the
question that arises is how this initial state can be conceptualized in more distinctive terms. The technological path studies—if at all— have con- ceived of the initial situation as being unre- stricted. The search for alternatives starts from scratch, and decisions are unconstrained. Such framing of the first stage in the rational choice tradition, however, paradoxically ignores the fact that the development of a path is em- bedded and connected with other developments; it cannot be considered a completely separate process without any imprints from the past. In brief, history matters in the Preformation Phase too. In organizations initial choices and actions are embedded in routines and practices; they reflect the heritage—the rules and the culture— making up those institutions (e.g., Child, 1997; March, 1994; Tolbert & Zucker, 1996). Institutions are “carriers of history” (David, 1994), and his- tory cannot be intermittent; it does not matter only occasionally—it always matters! A concep- tualization of the activities in the Preformation Phase thus cannot start from scratch; it has to account for institutional imprints. On the other hand, history in this broad sense is not destiny; we have to draw a clear distinc- tion between historical-institutional influences and imperatives. The notion of path dependence does not refer to a state of determinacy from the beginning; it sheds light on a tapering process that possibly ends in a lock-in. Increasing path dependence implies an initial scope of choice. Otherwise, the theory would lose its very point:
FIGURE 1
The Constitution of an Organizational Path
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to make tapering processes in organizational reality better understood. Thus, Phase I should build on a historically framed or imprinted con- tingency and, therefore, neither on the assump- tion of determinacy nor on that of completely unrestricted choice. The shadow in Phase I in Figure 1 is intended to indicate this institutional heritage. A related issue is the triggering of further re- actions. The initial choice in a process that be- comes path dependent later on is not simply a single event; it is an impetus, a trigger stimulat- ing further actions, which may accumulate in an organizational path. Arthur (1994: 14) character- izes these initial choices as “small events.” Drawing on complexity theory (Kauffman, 1993), we conceptualize the triggering as bifurcation: small events may cause unintended, far-reach- ing consequences—as is the case, for instance, with the well-known butterfly effect.^2 Because several outcomes initially are possible, the his- torical sequence of choices becomes decisive in determining the final outcome; the first choice (or action), however, is random (David, 1985). It is doubtless appealing to conceive of trig- gers of path dependence as small and random events, but for the purpose of organizational analysis, we need to expand the scope. Since organizations are social systems and not mar- kets or natural entities, triggering events in or- ganizations are likely to prove to be not so in- nocent, random, or “small” (cf. also Bassanini & Dosi, 2001). For instance, in the case of the VHS monopoly that has been intensively studied from a path dependence perspective (Cu- sumano, Mylonadis, & Rosenbloom, 1992), the triggering event was neither a random nor a small one. Rather, it was Matsushita’s initial move to secure content delivery through an agreement with major Hollywood studios that happened to become the crucial step in defeat- ing the technologically superior Sony Beta stan- dard. Similarly, in Cowan’s (1990) study of nu- clear power plants, initial choices reflected intentions, not randomness. These (and other)
cases invite a rethinking of the small event framing: path dependence may be triggered by “bigger” events or even strategies as well. A less randomized modeling of these initial activities thus seems advisable—at least for or- ganizational contexts. It is, however, important to realize that in the nonlinear logic of path dependence, irrespective of whether the initial actions are big or small, they can never be con- sidered causal determinants. A determined pro- cess would follow a prescribed course of events right from the beginning, as is the case with linear cause-and-effect laws. Opposed to that, the very point of early path developments is that they are contingent in character. Moreover, their outcomes are unforeseeable consequences of purposeful action (Merton, 1936). The outcome cannot be known unless the process has been formed.
Formation Phase Phase II is characterized by the gradual emer- gence of an organizational path. The scope of action is assumed to narrow increasingly be- cause of the “pull” of the evolving path. An ini- tially unknown regime 3 happens to take the lead, which favors a particular type of decision or action pattern and reproduces it over a cer- tain period of time. This phase commences with a critical juncture at the passage from Phase I to II. A decision made or an action taken in Phase I amounts to a trigger for the further develop- ment of the organization or an organizational subsystem. However, not all cases of competing solutions culminate in path dependence. It is therefore of critical importance to indicate such cases in which path dependence is likely to de- velop. Early studies on technological path depen- dence (David, 1985, 1986) highlighted the central role of self-reinforcing processes for path build- ing. Arthur (1989, 1994) elaborated on these driv- ing forces and specified “increasing returns” as the decisive feature; this builds on the assump- tion that the decision to reproduce a particular
(^2) Here the flap of a butterfly’s wings represents a small random change in the initial condition of the system (atmo- sphere), which sets in motion a chain of events eventually causing a large-scale change (tornado). Had the small event not occurred, the development of the whole system might have been vastly different (for a more detailed account, see Hilborn, 2004).
(^3) It should be stressed that in Arthur’s well-known Polya urn model, the self-reinforcing mechanisms are already set up right from the beginning (Arthur, 1989); the experimenter determines the rules. From our point of view, however, this is owing to the necessities of a formal model rather than a theoretical statement.
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frain from reifying organizational paths and at- tributing an objective quality to social rigidify- ing processes. In organizational settings, therefore, we suggest conceptualizing the final stage of a path-dependent process in a less re- strictive way—as a predominant social influ- ence, leaving some scope for variation (Pierson, 2000; Thelen, 1999; for illustrative examples see Bruggeman, 2002; Burgelman, in press; Eden, 2004; Hollingsworth, 2006). In more detail, it seems promising to conceive of the lock-in stage in terms of an underlying core pattern (invisible “deep structure”), with some variation in practicing it (visible activity level). Actors in the final phase do not simply experience the path; rather, as “knowledgeable agents” (Giddens, 1984), they have scope in in- terpreting the organizational patterns. This in- dividual interpretation of the core (path) is likely to bring about some variation in actual organi- zational action patterns. While the underlying path structure is fixed, its replicative practice is subject to some variation. In a way, this argu- ment echoes the conception of routines ad- vanced by Feldman and Pentland (2003), stress- ing, on the one hand, the ostensive side as a fixed, overarching pattern and, on the other hand, the performative side as the actual prac- ticing of a routine involving some variation. In conclusion, for organizational settings it seems more adequate to conceive of the lock-in state not in terms of total rigidity but, rather, as a matter of degree, accounting for variance in the actual practicing of the organizational path. A corridor may best serve to illustrate this reason- ing; the shadow in Phase III in Figure 1 is de- signed to indicate this adaptation. Although highlighting these differentiations, the lock-in phase is nevertheless constitutive for path de- pendence. If actors were not locked in, one would not call the process path dependent. Whatever the best conceptualization of orga- nizational lock-ins, the more controversial fea- ture of this stage is efficiency. In David’s initial framework (1985) inefficiency was considered a necessary element, because he set out to ex- plain a puzzle: how could an inferior solution like the QWERTY keyboard endure in a market economy? So he started with inefficiency right from the beginning. Subsequent work called this element into question and suggested a modified perspective (Arthur, 1994; Pierson, 2000)—the ar- gument being that path analyses merely ad-
dress nonergodic inflexible processes (as op- posed to linear ergodic processes). A separate question is whether the state finally reached is efficient or inefficient, and the answer to this question is not considered part of the theory of path dependence. Although we appreciate this argument, from our point of view it misrepre- sents the very intention of path analyses. The primary interest is not in the formal logic of nonlinear nonergodic processes as such; rather, it is nourished from congealing processes and puzzling persistencies that are likely to hamper present and future scopes of action. In other words, it is at least potential inefficiency that is worrying and makes path dependence a matter of high importance. We therefore advocate in- cluding inefficiency in an organizational theory of path dependence. It is true that a narrowing organizational pro- cess and lock-in do not automatically mean im- mediate inefficiency or losses. Path dependence and efficiency, however, do not refer to a certain point in time; instead, a longer time horizon is covered, necessarily including the alerting risk of becoming dysfunctional. From a strategic, fu- ture-oriented point of view, rigidity therefore al- ways means potential inefficiency. If an organi- zation or a significant practice (e.g., combining specific R&D capabilities with marketing skills) has become locked in, there is inherently the danger of becoming inefficient, either in the face of new, more efficient alternatives or changed internal or external circumstances calling for new solutions. Latent inefficiency becomes manifest when an organization confronted with these change requirements cannot adopt new measures because it is confined to the existing path of action, which binds it to the historical solutions (Leonard-Barton, 1995; Schreyo¨ gg & Kliesch-Eberl, 2007). This dysfunctional flip or rationality shift from initial reinforcing earnings to strong barriers to change and losses should therefore be considered a constitutive element of organizational path analyses. In any case, calling a lock-in “inefficient” al- ways implies a base of reference—a comparison with another standard. The base of reference can differ; it is not a fact but, rather, depends on the perspective taken (focusing on a group, a department, the whole organization, the field). By implication, discussing the inefficiency of an organizational path always requires the expo- sure of the base of reference applied.
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To sum up, the proposed theory conceptual- izes an organizational path as a tapering social process. Starting (Phase I) with contingency, a critical event (decision, accident, etc.) favors a solution leading unpredictably to a critical junc- ture. If it triggers a regime of positive, self- reinforcing feedback, this solution progressively gains dominance (Phase II). This pattern is likely to become persistently reproduced and to crowd out alternative solutions to an extent that it gets locked in (Phase III) and is accompanied by immediate or future inefficiency. In short, organizational path dependence can be defined as a rigidified, potentially inefficient action pat- tern built up by the unintended consequences of former decisions and positive feedback pro- cesses.
COMPARING RELATED CONCEPTIONS
The suggested framework needs discus- sion and refinement to further clarify the causal logic of path-building processes. In particular, the concrete forms of self-reinforc- ing organizational dynamics need elabora- tion. In a first step, however, it seems advis- able to sharpen the model’s distinguishing features by contrasting it with related concep- tions that also highlight the importance of ini- tial conditions and events for organizational development, such as imprinting or escalating commitment.
Imprinting
The concept of imprinting (Beckman & Burton, 2008; Boeker, 1989; Johnson, 2007; Stinchcombe,
- figures prominently among approaches that seem to address a process very similar to organizational path dependence. Basically, this concept postulates that either initial cognitive schemes, competences, and so forth— of a founding entrepreneur or team, for instance— or specific contextual conditions (organizational structure, postwar depression, internet boom, etc.) at the time of founding imprint organiza- tional processes at later stages and, eventually, amount to a replicated pattern. Although there are doubtless striking similarities that lead many authors to either simply equate imprint- ing and path dependence or to conceive the former as a specific variant of the latter (e.g.,
Beckman & Burton, 2008), the process of becom- ing path dependent is governed by a different logic. First, the replicated pattern in the imprinting approach is ready-made at the beginning; it is a specific scheme that persists and continues to influence future processes. In contrast, the ge- stalt of an organizational path is not clear at all in the early stage; it is an unforeseeable product of later processes, which are initially unknown. Path dependence is an offspring of the nature of the process. Second, because of this, a theory of organizational paths—as opposed to the im- printing approach— has to explain the unfold- ing process of path formation, not only the re- production of structural properties because of either efficiency or a lack of competition (Stinch- combe, 1965), or the presence of institutionaliza- tion processes (Johnson, 2007). Nevertheless, im- prints doubtless play an important role in many organizational processes. In path-dependent or- ganizational processes they can, for instance, ex- plain the restrictions in the Preformation Phase.
Escalating Commitment Another concept that shares striking similari- ties with organizational path dependence is es- calating commitment (Ross & Staw, 1993; Staw, 1976). As happens in cases of path dependence, particularly in the inefficient Lock-in Phase, es- calating commitment prevents organizational decision makers from changing their course of action, despite continued negative feedback on the outcome. Instead of stopping, the agents rep- licate the inefficient solution—in particular, the tendency to throw good money after bad (see Guler, 2007)—for various reasons. There is, however, a major difference between escalating commitment and path dependence explanations. The latter consider a process with a more or less accidental beginning and a longer phase of success; it is only in the final stage that the persistent course of action shifts into inefficiency. In contrast, escalating commit- ment captures situations where the course of action fails from the very beginning. Since there are no increasing returns or similar enhancing effects, it highlights another problem area— namely, pathological decision behavior based on the dynamics of self-justification and fears of losing face.
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time the cause of a future event, C, etc., accu- mulating in a reaction chain: A B C D E F. Thus, initial event A is expected to affect B, but it unintentionally triggers a multistage development. The final state or, better, an inter- mediate result can—very much like pursuing a lawsuit— be traced back to the releasing event. This intermediate state is also likely to shape future action; it is, however, not in any way locked in or inefficient. In contrast to the path dependence model ad- vanced above, the intermediate state of a se- quence of causal reactions is not reached by increasingly reproducing a specific pattern, and there is no connecting logic that explains the succession of the singular sequences. Although the idea of reactive sequences doubtless pro- vides insights into the evolvement of historical processes, it does not fit into a theory of path dependence. Without path drivers and the causal logic of a lock-in, a theory of organiza- tional paths loses its very point. Furthermore, the sequence argument raises some conceptual questions. First of all, se- quences seem simply to occur. In contrast to processes explained by the regime of self- reinforcing mechanisms, the concept of causal reactive chains does not provide a logic that explains why the sequences take place in this way and not in another way. Why do reactive sequences accumulate? Superimposing, ex post, a trajectory on reactive sequences does not pro- vide an explanation. Another problem is gener- alization. A theory of path dependence aims at explaining a particular class of processes (Pet- tigrew, Woodman, & Cameron, 2001). Drawing on reactive sequences does not, however, tran- scend a singular case: singular reasons are sup- posed to explain singular events only.
Institutionalizing
Contextual shaping forces play a major role in neoinstitutional theory, and its concept of insti- tutionalization also seems to come close to path dependence (e.g., Powell & DiMaggio, 1991; Scott, 2001; Tolbert & Zucker, 1996). Most impor- tant, this theory highlights the relevance of the symbolic-normative environment of organiza- tions and how this influences the formal and informal structuring of organizations over time. Apart from the pace of the development (Law- rence et al., 2001), it addresses institutional in-
ertia and stability by revealing how a specific organizational structure or form becomes sedimented and taken for granted over time, preferably across sets of organizations. While neoinstitutional theory elucidates im- printing and stabilizing processes and, in partic- ular, sensitizes us to the relevance of symbolic- normative contexts (e.g., Hargadon & Douglas, 2001), in its present form it does not address the systemic logic of an escalating reinforcement of an action pattern or a path (see, however, Eden, 2004, and Holm, 1995). The theoretical focus, therefore, differs significantly and explains other constellations.
AT THE HEART OF ORGANIZATIONAL PATH
DEPENDENCE: SELF-REINFORCING
MECHANISMS
So far, we have conceptualized path-building processes as processes of a diminishing scope of action that unintentionally develop their own pull and are driven by positive feedback. It is a time-based theoretical concept differentiating between different states of flexibility/choice and stability/determinism, respectively. The dy- namic eventually flips over into rigidity. At their heart, such processes can be explained by one or a combination of several self-reinforcing so- cial mechanisms. In this section we elaborate on these mechanisms in an organizational con- text. 5 In the field of technology development and diffusion, different types of self-reinforcing dy- namics have been identified (Arthur, 1994; Cowan, 1990; David, 1985; Katz & Shapiro, 1985; North, 1990). Since they have been developed at the market level, these mechanisms cannot readily be transferred to organizational analy- sis. In our view four mechanisms in particular are likely to contribute to the development of organizational path dependence: coordination effects, complementarity effects, learning ef- fects, and adaptive expectation effects. Below we aim to combine different streams of thought to build a framework of self-reinforcing dynam- ics at the level of single organizations and or- ganizational subunits. We discuss these four
(^5) For the more general debate on social mechanisms in organization theory, see, for instance, Pajunen (2008).
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mechanisms and show how they apply to orga- nizational settings.
Coordination Effects
Initially put forward in institutional econom- ics (North, 1990), these effects relate to the heart of organizational functioning. They build on the benefits of rule-guided behavior: the more ac- tors adopt and apply a specific institution (i.e., an organizational rule or routine), the more effi- cient the interaction among these actors is, since the behavior of the actors is rule guided and can therefore be anticipated and reactions can be considered in advance. Coordination costs can be significantly reduced. In conse- quence, it becomes more attractive to adopt these rules the more other individuals also fol- low them. The best-known illustrative example of this effect at the institutional level is the decision regarding right-hand traffic versus left-hand traffic; the institution became fixed early on be- cause of the obvious benefits of following it— uncertainties involved in human interaction could successfully be reduced (North, 1990: 23). Another well-known example that applies di- rectly to the level of single organizations is working-time regimes, which guarantee effi- cient cooperation. There is a striking similarity to the economies of scale effect (North, 1990): increasing the number of participants results in decreasing (coordination) cost per unit. Miller and Friesen (1984) developed the con- cept of internal consistency, which comes very close to that of coordination effects. This propo- sition stresses the advantages of an internal fit among the various elements of an organization (see also Miller, 1992). Coordination effects thus result from the benefits of following the same single rule or set of related rules to which others are willing to conform. As a result, through the advantages of continued replication, a specific pattern of practices is likely to become fixed. The fixing power of such arrangements has been proved in cases where organizational members have recognized new challenges and set out to change their practices but failed to do so because they could not get rid of their well- attuned activity sets and routines. A striking example of such path dependence was provided by Tripsas and Gavetti (2000), who portrayed the difficulties Polaroid experienced
in changing their R&D priorities into a new product development competence. Similarly, Gilbert (2005) described newspaper companies who stuck to self-reinforcing rules for producing a newspaper and thereby became unable to ex- ploit new online opportunities. More recently, Koch (2008) provided evidence of similar pat- terns in German quality newspapers. Adopting joint rules of quality journalism brought about significant coordination advantages and the lasting constitution of a once successful busi- ness model. Nowadays, the flip side of this path is broadly discussed.
Complementary Effects A well-known explanation for complementari- ties are economies of scope, which exist when the cost of producing and selling two or more goods or services together is lower than the cost of producing and selling them separately (Pan- zar & Willig, 1981). On a more general level, complementarities mean synergy resulting from the interaction of two or more separate but in- terrelated resources, rules, or practices (Pierson, 2000; Stieglitz & Heine, 2007). In the case of complementarities, the advantages of repeat- edly combining interrelated activities do not simply add up; they produce an additional sur- plus: K ( x y ) K ( x ) K ( y ). Take, for instance, marketing skills and R&D capabilities, which may add up to a “core competence” (Prahalad & Hamel, 1990) of a company or a division. David (1994: 214) calls such combinations “institutional clusters.” In complementary settings self- reinforcing processes occur when routines and/or practices are interconnected in such a way that it becomes ever more attractive to ex- ploit the synergies or—when referring to the re- verse side—to save misfit costs caused by solu- tions deviating from the established cluster/ organizational capability. As a result, distinct sets of activity patterns become progressively dominant (Leonard-Barton, 1995) and, addition- ally, deeply embedded in an organization (“deep structure”)—that is, they become organi- zationally path dependent. There are many other examples that can fur- ther illustrate this effect. Take, for instance, “Fordism,” which is characterized by comple- mentary management systems in human re- sources (hiring and firing of low skilled labor), operations (mass production), and organization
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essentially frames management’s decisions on reward systems and organizational design (in particular, a strong emphasis on control and authority), which, in turn, evoke corresponding reaction patterns (especially passivity, indo- lence, and apathy). Observing those reactions is likely to confirm and reconfirm exactly those assumptions about behavior managers have made, based on their implicit Theory X. These confirmed expectations then reinforce the em- phasis on restrictive organizational structures and controls, thereby unconsciously advancing a vicious circle (see also Leonard-Barton, 1995; Masuch, 1985; Repenning & Sterman, 2002). In this case a dominant organizational design emerges because of a self-reinforcing spiral that is based on “expectations of expectations” (Luh- mann, 1995).
Adding an Enhancing Context?
Some authors add contextual conditions as a further reinforcing effect of and in institutions. Pierson (2000), for instance, highlights institu- tional density as a salient determinant likely to converge into self-reinforcing effects in organi- zations. In his view organizations (in particular, formal political institutions) are more prone to bring about path-building forces than markets, because they act in “a far, far murkier environ- ment” (Pierson, 2000: 260) with weaker forces to correct inefficient courses of action over time. The complexity of organizational goals and the uncertainty of the causal links between actions and outcomes render the organizational field inherently ambiguous, and organic corrections of inefficient action are less likely to occur here than in markets. Therefore, practices, once es- tablished, gain momentum more easily and cre- ate a fertile ground for developing increasing returns or other types of positive self-reinforcing feedback. More generally, Pierson considers ambiguity and complexity important conditions, which amount to self-reinforcing effects and subsequent path dependence. Although addressing doubtless significant contextual conditions for path development, the conditions of ambiguity and complexity should not be misconceived as self-reinforcing mecha- nisms in their own right. This also holds true for other factors addressed in the literature as self- reinforcing dynamics, such as “uncertain expec- tations” or “power structure” (Beyer, 2005). These
are relevant contextual factors, but they should not be equated with self-reinforcing mecha- nisms. Enhancing contexts— however important they may be—neither lead directly to path de- pendence nor represent a necessary or even suf- ficient condition for the occurrence of path de- pendence (see also Arthur, 1989). A theory of organizational path dependence has to differen- tiate properly between self-reinforcing mecha- nisms on the one hand and enabling institu- tional contexts on the other. In consequence, Pierson’s insights should encourage further re- search to explore the contextual conditions en- hancing (or hindering) the unfolding of self- reinforcing mechanisms and subsequent constitution of organizational paths.
IMPLICATIONS FOR MANAGEMENT
AND RESEARCH
Path dependence and its far-reaching conse- quences doubtlessly constitute an issue of high relevance in strategic management and organi- zational decision making. From a managerial point of view, the fatal consequences of being locked in raise the pressing question of whether organizational paths can be dissolved or in any way escaped. It is true that no path is forever, but this is no relief from the perspective of a particular organization, since path dependence may exist for quite some time. Path dissolution may occur through unfore- seen exogenous forces, such as shocks, catastro- phes, or crises; these are likely to shake the system, thereby causing the organization to break away from the path (Arthur, 1994: 118). However, path dissolution may also occur be- cause of an insidious change in organizational demography or the “incomplete” socialization of new organizational members (Tolbert, 1988). In this vein, Castaldi and Dosi (2006) refer to the possibility of coincidental delocking in terms of a by-product of other organizational decisions. A nice illustration of such coincidental path disso- lution at an organizational level is provided by the Intel case and its moves in the memory busi- ness (Burgelman, 1994, 2002; Burgelman & Grove, 1996). With this perspective, however, path dissolution amounts to an accidental pro- cess, be it revolutionary or evolutionary, which—nobody knows—may or may not occur. Adopting this view clearly has a fatalistic or at least a passive flavor to it. We are condemned to
2009 Sydow, Schreyo¨ gg, and Koch 701
wait, probably for a long time since we know such events are rare. The firm may go bankrupt long before a disrupting event occurs. An active and alert attitude thus seems imperative. Facing strategic rigidity or even a threat to the organization’s survival, decision makers would certainly be eager to learn more about possible interventions designed to escape or unlock or- ganizational paths. But can organizations actu- ally break path dependence? This is an intricate endeavor, since the idea of deliberately break- ing a path is self-contradicting in a way. If we define path dependence as a situation in which individual actors or organizations have lost their power to choose among alternatives, then the assumption that the same actors can un- lock the path is obviously inconsistent. Path- dependent behavior, strictly speaking, excludes path-breaking behavior. The idea of unlocking organizational paths, therefore, can only work if we put the mechanisms of deterministic pattern reproduction into perspective. In other words, it is necessary to construe and integrate an exog- enous perspective—that is, an activity that is not under the regime of path dependence. Such integration of an external lens or—if you like—a “second-order observation” (von Foerster, 1991) enables knowledgeable agents to reflect prac- tices in terms of path dependence and poten- tially opens a window for path-breaking activi- ties.
Deliberately Breaking Organizational Paths
When discussing the actual possibilities of dissolving organizational paths, we need to clarify what path breaking in an organizational context means precisely. Is it the destruction of a rigidified action pattern? Does it mean restoring the situation as depicted in Phase I? Is it the broadening of the “corridor” in Phase III? Is it the realized switch to a superior alternative? From our point of view, each of these alterna- tives is not exclusive. Rather, path breaking can vary in intensity and complexity. Without ex- cluding more complex cases, we therefore sug- gest defining a minimum condition for a situa- tion to be categorized as path breaking. Since the process of becoming path dependent has been framed as progressively eliminating the scope of decision making, this minimum condi- tion is the effective restoration of a choice situ- ation—the insertion of at least one alternative
course of action. However, opening the window for an alternative is necessary but not sufficient. The new alternative has to be a superior one (Arthur, 1994), because implanting an inferior one would not constitute a real choice. The suggested theory of path dependence can inform the endeavor to intentionally unlock or- ganizational paths. As already pointed out, the major drivers rendering a process path depen- dent are self-reinforcing dynamics. By implica- tion, the possibility of escaping from or breaking a path depends very much on interrupting the logic and the specific energy of the self- reinforcing patterns of the process in question. The first step in any path-breaking intervention, thus, requires understanding and reflecting on not only the fact of being path dependent but also the drivers that made this happen. At the same time, this step brings the necessary dis- tancing from the replicating dynamics. Reflect- ing on the practice that is usually taken for granted indicates taking a critical stance (Moon, 1999; Scho¨ n, 1983) by changing the mode of ac- tivity: from doing (operational mode) to observ- ing and reflecting (observational mode), thereby gaining access to the closed dynamics. Understanding self-reinforcing dynamics re- quires theoretical knowledge as well as practi- cal skills and abilities. This is all the more true since the organizational dynamics of path for- mation are more often than not hidden dynam- ics. Subconscious blinders, perceptual defense, and blind spots tend to inhibit reflection pro- cesses (Saffold, 1988; Sørensen, 2002). As a con- sequence, in many cases a special effort is needed to get in touch with the hidden agenda. Tools have been developed to facilitate such processes. Assumption surfacing, for instance, is a well-known technique designed to make hidden patterns in organizational settings ac- cessible, to open them up for critical reflection, and to put them on the organizational discourse agenda (Kettinger, Teng, & Guha, 1997; Mason & Mitroff, 1981). Beyond discourse, however, reflecting path- bounded practices often requires addressing the emotional side of inertial organizational pat- terns as well. Organizations frequently resist reflecting on hidden features. For instance, in their analysis of the Intel case, Burgelman and Grove (1996: 15) found that “emotional attach- ment on the part of the top management to the business” was intertwined with inertial self-
702 Academy of Management Review October
control loss, and the illusion of control have been long-standing issues in organizational re- search (see, for instance, Downs, 1967, and Streatfield, 2001). In consequence, the scope for an organization to unlock path dependence sim- ply by order is clearly limited. More often than not, such merely formal approaches will fail be- cause—as depicted above—it is so difficult to stop self-reinforcing processes in organizations. Special techniques are required.
Researching Organizational Paths
The suggested three-stage model of organiza- tional path dependence and its focus on self- reinforcing mechanisms not only provide a platform for considering path-breaking inter- ventions but also suggest guidelines for further research on organizational paths. According to this framework, any attempt to prove the claim of path dependence needs to cover the following three features, in a way reversing the process depicted in Figure 1. The first step of a thorough path analysis is the identification of strategic persistence or opera- tional rigidity of or within a particular organiza- tion. Discovering such structural or institutional inertia allows the researcher to assert path de- pendence. Because the logic of hyperstability is often hidden, inert practices are easier to un- cover or make visible in situations of radical change (e.g., Tushman, Newman, & Romanelli, 1986). However, organizational paths can also surface in incremental or even creeping change processes. In any case, the contrafactual main- tenance of a specific pattern is an indicator of a path-induced, potentially inefficient organiza- tional lock-in. With regard to the efficiency as- pect, at the very least, the existence of a superior alternative that the organization is unable to pursue has to be demonstrated. A major chal- lenge is presented by the case of potential or strategic inefficiency—that is, proving that the replicate behavioral pattern is likely to damage the organization in the future. In these cases, where no empirical proofs can be provided, it becomes a matter of good reasoning to build a convincing case. The second major element of an advanced path analysis is the identification, exploration, and reconstruction of the self-reinforcing feed- back mechanisms possibly underlying the organi- zational rigidity in question. The identification
or detection of one or more such mechanisms at work is a complex task that requires recognizing patterns in the broad flow of everyday practices. If there are no self-reinforcing mechanisms “at work,” the presumption of an existing organiza- tional path cannot be substantiated and has to be rejected. The third essential part of a systematic path analysis is the search for a triggering event that was likely to have set the path-building process in motion. Tracer studies (e.g. Lee, 1999) may help to identify these initial events mostly un- known to the actors. Also, special attention has to be devoted to identifying the critical juncture at which a self-reinforcing process leading to organizational path dependence was activated. It is here where the first working of one or more self-reinforcing mechanisms can be uncovered. These three elements offer a rough guideline for both explanatory and exploratory research on organizational path dependence. Because of the process character of the framework, a longi- tudinal research design is required, which traces sequences of events and actions in orga- nizations (e.g., time chronologies, simple and complex time series). Only the examination of these detailed processes in time (and space) will allow us to identify and explicate the working of the fundamental social mechanism(s) underly- ing the constitution of organizational path de- pendence “from micro behaviors to system dy- namics, and back” (Castaldi & Dosi, 2006: 108).
CONCLUSIONS
A detailed conception of organizational path dependence has much to offer when we are aim- ing to solve the puzzle of how organizations be- come locked in and adhere contraintuitively to historical solutions. To this end, we have de- fined organizational path dependence as a pro- cess that (1) is triggered by a critical event lead- ing to a critical juncture; (2) is governed by a regime of positive, self-reinforcing feedback constituting a specific pattern of social prac- tices, which gains more and more predominance against alternatives; and (3) leads, at least po- tentially, into an organizational lock-in, under- stood as a corridor of limited scope of action that is strategically inefficient. The proposed frame- work not only provides a deeper understanding of the historicity of inertial phenomena beyond the general principle that “history matters” but
704 Academy of Management Review October
also pushes the explanation beyond such well- known concepts as organizational imprinting, institutional legacy, and structural inertia. This framework of path dependence also of- fers insights into the possibilities and limita- tions of breaking out of organizational path de- pendence. In particular, path breaking requires a thorough understanding of the social mecha- nisms driving the path process. Understanding these mechanisms, in turn, provides a platform for developing path-breaking interventions. Organization research focusing on path depen- dencies and path breaking would nicely supple- ment not only the present trend toward process studies, with their inevitable historical component (e.g., Pettigrew et al., 2001; Van de Ven & Poole, 2005), but also studies of organizational practices and their replicate dynamics (e.g., Feldman & Pentland, 2003; Jarzabkowski, 2008; Lawrence et al., 2001). In both cases the theory of organizational path dependence would help to focus on particu- lar types of dynamics and, thus, would comple- ment rather than substitute for other process the- ories of organizations. However, the conditions that are conducive to path dependence and possi- ble ways of unlocking paths await further explo- ration. A further challenging theoretical question is whether the emergence of paths does not simply occur but can also be deliberately brought about. The idea of (intentional) path creation was introduced by Garud and Karnøe (2001), who referred to Schumpeter (1942) and his con- ception of a “destroying” entrepreneurship. Cre- ative agency and the power of generating mo- mentum are seen as basic ingredients for path creation, although entrepreneurship, as influ- enced by its own history and important institu- tions, may well also be a source of path depen- dence (Staber, 2005). Another important issue addresses the level of analysis. Our three-stage model aims at explain- ing path-building processes of and in organiza- tions. However, other levels of analysis are also of great relevance—particularly the individual level, the network level, and the field level. Organiza- tional members, with their cognitive schemata, learning habits, response patterns, and so forth, do play a role in path-building processes in orga- nizations. Although a vast body of research on individual rigidities is available (see Huff & Huff, 2000: 46–59, for a review), individual path research stills awaits elaboration.
The same is true of interorganizational rela- tions. Nowadays, many organizations are em- bedded in more or less complex networks of relationships. Collaborative relationships are likely to become path dependent too, thereby affecting the development of an organization (and vice versa). Some network-related studies of path dependence are already available, high- lighting, for instance, lock-ins and lock-outs in the course of the development of a network (Gu- lati, Nohria, & Zaheer, 2000) or the possibility of arising network inertia (Kim, Oh, & Swami- nathan, 2006). Others shed light on the impact of network embeddedness on organizational path dependence (e.g., Walker, Kogut, & Shan, 1997). But, as in the case of most studies at the orga- nizational level of analysis, these tend to con- sider path dependence in the sense of history matters only, and not in the specified way sug- gested by the explanatory concept advanced here. The third level important for organizational path analysis is the field or industry, which has been addressed by the majority of path depen- dence research so far (starting with David, 1985). Research already evidences the significance of the field for explaining organizational inertia, beyond the influence of technological path de- pendencies. The well-known study of the Scot- tish knitwear industry (Porac, Thomas, Wilson, Paton, & Kaufer, 1995), for example, convincingly demonstrates that it was primarily the value system of the industry and not the individual organization that brought about inertia. Another example is Hollingsworth’s (2006) study of lead- ing research organizations that were involved in major scientific discoveries. This study not only points to the path-dependent development of the organizations (and even of single laboratories) investigated but also to that of the institutional fields in which they were embedded. Future research should account more explicitly for these different levels and their interplay, which may well amount to “cross-catalytic feed- back” (Paul David, personal communication) be- tween not only these levels but also organization- al and technological path processes. Beyond this, we are convinced that more rigorous research on organizational paths can enrich organization sci- ence significantly, as well as our understanding of puzzling rigidities in organizational life.
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