஽ Academy of Management Review 2009, Vol. 34, No. 4, 1–000.

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 supposed to mean exactly? In organizational re- and change has become more complex. On the search the term is used mostly as a broad label one hand, there is an ever-increasing demand indicating all kinds of imprinting effects of the for more flexible or even fluid “new” organiza- past on organizational behavior (e.g., recently, tional forms. On the other hand, studies stress- Beckman & Burton, 2008). A closer examination ing organizational inertia and the historical im- quickly reveals that the predominant usage is printing of decision making (“history matters”) more metaphorical than theoretical in nature. A have come to the fore in management and or- clear specification is usually missing. This ganizational theory. There seems to be a means, at the same time, that no indicators are broadly shared feeling that we need to under- available that allow for examining whether or stand better how organizations can lose their not the organizational phenomena in question flexibility and become inert or even locked in. are actually path dependent. If we want “path Among the most conceptions, referred to path dependence” to provide more than a synonym dependence has recently gained prominence. for persistence, then we need a theoretical Many contributions refer to path dependence to framework clarifying the notion and helping us illuminate organizational rigidities, stickiness, better understand the conditions and dynamics Fn1 1 or inflexibility. But what is path dependence under which organizations become path depen- dent. By addressing this gap in management and organization research, we aim to offer a We thank the four anonymous reviewers for their helpful framework designed to explain organizational comments, and we particularly thank former associate edi- path dependence. tor Pamela Tolbert for her thoughtful advice. Earlier versions The endeavor to explain organizational rigid- of the manuscript profited significantly from discussions in the subgroup on path dependence and creation at the 21st ities and structural inertia is not new in man- EGOS Colloquium in Berlin, 2005, and at the annual meeting agement and organization research. Over the of the Academy of Management in Atlanta, 2006. We are years, scholars have accumulated ample evi- grateful to the German Research Foundation (DFG) for fund- dence on change-inhibiting forces. Various stud- ing the doctoral program Research on Organizational Paths at Freie Universita¨ t Berlin and to its members for providing ies have highlighted cases of persistence and a stimulating environment for the research. irreversibility of organizational strategies, de- 1 A quick search for references to path dependence in signs, and competences by drawing, for in- papers published between 1995 and 2008 in three leading stance, on awkward routines, groupthink, or scholarly journals (Administrative Science Quarterly, Orga- fixed cognitive maps (e.g., Beckman & Burton, nization Science and Organization Studies) showed that more than eighty papers referred to this concept. That is 2008; Burgelman, 2002; Collinson & Wilson, 2006; about 4.3 per cent of the articles published in those journals Gilbert, 2005; Hannan & Freeman, 1984; Helfat, over this time span—an average of 0.3 papers per issue. 1994; Huff & Huff, 2000; Stimpert, Wasserman, &

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Jayaran, 1998; Tripsas & Gavetti, 2000). Path de- predominance for more than 100 years. This pendence, however, is supposed to mean more standard has spread around the world and, puz- than the mere existence of timeworn routines, zlingly enough, has never been seriously chal- cognitive rigidities, or structural inertia. It is, lenged by all the newly developed, technically first of all, a process. Its distinguishing features more efficient alternatives. David explains this need elaboration. inefficient long-term predominance as being the The starting point of any advanced path de- result of a path-dependent process, which was pendence thought stresses the importance of set up owing to some initial events and ad- past events for future action or, in a more fo- vanced mainly through network externalities cused way, of foregoing decisions for current leading into a technological lock-in early on. and future decision making. Hence, decisions The QWERTY case and similar case studies are conceived of as historically conditioned— from technology diffusion, economic history, “bygones are rarely bygones” (Teece, Pisano, & and evolutionary economics (e.g., Antonelli, Shuen, 1997: 522). In short, the basic thesis holds 1999; Callon, 1992; Castaldi & Dosi, 2006; Dosi, that history matters (e.g., Nooteboom, 1997; 1982; Hughes, 1987) offer intriguing evidence of Sewell, 1996). similar persistence in national and global con- This essential insight has certainly advanced texts. Arthur (1989, 1994) was the first to model a the understanding of emerging organizational formal theory of path dependence and to expose phenomena and has helped to overcome the increasing returns as the major process driver. ahistorical and unbounded view of rational Later on, this thinking was extended to the eco- choice thought. We learn that history can be nomics of institutions (North, 1990). However, up quite important for explaining strategic choices to now, studies of path dependence (in this spec- and organizational failures. While we appreci- ified sense) neither addressed the persistence of ate this insight, merely focusing on the fact of organizations nor explored the logic and dy- past dependence (Antonelli, 1999) implies taking namics of internal organizational processes a fairly broad view—too broad a theoretical per- leading to a lock-in. Here we therefore aim to spective: if we base path dependence explana- elaborate a theory of organizational path depen- tions on the history matters argument only, the dence and lock-in. Building on the evidence and notion is likely to become indistinct. All human insights from research on technological paths, activity and organizational processes are im- we develop a theoretical framework to gain a printed by their history in a way, so we would better understanding of how organizational end up by concluding that all organizational path dependence comes into existence. In pur- decisions and actions are path dependent. Such suing this aim, we also integrate insights from a ubiquitous, all-embracing understanding of institutional economics (North, 1990), as well as path dependence would bring us close to a tru- from political science (in particular, Mahoney, ism. Path dependence relates to more specific 2000; Pierson, 2000, 2004; Thelen, 1999), theories constellations; it includes features such as sus- of institutionalization (Lawrence, Winn, & Jen- tained persistency and lock-in, which are defi- nings, 2001; Powell & DiMaggio, 1991; Tolbert & nitely not a common characteristic of decision Zucker, 1996), and related organization studies processes. A theory of organizational path de- (Boeker, 1989; Johnson, 2007; Stinchcombe, 1965). pendence therefore needs a more elaborated In a subsequent section we will, however, also framework, which takes us beyond the mere in- show precisely where the differences to these sight that past events influence subsequent organizational approaches can be found. actions. In essence, we suggest a framework that dif- To gain a deeper understanding of the organ- ferentiates three developmental phases of path izational patterns considered to be path depen- dependence, starting with (1) singular historical dent, along with their underlying causal mech- events, (2) which may, under certain conditions, anisms, it is instructive to explore the cases and transform themselves into self-reinforcing dy- conceptual suggestions provided by studies on namics, and (3) possibly end up in an organiza- technological paths. Paul David (1985, 1986) pro- tional lock-in. The three phases are each as- vides the most prominent example of technolog- sumed to be governed by different regimes. The ical path dependence—the well-known stan- suggested model aims at providing an explan- dard of the QWERTY keyboard and its amazing atory framework but also an operational scheme 2009 Sydow, Schreyo¨gg, and Koch 3 for investigating claimed path dependence in dictable. Later on, as the path is increasingly and of organizations. Furthermore, we explore formed, by implication, the actions become more whether and, how organizational path depen- and more predictable. Having arrived at the dencies and lock-ins can be overcome (un- lock-in stage, the behavior even becomes fully locked). We conclude by considering implica- predictable. The reverse is true for nonergodic- tions for research and management. ity and inflexibility: it is only at the later stages that a path process rigidifies. In the beginning the process is assumed to be flexible. And, sim- ADVANCING A DYNAMIC FRAMEWORK OF ilarly, inefficiency becomes a feature of the later ORGANIZATIONAL PATH DEPENDENCE stages only; initially, before a path is shaping, Valuable insights into the dynamic nature of the situation is open (“unpredictable”) and—as entrapping or locking processes have already Arthur (1994: 116) himself stresses—the choices been provided by studies from evolutionary eco- may well be efficient. It is only at a later stage nomics and economic history, although these, as that a more efficient option may emerge, which already indicated, focus almost exclusively on actors can no longer choose because they are technological innovation at the field or market locked in, thus causing inefficiency. level (Arthur, 1989, 1994; David, 1985, 1986; Dosi, These brief considerations advise us to differ- 1982, 1997). At the core, these studies identify entiate among explicitly different stages in the self-reinforcing processes as drivers that are formation of a path and to specify their struc- likely to accumulate in a specific path of action. tural properties. To elaborate on a theory of or- These inherent self-reinforcing dynamics that ganizational path dependence, we therefore eventually lead to an irreversible state of total suggest subdividing the whole process of evolv- inflexibility or lock-in (David, 1985) are seen as ing path dependence into three stages governed becoming increasingly systemic forces, beyond by different causal regimes and constituting dif- the control of the individual actor. In other ferent settings for organizational action and de- words, the individual actor becomes entrapped cision making. in the system’s dynamics. Phase I—the Preformation Phase—is charac- It is difficult to conceptualize the general logic terized by a broad scope of action. The effect of of this type of entrapping process. Arthur (1994; a choice of options cannot be predicted (see also see also Pierson, 2000: 253) has advanced its Mahoney, 2000: 511). Once a decision is made, most explicit characterization. In his view the this choice may, however, amount to a small process of becoming path dependent can be event that unintentionally sets off a self- characterized by four general properties: reinforcing process. This moment of entering 1. Nonpredictability—there is an indetermi- into the dynamics of a self-reinforcing process nacy of outcome. can be thought of as a “critical juncture” (Collier 2. Nonergodicity—several outcomes are possi- & Collier, 1991), and it indicates the end of the ble (multiple equilibria), and history selects Preformation Phase. Drawing on complexity the- among the possible alternatives. 3. Inflexibility—the actors are entrapped, so a ory, this transition comes close to “bifurcation” shift to another option is impossible. (Kauffman, 1993). 4. Inefficiency—actions resulting from the In Phase II—the Formation Phase—a new re- path lock the market into an inferior solu- gime takes the lead: the dynamics of self- tion. reinforcing processes (Arthur, 1994). A dominant These four properties provide a first orienta- action pattern is likely to emerge, which renders tion for differentiating between path-dependent the whole process more and more irreversible. and non-path-dependent processes. However, By implication, the range of options narrows, the properties seem to be somewhat overgener- and it becomes progressively difficult to reverse alized, and they do not actually apply to the the initial choice or the initial pattern of ac- whole process of becoming locked into a path. tion—that is, a path is evolving. Decision pro- Rather, they appear to cover specific episodes in cesses in Phase II are, however, still contingent; this process. Take, for instance, unpredictabil- they are “nonergodic”—not accidental, but they ity; this trait applies only to the beginning of the do not yet fully converge to a fixed-point distri- process, when the outcome is actually unpre- bution (David, 1985). 4 Academy of Management Review October

The transition from Phase II to Phase III—the question that arises is how this initial state can Lock-in Phase—is characterized by a further be conceptualized in more distinctive terms. The constriction, which eventually leads to a lock- technological path studies—if at all—have con- in—that is, the dominant decision pattern be- ceived of the initial situation as being unre- comes fixed and gains a deterministic charac- stricted. The search for alternatives starts from ter; eventually, the actions are fully bound to a scratch, and decisions are unconstrained. path. One particular choice or action pattern has Such framing of the first stage in the rational become the predominant mode, and flexibility choice tradition, however, paradoxically ignores has been lost. Even new entrants into this field the fact that the development of a path is em- of action cannot refrain from adopting it. When bedded and connected with other developments; faced by more efficient alternatives, individuals’ it cannot be considered a completely separate and organizations’ decision processes and es- process without any imprints from the past. In tablished practices continue to reproduce this brief, history matters in the Preformation Phase, and only this particular outcome. The occur- too. In organizations, initial choices and actions rence of a lock-in renders a system potentially are embedded in routines and practices, they inefficient, because it loses its capability to reflect the heritage—the rules and the culture— adopt better alternatives. making up those institutions (e.g., Child, 1997; F1 Figure 1 illustrates the process across the March, 1994; Tolbert & Zucker, 1996). Institutions three stages. This differentiated framework is are “carriers of history” (David, 1994), and his- intended as a general model of path depen- tory cannot be intermittent; it does not matter dence; its functioning, however, is likely to differ only occasionally—it always matters! A concep- from context to context according to the prevail- tualization of the activities in the Preformation ing conditions, particularly market versus hier- Phase thus cannot start from scratch; it has to archy. The contextual specifics when applied to account for institutional imprints. an organizational context—the target field of On the other hand, history in this broad sense this contribution—will be outlined in subse- is not destiny; we have to draw a clear distinc- quent sections. tion between historical-institutional influences and imperatives. The notion of path dependence does not refer to a state of determinacy from the Preformation Phase beginning; it sheds light on a tapering process Phase I can be characterized as an open situ- that possibly ends in a lock-in. Increasing path ation with no significantly restricted scope of dependence implies an initial scope of choice. action. From a theoretical point of view, the Otherwise, the theory would lose its very point:

FIGURE 1 The Constitution of an Organizational Path 2009 Sydow, Schreyo¨gg, and Koch 5

to make tapering processes in organizational cases invite a rethinking of the small event reality better understood. Thus, Phase I should framing: path dependence may be triggered by build on a historically framed or imprinted con- “bigger” events or even strategies as well. tingency and, therefore, neither on the assump- A less randomized modeling of these initial tion of determinacy nor on that of completely activities thus seems advisable—at least for or- unrestricted choice. The shadow in Phase I in ganizational contexts. It is, however, important Figure 1 is intended to indicate this institutional to realize that in the nonlinear logic of path heritage. dependence, irrespective of whether the initial A related issue is the triggering of further re- actions are big or small, they can never be con- actions. The initial choice in a process that be- sidered causal determinants. A determined pro- comes path dependent later on is not simply a cess would follow a prescribed course of events single event; it is an impetus, a trigger stimulat- right from the beginning, as is the case with ing further actions, which may accumulate in an linear cause-and-effect laws. Opposed to that, organizational path. Arthur (1994: 14) character- the very point of early path developments is that izes these initial choices as “small events.” they are contingent in character. Moreover, their Drawing on complexity theory (Kauffman, 1993), outcomes are unforeseeable consequences of we conceptualize the triggering as bifurcation: purposeful action (Merton, 1936). The outcome small events may cause unintended, far-reach- cannot be known unless the process has been ing consequences—as is the case, for instance, formed. Fn2 with the well-known butterfly effect.2 Because several outcomes initially are possible, the his- Formation Phase torical sequence of choices becomes decisive in determining the final outcome; the first choice Phase II is characterized by the gradual emer- (or action) however, is random (David, 1985). gence of an organizational path. The scope of It is doubtless appealing to conceive of trig- action is assumed to narrow increasingly be- gers of path dependence as small and random cause of the “pull” of the evolving path. An ini- events, but for the purpose of organizational tially unknown regime3 happens to take the Fn3 analysis, we need to expand the scope. Since lead, which favors a particular type of decision organizations are social systems and not mar- or action pattern and reproduces them over a kets or natural entities, triggering events in or- certain period of time. This phase commences ganizations are likely to prove to be not so in- with a critical juncture at the passage from nocent, random, or “small” (cf. also Bassanini & Phase I to II. A decision made or an action taken Dosi, 2001). For instance, in the case of the VHS in Phase I amounts to a trigger for the further monopoly that has been intensively studied development of the organization or an organiza- from a path dependence perspective (Cu- tional subsystem. However, not all cases of com- sumano, Mylonadis, & Rosenbloom, 1992), the peting solutions culminate in path dependence. triggering event was neither a random nor a It is therefore of critical importance to indicate small one. Rather, it was Matsushita’s initial such cases in which path dependence is likely move to secure content delivery through an to develop. agreement with major Hollywood studios that Early studies on technological path depen- happened to become the crucial step in defeat- dence (David, 1985, 1986) highlighted the central ing the technologically superior Sony Beta stan- role of self-reinforcing processes for path build- dard. Similarly, in Cowan’s (1990) study of nu- ing. Arthur (1989, 1994) elaborated on these driv- clear power plants, initial choices reflected ing forces and specified “increasing returns” as intentions, not randomness. These (and other) 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- 3 It should be stressed that in Arthur’s well-known polya sphere), which sets in motion a chain of events eventually urn simulation, the self-reinforcing mechanisms are already causing a large-scale change (tornado). Had the small event set up right from the beginning (Arthur, 1989); the experi- not occurred, the development of the whole system might menter determines the rules. From our point of view, how- have been vastly different (for a more detailed account, see ever, this is owing to the necessities of a simulation model Hilborn, 2004). rather than a theoretical statement. 6 Academy of Management Review October option is suggested by a utility calculus. While still prevalent situation of contingency). A sub- in no way we exclude this case, it seems too sequent section elaborates on major self- restrictive a starting point for the organizational reinforcing processes in organizations. context (see also critical comments by Crouch & Farrell, 2004; Eden, 2004; Ortmann, 1995). Focus- Lock-in Phase ing on utility-driven behavior only implies a dis- regard for important insights of organizational The transition from Phase II to Phase III is studies. Self-reinforcing patterns in organiza- characterized by a further restriction of the tions have been shown to result from other fac- scope. The focal action pattern is replicated tors as well, such as emotional reactions (uncer- even more, which eventually leads the whole tainty avoidance, intergroup revenge, etc.), setting into a lock-in. Because of the circum- cognitive biases (selective perception, blind stances, this lock-in may be of a predominantly spots, implicit theories, etc.), and even political cognitive, normative, or resource-based nature processes (gaining and maintaining power, re- (Giddens, 1984). Although organizational studies ciprocal negotiation). These aspects have to be mostly emphasize the role of managerial cogni- included in a theory of organizational paths to tions or beliefs or resources, organizational lock- adapt to the scope of organizational behavior ins are also likely to be combinations of all three possibly activating self-reinforcing effects. More dimensions. precisely, we suggest including different forms In its extreme form, the dominant pattern of positive feedback cycles based on specifi- gains a deterministic character, and alternative cally organizational forces. courses of action are no longer feasible for var- A related problem of the technological path ious reasons: high switching costs, sunk costs, dependence studies results from their focus on monopoly, and so forth. By implication, further individual decision making. This exclusive fo- decisions (owing to lack of alternatives, they are cus on individuals does not account for the in- actually no longer decisions) are bound to rep- stitutional setting in which organizational posi- licate the path. Even newcomers are forced to tive feedback processes happen to occur. It is adopt it. Agents continue to reproduce this and the broader organizational context (e.g., hidden only this particular outcome. This extreme form assumptions of the organization, organizational of lock-in has been found with technological culture, status and role system, and institution- solutions (e.g., the QWERTY keyboard). alized practices) that informs decision makers Considering organizational paths, however, and provides the basis, indirectly and inadver- the context seems to be significantly different, tently, for the development of self-reinforcing requiring a somewhat modified conception of loops. lock-in. Organizational settings cannot readily On a general level, the concept of increasing be equated with markets and monopoly. Be- returns highlights positive feedback processes— cause of their social character, organizational that is, the increase of a particular variable processes are more complex and ambiguous in leads to a further increase of this very variable. nature. They are not likely to amount to a state More specifically, the notion of increasing re- of full determinacy, which excludes any alterna- turns indicates self-reinforcing processes with tive choices. Rather, self-reinforcing dynamics increasing benefits; repetitive pursuits to earn are expected to bring about a preferred action this increasing rent are likely to culminate in a pattern, which then gets deeply embedded in patterned dynamic. Eventually, a dominant so- organizational practice and replicated. Hierar- lution emerges in terms of recursive action pat- chy provides formal authority and legitimate in- terns (Giddens, 1984). The flip side of these re- fluence on members’ behavior; orders can poten- turns is that the whole process becomes more tially stop inefficient replication. On the other and more irreversible, particularly in cases of hand, fixed and inflexible behavior is a widely high investments and/or high fixed costs (Ghe- recognized feature in the organizational change mawat, 1991). Decision processes in Phase II, literature. It is well known that, from time to however, are still contingent or “nonergodic” time, despite hierarchical control, it is extremely (David, 1985)—that is, while essentially con- hard to change organizational action patterns strained, choices are still possible (the shadow (e.g., Beer & Nohria, 2000; Kaufman, 1995); they of Phase II in Figure 1 is designed to indicate the are quasi locked in. We should nevertheless re- 2009 Sydow, Schreyo¨gg, and Koch 7 frain from reifying organizational paths and at- ergodic inflexible processes (as opposed to lin- tributing an objective quality to social rigidify- ear ergodic processes). A separate question is ing processes. In organizational settings, whether the state finally reached is efficient or therefore, we suggest conceptualizing the final inefficient, and the answer to this question is not stage of a path-dependent process in a less re- considered part of the theory of path depen- strictive way—as a predominant social influ- dence. Although we appreciate this argument, ence, leaving some scope for variation (Pierson, from our point of view, it misrepresents the very 2000; Thelen, 1999; for illustrative examples) see intention of path analyses. The primary interest Bruggeman, 2002; Burgelman, in press; Eden, is not in the formal logic of nonlinear noner- 2004; Hollingsworth, 2006. godic processes as such; rather, it is nourished In more detail, it seems promising to conceive from congealing processes and puzzling persis- of the lock-in stage in terms of an underlying tencies that are likely to hamper present and core pattern (invisible “deep structure”), with future scopes of action. In other words, it is at some variation in practicing it (visible activity least potential inefficiency that is worrying and level). Actors in the final phase do not simply makes path dependence a matter of high impor- experience the path; rather, as “knowledgeable tance. We therefore advocate including ineffi- agents” (Giddens, 1984), they have scope in in- ciency in an organizational theory of path de- terpreting the organizational patterns. This in- pendence. dividual interpretation of the core (path) is likely It is true that a narrowing organizational pro- to bring about some variation in actual organi- cess and lock-in do not automatically mean im- zational action patterns. While the underlying mediate inefficiency or losses. Path dependence path structure is fixed, its replicative practice is and efficiency, however, do not refer to a certain subject to some variation. In a way, this argu- point in time; instead, a longer time horizon is ment echoes the conception of routines ad- covered, necessarily including the alerting risk vanced by Feldman and Pentland (2003), stress- of becoming dysfunctional. From a strategic, fu- ing, on the one hand, the ostensive side as a ture-oriented point of view, rigidity therefore al- fixed, overarching pattern and, on the other ways means potential inefficiency. If an organi- hand, the performative side as the actual prac- zation or a significant practice (e.g., combining ticing of a routine involving some variation. In specific R&D capabilities with marketing skills) conclusion, for organizational settings it seems has become locked-in, there is inherently the more adequate to conceive of the lock in state danger of becoming inefficient, either in the face not in terms of total rigidity but, rather, as a of new, more efficient alternatives or changed matter of degree, accounting for variance in the internal or external circumstances calling for actual practicing of the organizational path. A new solutions. Latent inefficiency becomes corridor may best serve to illustrate this reason- manifest when an organization confronted with ing; the shadow in Phase III in Figure 1 is de- these change requirements cannot adopt new signed to indicate this adaptation. Although measures because it is confined to the existing highlighting these differentiations, the lock-in path of action, which binds it to the historical phase is nevertheless constitutive for path de- solutions (Leonard-Barton, 1995; Schreyo¨gg & pendence. If actors were not locked in, one Kliesch, 2007). This dysfunctional flip or ration- would not call the process path dependent. ality shift from initial reinforcing earnings to Whatever the best conceptualization of organ- strong barriers to change and losses should izational lock-ins, the more controversial feature therefore be considered a constitutive element of this stage is efficiency. In David’s initial of organizational path analyses. framework (1985) inefficiency was considered a In any case, calling a lock-in “inefficient” al- necessary element, because he set out to ex- ways implies a base of reference—a comparison plain a puzzle: how could an inferior solution with another standard. The base of reference like the QWERTY keyboard endure in a market can differ; it is not a fact but, rather, depends on economy? So he started with inefficiency right the perspective taken (focusing on a group, a from the beginning. Subsequent work called this department, the whole organization, the field). element into question and suggested a modified By implication, discussing the inefficiency of an perspective (Arthur, 1994; Pierson, 2000)—the ar- organizational path always requires the expo- gument being that path analyses address non- sure of the base of reference applied. 8 Academy of Management Review October

To sum up, the proposed theory conceptual- ing path dependent is governed by a different izes an organizational path as a tapering social logic. process. Starting (Phase I) with contingency, a First, the replicated pattern in the imprinting critical event (decision, accident, etc.) favors a approach is ready-made at the beginning; it is a solution leading unpredictably to a critical junc- specific scheme that persists and continues to ture. If it triggers a regime of positive, self- influence future processes. In contrast, the ge- reinforcing feedback, this solution progressively stalt of an organizational path is not clear at all gains dominance (Phase II). This pattern is in the early stage; it is an unforeseeable product likely to become persistently reproduced and to of later processes, which are initially unknown. crowd out alternative solutions to an extent that Path dependence is an offspring of the nature of it gets locked in (Phase III) and is accompanied the process. Second, because of this, a theory of by immediate or future inefficiency. In short, organizational paths—as opposed to the im- organizational path dependence can be defined printing approach—has to explain the unfold- as a rigidified, potentially inefficient action pat- ing process of path formation, not only the re- tern built up by the unintended consequences of production of structural properties because of former decisions and positive feedback pro- either efficiency or a lack of competition (Stinch- cesses. combe, 1965), or the presence of institutionaliza- tion processes (Johnson, 2007). Nevertheless, im- prints doubtless play an important role in many COMPARING RELATED CONCEPTIONS organizational processes. In path-dependent or- ganizational processes they can, for instance, The suggested framework needs discussion explain the restrictions in the Preformation and refinement to further clarify the causal logic Phase. of path-building processes. In particular, the concrete forms of self-reinforcing organizational dynamics need elaboration. In a first step, how- Escalating Commitment ever, it seems advisable to sharpen the model’s Another concept that shares striking similari- distinguishing features by contrasting it with ties with organizational path dependence is es- related conceptions that also highlight the im- calating commitment (Ross & Staw, 1993; Staw, portance of initial conditions and events for or- 1976). As happens in cases of path dependence, ganizational development, such as imprinting particularly in the inefficient Lock-in Phase, es- or escalating commitment. calating commitment prevents organizational decision makers from changing their course of action, despite continued negative feedback on Imprinting the outcome. Instead of stopping, the agents rep- The concept or imprinting (Beckman & Burton, licate the inefficient solution—in particular, the 2008; Boeker, 1989; Johnson, 2007; Stinchcombe, tendency to throw good money after bad (see 1965) figures prominently among approaches Guler, 2007)—for various reasons. that seem to address a process very similar to There is, however, a major difference between organizational path dependence. Basically, this escalating commitment and path dependence concept postulates that either initial cognitive explanations. The latter consider a process with schemes, competences, and so forth—of a a more or less accidental beginning and a founding entrepreneur or team, for instance—or longer phase of success; it is only in the final specific contextual conditions (organizational stage that the persistent course of action shifts structure, postwar depression, internet boom, into inefficiency. In contrast, escalating commit- etc.) at the time of founding imprint organiza- ment captures situations where the course of tional processes at later stages and, eventually, action fails from the very beginning. Since there amount to a replicated pattern. Although there are no increasing returns or similar enhancing are doubtless striking similarities that lead effects, it highlights another problem area— many authors to either simply equate imprint- namely, pathological decision behavior based ing and path dependence or to conceive the on the dynamics of self-justification and fears of former as a specific variant of the latter (e.g., losing face. In effect, escalating commitment is Beckman & Burton, 2008), the process of becom- problematic from the very beginning. 2009 Sydow, Schreyo¨gg, and Koch 9

Commitment/Sunk Cost tional feature that develops in the course of structuring the organization. Routinizing and in- There is another related stream of thought stitutionalizing organizational activities are highlighting persistence through resource com- seen as imperative in order to guarantee stake- mitments and subsequent exit barriers (Ghema- holders reliability, accountability, and, finally, wat, 1991). Early investment is assumed to re- survival in competitive environments. Inertia is strict the future scope of action. This argument considered a precondition for effective organi- comes close to sunk cost. Sunk cost, however, zational acting but, paradoxically enough, even- has its own ambiguity. As we can learn from tually threatens the organization’s survival, be- microeconomics, sunk costs are only a psycho- cause it is likely to bring about a mismatch with logical outcome of imagination; from a rational changing environmental conditions. choice point of view (e.g., Pindyck & Rubinfeld, Again, the phenomenon is somewhat similar 2005), they are irrelevant. Organizations could to organizational path dependence, but the fo- ignore them because they are, in fact, not rele- cused process and its explanations are clearly vant for their future decisions. If there are new at variance. Inertia occurs via the intended es- and better projects, the capital market will pro- tablishment of reliable organizational struc- vide fresh money to overcome the old structure. tures; there are no structural dynamics. It is a Apart from this idealized counterargument (it universal requirement that all organizations takes an efficient capital market for granted), have to fulfill. And all organizations, especially the simple fact of past investments (in terms of when growing and aging, are also expected to sunk costs) cannot be equated with path depen- become hyperstable, with difficulties in meeting dence, since, in consequence, all investments new environmental challenges. Opposed to would bring about path dependence (for a more that, the suggested framework of path depen- sophisticated argument in this direction, see Ar- dence does not apply to all organizations (it row, 2004). This refers back to our initial state- highlights special cases only) and requires an ment that we should refrain from conceptualiza- avalanchelike process to bring about a lock-in. tions that end up considering all past The focus is on explaining the process and its dependence as path dependence. various stages.4 Fn4 In a similar vein, Pierson (2000) raises the is- sue of whether increasing returns or other self- reinforcing processes should be made a neces- Reactive Sequences sary element of path theory. Among others, he While subscribing to the suggested type of highlights pure complementarities as being path-building process, Mahoney (2000) develops likely to bring about persistency. From our point a second type—namely, efficient or inefficient of view, this argument refers to a different type trajectories built up by reactive sequences. This of rigidity. Pure complementarities without self- process is characterized by a chain of modular reinforcing processes characterize a stable situ- events governed by singular cause-and-effect ation of fitting resources, but not a process that relationships. A focal event, B, is assumed to be eventually leads to a lock-in. If there is no esca- the effect of a prior event, A, and at the same lating self-reinforcing process, switching to new time the cause of a future event, C, etc., accu- and better opportunities may be difficult but not increasingly impossible.

4 Carroll and Harrison (1994) point to the importance of positive feedback in the ecological model, but only with Structural Inertia respect to density dependence; a more general consider- ation of the importance of self-reinforcing processes does This is another well-known argument on or- not seem to be intended. Other evolutionary and, more re- ganizational persistency that has been ad- cently, coevolutionary theoriests make explicit use of the vanced by population ecology (Gresov, Have- notion of path dependence and tend to prefer it to other man, & Olivia, 1993; Hannan & Freeman, 1984; concepts (e.g., Helfat, 1994; Nelson & Winter, 1982; Volberda & Hannan, Plos, & Carroll, 2004; Ruef, 1997). In this Lewin, 2003). Given its relatedness to economic evolutionary theory, one seedbed of path, dependence research (e.g., Dosi, perspective structural inertia—the hyperstabil- 1982; Witt, 1997), this certainly comes as no surprise. Never- ity of organizational arrangements in spite of theless, the concept of path dependence has not yet been environmental change—is a universal organiza- fully utilized in this stream of research either. 10 Academy of Management Review October mulating in a reaction chain: A Ͼ B Ͼ C Ͼ D Ͼ organizational structure or form becomes E Ͼ F. Thus, initial event A is expected to affect sedimented and taken for granted over time, B, but it unintentionally triggers a multistage preferably across sets of organizations. development. The final state or, better, an inter- While neoinstitutional theory elucidates im- mediate result can—very much like pursuing a printing and stabilizing processes and, in partic- law suit—be traced back to the releasing event. ular, sensitizes us to the relevance of symbolic- This intermediate state is also likely to shape normative contexts (e.g., Hargadon & Douglas, future action; it is, however, not in any way 2001), in its present form it does not address the locked in or inefficient. systemic logic of an escalating reinforcement of In contrast to the path dependence model ad- an action pattern or a path (see, however, Eden, vanced above, the intermediate state of a se- 2004, and Holm, 1995). The theoretical focus, quence of causal reactions is not reached by therefore, differs significantly and explains increasingly reproducing a specific pattern, and other constellations. there is no connecting logic that explains the succession of the singular sequences. Although AT THE HEART OF ORGANIZATIONAL PATH the idea of reactive sequences doubtless pro- DEPENDENCE: SELF-REINFORCING vides insights into the evolvement of historical MECHANISMS processes, it does not fit into a theory of path dependence. Without path drivers and the So far, we have conceptualized path-building causal logic of a lock-in, a theory of organiza- processes as processes of a diminishing scope tional paths loses its very point. of action that unintentionally develop their own Furthermore, the sequence argument raises pull and are driven by positive feedback. It is a some conceptual questions. First of all, se- time-based theoretical concept differentiating quences seem simply to occur. In contrast to between different states of flexibility/choice and processes explained by the regime of self- stability/determinism, respectively. The dy- reinforcing mechanisms, the concept of causal namic eventually flips over into rigidity. At their reactive chains does not provide a logic that heart, such processes can be explained by one explains why the sequences take place this way or a combination of several self-reinforcing so- and not in another way. Why do reactive se- cial mechanisms. In this section we elaborate on quences accumulate? Superimposing, ex post, a these mechanisms in an organizational con- trajectory on reactive sequences does not pro- text.5 Fn5 vide an explanation. Another problem is gener- In the field of technology development and alization. A theory of path dependence aims at diffusion, different types of self-reinforcing dy- explaining a particular class of processes (Pet- namics have been identified (Arthur, 1994; tigrew, Woodman, & Cameron, 2001). Drawing Cowan, 1990; David, 1985; Katz & Shapiro, 1985; on reactive sequences does not, however, tran- North, 1990). Since they have been developed at scend a singular case: singular reasons are sup- the market level, these mechanisms cannot posed to explain singular events only. readily be transferred to organizational analy- sis. In our view, four mechanisms in particular are likely to contribute to the development of Institutionalizing organizational path dependence: coordination Contextual shaping forces play a major role in effects, complementarity effects, learning ef- neoinstitutional theory, and its concept of insti- fects, and adaptive expectation effects. Below tutionalization also seems to come close to path we aim to combine different streams of thought dependence (e.g., Powell & DiMaggio, 1991; to build a framework of self-reinforcing dynam- Scott, 2001; Tolbert & Zucker, 1996). Most impor- ics at the level of single organizations and or- tant, this theory highlights the relevance of the ganizational subunits. We discuss these four symbolic-normative environment of organiza- mechanisms and show how they apply to organ- tions and how this influences the formal and izational settings. informal structuring of organizations over time. Apart from the pace of the development (Law- rence et al., 2001), it addresses institutional in- 5 For the more general debate on social mechanisms in ertia and stability by revealing how a specific organization theory, see, for instance, Pajunen (2008). 2009 Sydow, Schreyo¨gg, and Koch 11

Coordination Effects who stuck to self-reinforcing rules for producing a newspaper and thereby became unable to ex- Initially put forward in institutional econom- ploit new online opportunities. More recently, ics (North, 1990), these effects relate to the heart Koch (2008) provided evidence of similar pat- of organizational functioning. They build on the terns in German quality newspapers. Adopting benefits of rule-guided behavior: the more ac- joint rules of quality journalism brought about tors adopt and apply a specific institution (i.e., significant coordination advantages and the an organizational rule or routine), the more effi- lasting constitution of a once successful busi- cient the interaction among these actors is, ness model. Nowadays, the flip side of this path since the behavior of the actors is rule guided is broadly discussed. and can therefore be anticipated and reactions can be considered in advance. Coordination costs can be significantly reduced. In conse- Complementary Effects quence, it becomes more attractive to adopt A well-known explanation for complementari- these rules when other individuals also follow ties are economies of scope, which exist when them. the cost of producing and selling two or more The best-known illustrative example of this goods or services together is lower than the cost effect at the institutional level is the decision of producing and selling them separately (Pan- regarding right-hand traffic versus left-hand zar & Willig, 1981). On a more general level, traffic; the institution became fixed early on be- complementarities mean synergy resulting from cause of the obvious benefits of following it— the interaction of two or more separate but in- uncertainties involved in human interaction terrelated resources, rules, or practices (Pierson, could successfully be reduced (North, 1990: 23). 2000; Stieglitz & Heine, 2007). In the case of Another well-known example that applies di- complementarities, the advantages of repeat- rectly to the level of single organizations is edly combining interrelated activities do not working time regimes, which guarantee effi- simply add up; they produce an additional sur- cient cooperation. There is a striking similarity Ͼ ϩ plus: K(x ϩ y) K(x) K(y). Take, for instance, to the economies of scale effect (North, 1990): marketing skills and R&D capabilities, which increasing the number of participants results in may add up to a “core competence” (Prahalad & decreasing (coordination) cost per unit. Hamel, 1990) of a company or a division. David Miller and Friesen (1984) developed the con- (1994: 214) calls such combinations “institutional cept of internal consistency, which comes very clusters.” In complementary settings, self- close to that of coordination effects. This propo- reinforcing processes occur when routines sition stresses the advantages of an internal fit and/or practices are interconnected in such a among the various elements of an organization way that it becomes ever more attractive to ex- (see also Miller, 1992). Coordination effects thus ploit the synergies or—when referring to the re- result from the benefits of following the same verse side—to save misfit costs caused by solu- single rule or set of related rules to which others tions deviating from the established cluster/ are willing to conform. As a result, through the organizational capability. As a result, distinct advantages of continued replication, a specific sets of activity patterns become progressively pattern of practices is likely to become fixed. dominant (Leonard-Barton, 1995) and, addition- The fixing power of such arrangements has ally, deeply embedded in an organization been proved in cases where organizational (“deep structure”)—that is, they become organi- members have recognized new challenges and zationally path dependent. set out to change their practices but failed to do There are many other examples that can fur- so because they could not get rid of their well- ther illustrate this effect. Take, for instance, attuned activity sets and routines. “Fordism,” which is characterized by comple- A striking example of such path dependence mentary management systems in human re- was provided by Tripsas and Gavetti (2000), who sources (hiring and firing of low skilled labor), portrayed the difficulties Polaroid experienced operations (mass production), and organization in changing their R&D priorities into a new (hierarchy of control), and which for quite some product development competence. Similarly, time constituted, through repeated practicing, a Gilbert (2005) described newspaper companies specific capability amounting to a competitive 12 Academy of Management Review October organizational advantage. Ultimately, the insti- failure” (Miller, 1993: 116). Learning effects are tutional cluster became path dependent (Piore & often reinforced and extended by earnings from Sabel, 1984). coordination costs and complementarities.

Learning Effects Adaptive Expectation Effects The learning effect theory holds that the more These self-reinforcing effects relate to the in- often an operation is performed, the more effi- teractive building of preferences. With this con- ciency will be gained with subsequent itera- cept, as opposed to neoclassical economics, in- tions. The operation becomes more skillfully dividual preferences are not considered to be performed (faster, more reliable, and with less fixed; instead, they are assumed to vary in re- errors), which, in turn, means decreasing aver- sponse to the expectations of others. Often age costs per unit of output (Argote, 1999). And quoted examples highlight the need for social the more attractive the chosen solution becomes belonging and the desire to end up on the win- because of accumulated skills and decreasing ning side. The more people are expected to pre- cost, the less attractive it is to switch to new fer a particular product or service (and not an- learning sites (where the actors would have to other), the more attractive that product or service start from scratch). Only sticking with the once becomes (Leibenstein, 1950). Since users are of- chosen solution promises continued returns— ten uncertain about the right choice, they feel although, as is well known, the resulting cost rewarded by the fact that others are likely to curve flattens after a while. prefer the same. Because of this self-reinforcing Self-reinforcing learning effects can be found dynamic, a dominant solution is likely to at various organizational levels. A well-known emerge, more often than not by way of a self- example from organizational learning points to fulfilling prophecy (in most cases on the basis of the fact that a focus on the advantages of ex- more or less random first choices and from hear- ploitative learning may increasingly drive out say). explorative learning (March, 1991, 2006). For var- In the context of organizations, the informal ious reasons (e.g., the prevailing organizational diffusion of best practices often follows this culture and reward system), the motivation to logic (Szulanski, 1996). Organizational members improve everyday practices is likely to gain are willing to adopt these practices because more acceptance or legitimacy (and, thus, more they expect others to do the same and wish to rewards) from the organization, whereas the mo- end up on the side of the winners. This tendency tivation to look for fresh alternatives and to crit- is reinforced by other drivers, such as legitimacy ically examine well-established organizational seeking or signaling; individuals or subsystems practices is likely to shrink progressively. This not subscribing to the best practices are afraid myopia or preference for repetitive exploitative of losing legitimacy and—if associated with learning builds on the self-reinforcing dynamics failure—of becoming stigmatized as “outsiders” of learning effects, eventually ending up in an (Kulik, Bainbridge, & Cregan, 2008). organizational path along the familiar prac- Early on, McGregor’s (1960) Theory X nicely tices. illustrated the dynamics of such self-reinforcing A related effect has been highlighted by the adaptive expectations and subsequent self- “architecture of simplicity” (Miller, 1993), in fulfilling prophecies in organizations. The start- which an organization develops a successful set ing point of his Theory X spiral is managers’ of strengths and tends to focus all learning abil- implicit assumptions, about the nature of their ities on refining this success; it exploits this employees—as being interested only in mone- strength through gaining learning effects while tary rewards, hating to take on responsibility, neglecting other opportunities. The exploitation and shirking wherever they can. This implicit is easier (more efficient) the simpler the institu- theory of human behavior not only defines the tional cluster; therefore, the self-reinforcing dy- set of expected managerial behaviors but also namics bring about unintended increasing sim- essentially frames management’s decisions on plicity. Ultimately, “it turns into a monolithic, reward systems and organizational design (in narrowly focused version of its former self, con- particular: a strong emphasis on control and verting a formula for success into a path toward authority), which, in turn, evoke corresponding 2009 Sydow, Schreyo¨gg, and Koch 13

reaction patterns (especially passivity, indo- pendence nor represent a necessary or even suf- lence, and apathy). Observing those reactions is ficient condition for the occurrence of path de- likely to confirm and reconfirm exactly those pendence (see also Arthur, 1989). A theory of assumptions about behavior managers have organizational path dependence has to differen- made, based on their implicit Theory X. These tiate properly between self-reinforcing mecha- confirmed expectations then reinforce the em- nisms on the one hand and enabling institu- phasis on restrictive organizational structures tional contexts on the other. In consequence, AQ:1 and controls, thereby unconsciously advancing Pierson’s insights should encourage further re- a vicious circle (see also Leonard-Barton, 1995; search to explore the contextual conditions en- Masuch, 1985; Repenning & Sterman, 2002). In hancing (or hindering) the unfolding of self- this case a dominant organizational design reinforcing mechanisms and subsequent emerges because of a self-reinforcing spiral that constitution of organizational paths. is based on “expectations of expectations” (Lu- hmann, 1995). IMPLICATIONS FOR MANAGEMENT AND RESEARCH Adding an Enhancing Context? Path dependence and its far-reaching conse- Some authors add contextual conditions as a quences doubtlessly constitute an issue of high further reinforcing effect of and in institutions. relevance in strategic management and organ- Pierson (2000), for instance, highlights institu- izational decision making. From a managerial tional density as a salient determinant likely to point of view, the fatal consequences of being converge into self-reinforcing effects in organi- locked in raise the pressing question of whether zations. In his view organizations (in particular, organizational paths can be dissolved or in any formal political institutions) are more prone to way escaped. It is true that no path is forever, bring about path-building forces than markets, but this is no relief from the perspective of a because they act in “a far, far murkier environ- particular organization, since path dependence ment” (Pierson, 2000: 260) with weaker forces to may exist for quite some time. correct inefficient courses of action over time. Path dissolution may occur through unfore- The complexity of organizational goals and the seen exogenous forces, such as shocks, catastro- uncertainty of the causal links between actions phes, or crises; these are likely to shake the and outcomes render the organizational field system, thereby causing the organization to inherently ambiguous, and organic corrections break away from the path (Arthur, 1994: 118). of inefficient action are less likely to occur here However, path dissolution may also occur be- than in markets. Therefore, practices, once es- cause of an insidious change in organizational tablished, gain momentum more easily and cre- demography or the “incomplete” socialization of ate a fertile ground for developing increasing new organizational members (Tolbert, 1988). In returns or other types of positive self-reinforcing this vein, Castaldi and Dosi (2006) refer to the feedback. More generally, Pierson considers possibility of coincidental delocking in terms of ambiguity and complexity important conditions, a by-product of other organizational decisions. A which amount to self-reinforcing effects and nice illustration of such coincidental path disso- subsequent path dependence. lution at an organizational level is provided by Although addressing doubtless significant the Intel case and the highlighted moves in the contextual conditions for path development, the memory business (Burgelman, 1994, 2002; conditions of ambiguity and complexity should Burgelman & Grove, 1996). With this perspective, not be misconceived as self-reinforcing mecha- however, path dissolution amounts to an acci- nisms in their own right. This also holds true for dental process, be it revolutionary or evolution- other factors addressed in the literature as self- ary, which—nobody knows—may or may not oc- reinforcing dynamics, such as “uncertain expec- cur. Adopting this view clearly has a fatalistic or tations” or “power structure” (Beyer, 2005). These at least a passive flavor to it. We are condemned are relevant contextual factors, but they should to wait, probably for a long time since we know not be equated with self-reinforcing mecha- such events are rare. The firm may go bankrupt nisms. Enhancing contexts—however important long before a disrupting event occurs. An active they may be—neither lead directly to path de- and alert attitude thus seems imperative. 14 Academy of Management Review October

Facing strategic rigidity or even a threat to the (Arthur, 1994), because implanting an inferior organization’s survival, decision makers would one would not constitute a real choice. certainly be eager to learn more about possible The suggested theory of path dependence can interventions designed to escape or unlock or- inform the endeavor to intentionally unlock or- ganizational paths. But can organizations actu- ganizational paths. As already pointed out, the ally break path dependence? This is an intricate major drivers rendering a process path depen- endeavor, since the idea of deliberately break- dent are self-reinforcing dynamics. By implica- ing a path is self-contradicting in a way. If we tion, the possibility of escaping from or breaking define path dependence as a situation in which a path depends very much on interrupting the individual actors or organizations have lost logic and the specific energy of the self- their power to choose among alternatives, then reinforcing patterns of the process in question. the assumption that the same actors can un- The first step in any path-breaking intervention, lock the path is obviously inconsistent. Path- thus, requires understanding and reflecting on dependent behavior, strictly speaking, excludes not only the fact of being path dependent but path-breaking behavior. The idea of unlocking also the drivers that made this happen. At the organizational paths, therefore, can only work if same time, this step brings the necessary dis- we put the mechanisms of deterministic pattern tancing from the replicating dynamics. Reflect- reproduction into perspective. In other words, it ing on the practice that is usually taken for is necessary to construe and integrate an exog- granted indicates taking a critical stance (Moon, enous perspective—that is, an activity that is 1999; Scho¨n, 1983) by changing the mode of ac- not under the regime of path dependence. Such tivity: from doing (operational mode) to observ- integration of an external lens or—if you like—a ing and reflecting (observational mode), thereby “second-order observation” (von Foerster, 1991) gaining access to the closed dynamics. enables knowledgeable agents to reflect prac- Understanding self-reinforcing dynamics re- tices in terms of path dependence and poten- quires theoretical knowledge as well as practi- tially opens a window for path-breaking activi- cal skills and abilities. This is all the more true ties. 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- Deliberately Breaking Organizational Paths cesses (Saffold, 1988; Sorensen, 2002). As a con- When discussing the actual possibilities of sequence, in many cases a special effort is dissolving organizational paths, we need to needed to get in touch with the hidden agenda. clarify what path breaking in an organizational Tools have been developed to facilitate such context means precisely. Is it the destruction of a processes. Assumption surfacing, for instance, rigidified action pattern? Does it mean restoring is a well-known technique designed to make the situation as depicted in Phase I? Is it the hidden patterns in organizational settings ac- broadening of the “corridor” in Phase III? Is it cessible, to open them up for critical reflection, the realized switch to a superior alternative? and to put them on the organizational discourse From our point of view, each of these alterna- agenda (Kettinger, Teng, & Guha, 1997; Mason & tives is not exclusive. Rather, path breaking can Mitroff, 1981). vary in intensity and complexity. Without ex- Beyond discourse, however, reflecting path- cluding more complex cases, we therefore sug- bounded practices often requires addressing the gest defining a minimum condition for a situa- emotional side of inertial organizational pat- tion to be categorized as “path breaking.” Since terns as well. Organizations frequently resist the process of becoming path dependent has reflecting on hidden features. For instance, in been framed as progressively eliminating the their analysis of the Intel case, Burgelman and scope of decision making, this minimum condi- Grove (1996: 15) found that “emotional attach- tion is the effective restoration of a choice situ- ment on the part of the top management to the ation—the insertion of at least one alternative business” was intertwined with inertial self- course of action. However, opening the window perceptions. Dissolving and/or altering such for an alternative is necessary but not sufficient. emotional barriers often requires special ap- The new alternative has to be a superior one proaches—in particular, clinical approaches, 2009 Sydow, Schreyo¨gg, and Koch 15 such as “reframing” (Bandler & Grinder, 1982), or creating a new advantageous situation. Major even psychoanalytical techniques (Kets de features here are resource commitment, revers- Vries, 2006). Such interventions may help to un- ibility, and transferability of experience (Arthur, lock emotional blinders and to reflect the domi- 1994; Ghemawhat, 1991; Gilbert, 2005; Karim & nant framing manifested in replicative prac- Mitchell, 2000). In cases where learning effects tices. are the major drivers of path dependence, the As is well-known, such individual-centered reversibility is at least questionable. Learning approaches are limited. In some cases the whole effects are acquired in a specific field of practice system is controlled by a regime of unwritten and cannot easily be transferred to a new con- rules that suggest refraining from self-reflection text (of a new alternative). Setting up a new (Scott-Morgan, 1994). Communication research course of action takes quite some time to match has revealed that such closing behavior is often the learning effects of the existing course (even caused by paradoxical interactions such as a when it has been proved inferior). In those cases double bind (Hennestad, 1990; Watzlawick, 1963), creating an effective alternative for the restora- basically maintained and fixed by self-reinforc- tion of choice requires an extra effort—a (possi- ing behavioral patterns. So-called systemic ap- bly costly) subsidy to help the new alternative proaches (Campbell, Coldicott, & Kinsella, 1994; catch up with the existing one (Arthur, 1994). Selvini-Palazzoli, 1986) react to exactly this well- The situation is different for other self- known denial. In these approaches a totally new reinforcing mechanisms—for instance, for coor- type of intervention has been developed—the dination effects. The logic of this driver very paradoxical intervention. This is a disguised in- much depends on the willingness to conform to tervention designed to irritate the closed self- rules. What is required here, therefore, is the reinforcing system from outside. The change willingness to switch to a new regime of rules agent no longer tries to persuade the system to mandated by a change agent or a project group. reflect and modify its hidden rules; rather, he or As Arthur (1994) points out, this is more likely to she “asks” the system to produce more of the happen the higher the certainty that the others behavior that is suggested should be changed. also prefer the new alternative regime of rules. The underlying idea is that a prescribed resis- In cases where this certainty is missing (or rule tance shifts the logic; it ceases to be resistance takers are at least uncertain about the action and becomes compliance (Watzlawick, Weak- preferences of others), the situation is difficult to land, & Fisch, 1974). On the other hand, resisting change, because actors wait for more certainty. this prescription means changing. In self- In all of these cases, additional initiatives are reinforcing systems these paradoxical interven- required to reduce uncertainty about others’ ac- tions bring about a kind of pattern implosion, tion. likely to shake the system of long-standing “de- One may argue that unlocking or breaking an fensive routines” (Argyris, 1990) into a new con- organizational path should be easier than es- figuration and to open the window of opportu- caping a technological or market lock-in. Orga- nity for path-breaking changes. A paradoxical nizations by their very nature are characterized intervention comes as a surprise to the system; it by a central authority and hierarchical control, attempts to stop the self-reinforcing dynamics which allows (top) management to create viable by advancing an implosion of the routinized ri- organizational alternatives in terms of incentive gidity. systems, formal rules, or planning procedures. Such interrupting approaches potentially re- Organizations rely on command and control, open the scope of action. Opening the scope, even most new organizational forms. Neverthe- however, does not automatically imply unlock- less, because of informal processes, the lack of ing a path. Whether or not an existing organiza- transparency, and unintended consequences of tional path can actually be broken in the sense actions in organizations, it is unrealistic to as- defined above basically depends on the revers- sume that the development of an organization is ibility of the process. The path-breaking en- completely under management control. The ten- deavor cannot ignore the history that brought dency toward diminishing control, actual con- about path dependence. The chance of actually trol loss, and the illusion of control have been restoring choice depends on the character of the long-standing issues in organizational research self-reinforcing dynamics and the possibility of (see, for instance, Downs, 1967, and Streatfield, 16 Academy of Management Review October

2001). In consequence, the scope for an organi- If there are no self-reinforcing mechanisms “at zation to unlock path dependence simply by or- work,” the presumption of an existing organiza- der is clearly limited. More often than not, such tional path cannot be substantiated and has to merely formal approaches will fail because—as be rejected. depicted above—it is so difficult to stop self- The third essential part of a systematic path reinforcing processes in organizations. Special analysis is the search for a triggering event that techniques are required. 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- Researching Organizational Paths known to the actors. Also, special attention has The suggested three-stage model of organiza- to be devoted to identifying the critical juncture tional path dependence and its focus on self- at which a self-reinforcing process leading to reinforcing mechanisms not only provide a organizational path dependence was activated. platform for considering path-breaking inter- It is here where the first working of one or more ventions but also suggest guidelines for further self-reinforcing mechanisms can be uncovered. research on organizational paths. According to These three elements offer a rough guideline this framework, any attempt to prove the claim for both explanatory and exploratory research of path dependence needs to cover the following on organizational path dependence. Because of three features, in a way reversing the process the process character of the framework, a longi- depicted in Figure 1. tudinal research design is required, which The first step of a thorough path analysis is traces sequences of events and actions in orga- the identification of strategic persistence or opera- nizations (e.g., time chronologies, simple and tional rigidity of or within a particular organiza- complex time series). Only the examination of tion. Discovering such structural or institutional these detailed processes in time (and space) will inertia allows the researcher to assert path de- allow us to identify and explicate the working of pendence. Because the logic of hyperstability is the fundamental social mechanism(s) underly- often hidden, inert practices are easier to un- ing the constitution of organizational path de- cover or make visible in situations of radical pendence “from micro behaviors to system dy- change (e.g., Tushman, Newman, & Romanelli, namics, and back” (Castaldi & Dosi, 2006: 108). 1986). However, organizational paths can also surface in incremental or even creeping change CONCLUSIONS processes. In any case, the contrafactual main- tenance of a specific pattern is an indicator of a A detailed conception of organizational path path-induced, potentially inefficient organiza- dependence has much to offer when we are aim- tional lock-in. With regard to the efficiency as- ing to solve the puzzle of how organizations be- pect, at the very least, the existence of a superior come locked in and adhere contraintuitively to alternative that the organization is unable to historical solutions. To this end, we have de- pursue has to be demonstrated. A major chal- fined organizational path dependence as a pro- lenge is presented by the case of potential or cess that (1) is triggered by a critical event lead- strategic inefficiency—that is, proving that the ing to a critical juncture; (2) is governed by a replicate behavioral pattern is likely to damage regime of positive, self-reinforcing feedback the organization in the future. In these cases, constituting a specific pattern of social prac- where no empiri cal proofs can be provided, it tices, which gains more and more predominance becomes a matter of good reasons to build a against alternatives; and (3) leads, at least po- convincing case. tentially, into an organizational lock-in, under- The second major element of an advanced stood as a corridor of limited scope of action that path analysis is the identification, exploration, is strategically inefficient. The proposed frame- and reconstruction of the self-reinforcing feed- work not only provides a deeper understanding back mechanisms possibly underlying the organ- of the historicity of inertial phenomena beyond izational rigidity in question. The identification the general principle that “history matters” but or detection of one or more such mechanisms at also pushes the explanation beyond such well- work is a complex task that requires recognizing known concepts as organizational imprinting, patterns in the broad flow of everyday practices. institutional legacy, and structural inertia. 2009 Sydow, Schreyo¨gg, and Koch 17

This framework of path dependence also of- ships. Collaborative relationships are likely to fers insights into the possibilities and limita- become path dependent too, thereby affecting the tions of breaking out of organizational path de- development of an organization (and vice versa). pendence. In particular, path breaking requires Some network-related studies of path dependen- a thorough understanding of the social mecha- cies are already available, highlighting, for in- nisms driving the path process. Understanding stance, lock-ins and lock-outs in the course of the these mechanisms, in turn, provides a platform development of a network (Gulati, Nohria, & Za- for developing path-breaking interventions. heer, 2000) or the possibility of arising network Organization research focusing on path depen- inertia (Kim, Oh, & Swaminathan, 2006). Others dencies and path breaking would nicely supple- shed light on the impact of network embedded- ment not only the present trend toward process ness on organizational path dependencies (e.g., studies, with their inevitable historical component Walker, Kogut, & Shan, 1997). But, as in the case of (e.g., Pettigrew et al., 2001; Van de Ven & Poole, most studies at the organizational level of analy- 2005), but also studies of organizational practices sis, these tend to consider path dependence in the and their replicate dynamics (e.g., Feldman & sense of history matters only, and not in the spec- Pentland, 2003; Jarzabkowski, 2008; Lawrence et ified way suggested by the explanatory concept al., 2001). In both cases the theory of organizational advanced here. path dependence would help to focus on particu- The third level important for organizational lar types of dynamics and, thus, would comple- path analysis is the field or industry, which has ment rather than substitute for other process the- been addressed by the majority of path depen- ories of organizations. However, the conditions dence research so far (starting with David, 1985). that are conducive to path dependence and possi- Research already evidences the significance of ble ways of unlocking paths await further explo- the field for explaining organizational inertia, ration. beyond the influence of technological path de- A further challenging theoretical question is pendencies. The well-known study of the Scot- whether the emergence of paths does not simply tish knitwear industry (Porac, Thomas, Wilson, occur but can also be deliberately brought Paton, & Kaufer, 1995), for example, convincingly about. The idea of (intentional) path creation demonstrates that it was primarily the value was introduced by Garud and Karnøe (2001), system of the industry and not the individual who referred to Schumpeter (1942) and his con- organization that brought about inertia. Another ception of a “destroying” entrepreneurship. Cre- example is Hollingsworth’s (2006) study of lead- ative agency and the power of generating mo- ing research organizations that were involved in mentum are seen as basic ingredients for path major scientific discoveries. This study not only creation, although entrepreneurship, as influ- points to the path-dependent development of the enced by its own history and important institu- organizations (and even of single laboratories) tions, may well also be a source of path depen- investigated but also to that of the institutional dence (Staber, 2005). fields in which they were embedded. Another important issue addresses the level of Future research should account more explicitly analysis. Our three-stage model aims at explain- for these different levels and their interplay, ing path-building processes of and in organiza- which may well amount to “cross-catalytic feed- tions. However, other levels of analysis are also of back” (Paul David, personal communication) be- great relevance—particularly by the individual tween not only these levels but also organization- level, the network level, and the field level. Orga- al and technological path processes. Beyond this, nizational members, with their cognitive sche- we are convinced that more rigorous research on mata, learning habits, response patterns, and so organizational paths can enrich organization sci- forth, do play a role in path-building processes in ence significantly, as well as our understanding of organizations. Although a vast body of research puzzling rigidities in organizational life. on individual rigidities is available (see Huff & Huff, 2000: 46–59, for a review), individual path research stills awaits elaboration. REFERENCES The same is true of interorganizational rela- Antonelli, C. 1999. The economics of path-dependence in tions. Nowadays, many organizations are embed- industrial organization. International Journal of Indus- ded in more or less complex networks of relation- trial Organization, 15: 643–675. 18 Academy of Management Review October

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Jo¨rg Sydow ([email protected]) is a professor of management at the School of Business & Economics, Freie Universita¨ t Berlin, and a visting professor at the Univer- sity of Strathelyde’s Graduate School of Business. He received his doctorate from the Freie Universität Berlin. His research focuses on management and organization the- ory, strategic partnering and interfirm networking, technology and innovation man- agement, project management, and industrial relations. Georg Schreyo¨gg ([email protected]) is a professor of organization and leadership at the School of Business & Economics, Freie Universität Berlin. He re- ceived his doctorate from Universita¨ t Erlangen-Nu¨ rnberg. His current research inter- ests include organizational change, path dependence, and organizational capabili- ties. Jochen Koch ([email protected]) is a professor of management and organiza- tion at the European University Viadrina, Frankfurt. He received his doctorate from the Freie Universität Berlin. His research interests include modern and postmodern orga- nization theory, theories of leadership, media management, and the theory of organ- izational and strategic path dependence.