Path Dependence in Organizational Sciences

David’s (1985) story of the QWERTY keyboard marked the beginning of path dependence research within the field of economics. According to David (1985), path dependence (in economic theory) occurs when “important influences upon the eventual outcome can be exerted by temporally remote events, including happenings dominated by chance elements rather than systematic forces” (p. 332).

Since David’s (1985) original article, the fields of economics and political science have systematically explored path dependence theory. Notably, debates on the notion of path dependence began early on, with some scholars questioning the actual existence of path dependence (Liebowitz & Margolis, 1990). These arguments, however, did not prevent the persistence of the theoretical construct, which slowly made its way into management.

Path dependence, as a concept, was introduced into the field of management in the early 1990s but has been most pervasive from 2000 onwards. A search of path dependence as a “Topic” in the Web of Science database discovered 178 published articles since 1990, with over 50% of the articles published in the last four years.

Although many of the articles continue to focus on managerial economics and the management of technology, they illustrate the growing interest in the application of path dependence within the organizational sciences (i.e. many of the most recent articles on path dependence are published in top-tier management journals).

In addition to the articles dedicated to path dependence theory, management researchers also refer to the construct in relation to other theories. Vergne and Durand (2010) note that the concept of path dependence was referenced in over 323 top-tier academic management journal articles between 1998 and 2007 (with over 10% of all articles published between 2003 and 2007³). A search in the ABI Inform Global Database on management articles published in the past twenty years (i.e. 1992 and 2012) found 1675 articles (increasingly linearly over time) that referenced the concept of path dependence within the text.

The interest in path dependence theory is due, in part, to the theory’s initial proposition that “history matters” (David, 2001). From a more complex perspective, path dependence theory has siblings. Hannan and Freeman (1977), for example, brought forth the idea that internal structural arrangements, established at the formation of the firm, restrict choices in strategic decision making and help to explain why organizations differ.

DiMaggio and Powell (1983) explored the effect of isomorphic pressures, established early on in the creation of institutions, to help explain why organizations become locked in to similar ways of working. Stinchcombe’s (1965) theory on imprinting argues that when and where a firm was created heavily influences the firm’s structure. First-mover

3 Academy of Management Journal, Academy of Management Review, Administrative Science Quarterly, Journal of Management Studies, Organization Science, Organization Studies, and Strategic Management Journal

advantage suggests that history matters; being first carries both risks and rewards (Lieberman & Montgomery, 1988).

Other theories also suggest that history matters: the resource-based view (Barney, 1991), whereby the accumulation of resources, in a particular order over time, will influence the capabilities (and therefore scope) of the organization; and, the contingency approach (Miller, 1981; Miller & Friesen, 1977; Miller & Friesen, 1978), which argues that only a small number of organizational forms exist (archetypes or gestalts), based on the interaction between environments (internal and external) and strategic decision making. Chaos theory (Baum & Silverman, 1999; 2001) and absorptive capacity (Cohen

& Levinthal, 1990) also suggest that initial conditions are important, although the former significantly more than the latter. With so many similar theories suggesting that

organizations are influenced by initial conditions, how does path dependence theory differ?

Path dependence was first explicitly discussed in relation to firm capabilities by Schreyögg and Kliesch-Eberl (2007). They state that path dependence includes both historical imprinting and, on a differentiating point, forceful dynamics:

...once successful combinatorial activities generate positive feedback loops, thereby emergently constituting self-reinforcing processes... such self-self-reinforcing processes may establish strategic paths which are prone to dramatically narrowing the scope of strategic management. In the worst case a specific orientation becomes locked, i.e., any other strategic alternative is excluded. (Schreyögg & Kliesch-Eberl, 2007: 916)

Although their main purpose was to shed light on how to monitor capabilities in order to prevent rigidities, Schreyögg and Kliesch-Eberl (2007) introduced the notion that

path dependence is not only influenced by initial conditions but also plays out over time, and that central to this process are organizational actors who interact with and influence the environment in which they are embedded (Giddens, 1984). In particular, they argue that the dynamic capabilities argument is incomplete: changing capabilities that have been rigidified through positive feedback loops, specifically once they bring in

decreasing rents, is not as simple as theory suggests. In other words, organizations can become locked in to a detrimental strategic path by the very routines that had previously led to positive performance (Schreyögg & Kliesch-Eberl, 2007)⁴.

The evolution of path dependence research in the organizational sciences can be attributed to the movement from an implicit ‘history matters’ argument to an explicit study on path dependence as a process. Although David (1985) suggested that path dependence comes about through a combination of initial conditions and technical interrelatedness, economics of scale and quasi-irreversibility, and Arthur (1994) argued that the properties of the process included non-predictability, non-ergodicity, inflexibility,

4 Soon after Schreyögg and Kliesch-Eberl’s (2007) article was published, the Freie University of Berlin created a Path Dependence research centre and doctoral program, led by Dr. Georg Schreyögg and his colleague, Dr. Jörg Sydow. Since 2010, the organization has run a sub-theme on path dependence at the European Group for Organizational Studies.

http://www.wiwiss.fu-berlin.de/en/forschung/pfadkolleg/index.html

and inefficiency, they neither explored the underlying mechanisms nor suggested causality. It was not until organizational scholars began to investigate the process more closely that we gained a better understanding of how the process unfolds over time.