2ND INTERNATIONAL CONFERENCE ON PATH DEPENDENCE

March 3-4, 2011

Exploring stability in path dependence: Lock-in as a process

ABSTRACT

This paper argues, that patterns of strategic lock-ins oscillate over different levels of

dependence due to temporarily major environmental changes. By distinguishing resource

dominated, normative and cognitive dominated periods of dependence, it is proposed that

strategic paths are punctual stabilized and reproduced as a side effect of strategic decisions.

This puts forward the idea that path dependence not only refers to the movement within a

limited corridor of strategic options, but also refers to path reproduction and stabilization

through side effects of target-oriented strategic decisions within phases of broader scope of

action. Thus, the stability of lock-ins should be better considered as a process of changing

levels of dependence: In specific situations of path dependence and due to major changes of

environmental conditions the scope of action may increase, but organizations still remain on

their path while side effects of linked strategic decisions narrow the corridor of strategic

options again. It will be concluded, that in specific time frames of lock-in, the management is

more responsible for the extrapolation of a strategic path than in others.

Content

1. Introduction: Definitely dependent? Path dependence, complexity in lock-ins and the side ...................................................................................................effects of strategic decisions 1

2. ................................................Strategic side effects and their impact on the scope of action 2

3. .................Explaining the emergence and threat of lock-ins: the theory of path dependence 4

4. ..............................Unfolding the path: A three level shaping of strategic lock-in processes 8

4.1. ..........................................................................................Resource dominated lock-ins 12

4.2. .................................................................Cognitive and normative dominated lock-ins 12

4.3. Lock-in as a process: the effect of cognitive and normative restrictions on path ........................................................................................................................stabilizing 19

5. ............................................................................................................................Conclusion 21

6. ..............................................................................................................................Literature 23

1. Introduction: Definitely dependent? Path dependence, complexity in lock-ins and the side effects of strategic decisions

Research on organizational and strategic path dependence has most recently addressed the

question, why some organizations fail in adapting to changed environmental conditions (e.g.

Brunninge and Melin 2010; Gruber 2010; Holtmann 2008; Koch 2008b; e.g. Koch, Eisend

and Petermann 2009; Schüßler 2009; e.g. Sydow, Schreyögg and Koch 2009). In contrary to

previous approaches, which saw reasons e.g. in the way organizations are structured by

routines (Nelson and Winter 1982), core technologies (Hannan, Burton and Baron 1996;

Hannan and Freeman 1984) or insufficient abilities to learn and absorb knowledge (Cohen

and Levinthal 1990; Levinthal and March 1993; Todorova and Durisin 2007; Tsai 2001; Zahra

and George 2002), path dependence theory refers to a process driven by self-reinforcing

mechanisms, potentially leading to a lock-in situation where organizations face a severely

narrowed scope of action (Sydow, Schreyögg and Koch 2009). Some empirical cases showed,

that path dependence can persist over longer periods of time (e.g. Brunninge and Melin 2010;

Dobusch 2008; Holtmann 2008; Koch 2008b; Schüßler 2009; Sydow 2009). In most of these

cases, the path dependent pattern persisted despite major changes of environmental

conditions, even after the lock-in situation became problematical for the organization. While

this work on path dependence theory mainly focussed on the origin of path dependence, the

period of lock-in and the further evolvement of path dependent patterns has not been much

investigated up to now. Therefore, serving mainly as an ex-post theory, with the aim to

analyze and explain a special kind of problematic stabilities, the theory of path dependence

can so far only in a small scale serve as a basis to give suggestions for locked organizations.

However, it is quite important to further examine lock-in situations in order to better

understand this critical period. A few studies still started to investigate possibilities of path

breaking (e.g. see the case of Dobusch 2008), and with the focus on path breaking also the

question arises, how organizations perhaps actively stabilize paths. Overall, the question of

this work is, how path dependence can persist over a long period of time, despite major

changes of environmental conditions, that possibly reopen the scope of action.

To answer this question, this conceptual paper will distinguish between different levels of

lock-in, namely resource dominated, normative and cognitive lock-in, in order to draw on a

path stabilization process, driven by side effects of strategic actions being responsible for a

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renewal narrowing after the scope of action has reopened due to environmental changes. That

is, referring to this side effect of strategic decision in specific lock-in situations, it is proposed

that path dependent patterns alternate over different levels of lock-in. In path dependence

theory, up to now side effects were only conceptualized as small events in the beginning of

the path development process (Arthur 1989; Arthur 1994; Sydow, Schreyögg and Koch 2009),

triggering the formation of self-reinforcing mechanisms. It will be shown, that side effects

also can also occur in periods of strategic lock-in, depending on the patterns lock-in level.

With the distinction of resource dominated, normative and cognitive lock-in, it can be shown

that the level of dependence may change over time and that complexity driven side effects

thwart a potential path breaking.

After a short definition of strategic side effects (2), an as well brief introduction to the theory

of organizational and strategic path dependence will be given (3), before the lock-in stage gets

further conceptualized (4). Finally, a short summary will conclude the insights (5).

2. Strategic side effects and their impact on the scope of action

Although the notion of side effects seems quite obvious, the metaphorical nature of this

construct necessitates a bit deeper explanation, especially to specify the concept with regard

of its meaning for management activities. Management as well as economic science did not

utilize the notion of side effects in a broader stream up to now, so a specification will be also

helpful to distinguish the concept of side effects from related concepts like external effects,

small events (Arthur 1989; Arthur 1994; David 1997; Sydow, Schreyögg and Koch 2009) or

emergence (Adner and Levinthal 2002: 692; Anderson 1999; Goldstein 1999; Mintzberg and

Waters 1985).

Analogical to the concept of emergence, side effects imply something unintended (Hampton

1970). While emergence means, that a specific (part of a) result is not intended (Mintzberg

and Waters 1985), the unintended part of a side effect is the effect itself. That is, with side

effects the focus is not only on the result but also on the process, leading to specific intended

as well as unintended results. In the context of strategic decisions, two kinds of side effects

can be distinguished, depending on their effect on intended strategic goals: (1) side effects

that determine the failure of strategic activities (Ambrose and Carroll 2007; Ivanova, Keen

and Klemm 2005) and (2) side effects, which do not impact the achievement of a strategically

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intended goal itself, but change the conditions under which the goal was set (Arguden 1988;

Baker 2000; Hampton 1970). This second case, that an intended goal becomes achieved

despite side effects, directs the attention more to side effect driven changes effecting the

system. Such an effect can directly lead to changes within the system or it could cause (or

promote) an environmental state, which further impacts the system. When primary goal

setting conditions become changed, the now achieved goal probably does not longer fit to the

system. In this case also the potentially side effect driven consequences of strategic successes

become visible: While the intended strategic goal is achieved, exactly this result leads to

following important, but before unconsidered and likely unintended impacts on the system

(similar: Baker 2000). Especially side effects of strategic success are probably not perceived

for a certain length of time, because managers focus on defined strategic goals and therefore

develop a tunnel vision (Hampton 1970). Often side effects and intended strategic goals are

strongly affiliated with each other (despite the side effects are unintended and preliminary

unnoticed), by what efforts to avoid the side effect would also weaken the strategic goal

(Arguden 1988).

An explanation for the origin of side effects could be given by the complexity theory. There it

is assumed that a system could not be explained through (even not total) observation of its

parts (Anderson 1999; Holland 1998; Luhmann 1995). At the same time, this means, that a

purposeful change of parts, could not obligatory suggest any resulting status of the whole

system. The difference between the intended goal in time of strategic decisions and the

resulting system status, could than be attributed to side effects caused by complexity. Because

of bounded rationality (for complexity and rationality in the context of path dependence, see

Koch, Eisend and Petermann 2009) and imperfect information, the management (also when

reaching strategic decisions) is not able to control the organization as the whole system, but

has to focus on specific strategic entities.

With the help of complexity, two things could be explained: On the one hand, that strategic

actions may raise side effects itself, that is they have unintended consequences for the system,

which (in an extreme case) could preclude the achievement of a strategic goal. In addition it

reveals, that also the achievement of strategic goals could induce side effects which than

affect the system.

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Three characteristics of strategic side effects can be summarized: Such effects are (1)

unintended (Hampton 1970; Leslie, Knobe and Cohen 2006), (2) often not noticed until

critical situations, because they are hidden by successfully achieved (or to achieve) goals

(Hampton 1970), and therefore (3) side effects are hard avoidable (Baker 2000). In some

contexts it is possible that achieved intended effects outweigh the unintended effects (Kaim-

Caudle 1993). But contrary to the economic context of maximizing welfare, negative side

effects in a strategic context could hardly be settled by only simultaneously achieving the

intended positive effect. The problematic aspect of strategic side effects in the focus of path

dependence is, that they (at least potentially) can have a narrowing impact on the scope of

possible strategic actions, due to the above listed characteristics. This threat of loosing scope

of action is especially relevant for organizations which potentially could leave a strategic

lock-in, in a specific point of time.

3. Explaining the emergence and threat of lock-ins: the theory of path dependence

The theory of organizational path dependence (Schreyögg, Sydow and Koch 2003; Sydow,

Schreyögg and Koch 2009) made a strong contribution to the research about how

organizations become inflexible, especially locked in. Adopting a concept, originally

developed in an economic context, strategic and organizational path dependence research

focusses less on rigidity or inflexibility as a condition only, but more on the process it

develops (Koch 2008b; Koch, Eisend and Petermann 2009; Schüßler 2009; Sydow 2009). In

the beginning of path dependence theory was the historical investigation of how the

QWERTY layout became the predominant standard for typewriter and computer keyboards,

persisting up to now (David 1985). David argued, that mainly network effects forced the

emergence of this technological path. The mathematical formalization of such a process was

made by Arthur (Arthur 1983; 1989; 1994), who showed that increasing returns affects

technological competition. That not only technologies, but even institutions (North 1990;

Pierson 2000; Thelen 1999) can become path dependent, was a further step towards an

organizational and therefore management perspective on the problem of strategic lock ins.

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The development of organizational path dependence occurs over three phases (see figure 1):

In the first Phase (I), the preformation phase, an organizations strategic scope of action is only

little narrowed by historical imprints (Sydow, Schreyögg and Koch 2005). Decisions are at

this point of time contingent and reversible (Sydow 2009). Primal with the occurrence of a

small event, the shadow as the illustration of possible strategic choices starts to narrow. Such

small events (also big events are imaginable) can be specific (minor) choices or actions (e.g.

Schüßler 2009), changes of environmental conditions (e.g. Koch 2008b) or even major

strategic decisions (means more a big, than a small event, e.g. Holtmann 2008). Small events

are critical junctures (Collier and Collier 1991; Mahoney 2000) leading to phase II, the path

formation phase. The system status changes in this juncture: up from this moment former

equilibria are dissolved and a new one emerges (Kauffman 1993).

Figure 1: Constitution of organizational paths (Sydow, Schreyögg and Koch 2009: 692)

In phase (II), the formation phase, the emergence of a specific strategic pattern becomes more

probable than other ones. Responsible for the now increasing probability of path development

are self-reinforcing mechanisms, starting in the critical juncture, triggered by the occurrence

of the small event (Arthur 1989; Sydow, Schreyögg and Koch 2005). Nevertheless, also in

this phase, strategic decisions are still not deterministic and in principle reversible, even

though (and due to the effect of self-reinforcing mechanisms) it becomes more difficult to

The transition from Phase II to Phase III—theLock-in Phase—is characterized by a furtherconstriction, 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 apath. One particular choice or action pattern hasbecome the predominant mode, and flexibilityhas been lost. Even new entrants into this fieldof action cannot refrain from adopting it. Whenmore efficient alternatives are available, indi-viduals’ and organizations’ decision processesand established practices continue to reproducethis and only this particular outcome. The occur-rence of a lock-in renders a system potentiallyinefficient, because it loses its capability toadopt better alternatives.

Figure 1 illustrates the process across thethree stages. This differentiated framework isintended as a general model of path depen-dence; its functioning, however, is likely to differfrom context to context according to the prevail-ing conditions, particularly market versus hier-archy. The contextual specifics when applied toan organizational context—the target field ofthis 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 ofaction. From a theoretical point of view, the

question that arises is how this initial state canbe conceptualized in more distinctive terms. Thetechnological path studies—if at all—have con-ceived of the initial situation as being unre-stricted. The search for alternatives starts fromscratch, and decisions are unconstrained.

Such framing of the first stage in the rationalchoice tradition, however, paradoxically ignoresthe fact that the development of a path is em-bedded and connected with other developments;it cannot be considered a completely separateprocess without any imprints from the past. Inbrief, history matters in the Preformation Phasetoo. In organizations initial choices and actionsare embedded in routines and practices; theyreflect the heritage—the rules and the culture—making up those institutions (e.g., Child, 1997;March, 1994; Tolbert & Zucker, 1996). Institutionsare “carriers of history” (David, 1994), and his-tory cannot be intermittent; it does not matteronly occasionally—it always matters! A concep-tualization of the activities in the PreformationPhase thus cannot start from scratch; it has toaccount for institutional imprints.

On the other hand, history in this broad senseis not destiny; we have to draw a clear distinc-tion between historical-institutional influencesand imperatives. The notion of path dependencedoes not refer to a state of determinacy from thebeginning; it sheds light on a tapering processthat possibly ends in a lock-in. Increasing pathdependence implies an initial scope of choice.Otherwise, the theory would lose its very point:

FIGURE 1The Constitution of an Organizational Path

692 OctoberAcademy of Management Review

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reverse the whole pattern emerging process over time (Ghemawat 1991; Sydow, Schreyögg

and Koch 2009). Thereby, the shadow of possibly grasped strategic choices narrows more and

more - possibly up to a point of lock-in.

The transition from phase (II) to the lock-in phase (III), is reached when all other alternatives

are crowded out. From this point of time an organization depends on the evolved strategic

pattern and will therefore follow a strategic path. That must not from beginning of the lock-in

mean, that the organization will act inefficient (Sydow, Schreyögg and Koch 2009). When

assuming that the self-reinforcing mechanisms made their impact due to a good fit of the

strategic pattern to environmental conditions, it is plausible that also locked organizations can

be efficient as far as this conditions remain same. The problematic aspect of an organizational

lock-in is the potentiality of becoming inefficient, which is directly linked to being dependent

on reproducing a specific strategic alternative over time. Also when environmental conditions

change, the organization will make strategic decisions based on the emerged pattern, unable to

adopt more efficient alternatives.

Centric in the concept of organizational path dependence are self-reinforcing mechanisms,

which mainly drive the process in phase (II): (1) Complementary effects, based on

interdependencies between two or more entities of a system (or between different systems)

like institutions, activities, resources or products (Höpner 2005), (2) coordination effects,

which are based upon interrelations between individuals of one system or between whole

systems and are related to rules (North 1990), (3) learning effects, which are not only related

to institutional settings but also to technological contexts (Arthur 1996; David 1985), (4)

adaptive expectations (DiMaggio and Powell 1991; Meyer and Rowan 1977) and with an

outstanding significance for the strategy perspective: (5) network effects and economies of

scale. Network effects characterize the increasing utility of technologies with increasing

amount of users. That a network of users can determine which one of competing technologies

will succeed, was most prominent shown by Davids‘ (1985) description of the QWERTY

case, but is also visible in recent competitions, for example the success of Windows over

Linux (Dobusch 2008; Varian, Farrell and Shapiro 2004) or VHS over Betamax (Cusumano,

Mylonadis and Rosenbloom 1992). Network effects can be direct effects - when the product

utility correlates with its diffusion rate - or indirect effects, what means, that the product

utility correlates with the complementarity of other products (Ackermann 2001), as it is the

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case with games and game consoles. Economies of scale unfold their self-reinforcing effect

due to decreasing average costs with increasing production volume. With strategic use of

economies of scale, it is possible to cut prices, what can lead to higher demand whereby

economies of scale can be generated again, and so on. Both effects can be used strategically,

but they can also have negative effects, for example when the demand decreases or products

loose their compatibility, what is especially dramatical in lock-in situations.

While all these mechanisms at first have a strong positive impact on the organization, due to

the success of developed or continued strategies based on this mechanisms, the mentioned

negative consequences could occur - long after the organization became locked in important

strategic patterns.

The process of path development in organizations has according to this short overview some

broadly accepted characteristics (illustrated in figure 2): Even though an occurred path

dependent pattern is such dominant, that it maybe seems to be tight-knit with the system in

some cases - in the early stage of path development, strategic decisions are contingent and the

ultimately locked pattern is not predictable in the beginning. Even after the critical juncture

the processes of self-reinforcement could stop or be stopped and the development of a path

dependent pattern possibly be avoided. But because of such an interruption of self-reinforcing

processes becomes more and more unlikely over time, the predictability of possible lock-ins

increases slightly with the ongoing process of self-reinforcement.

Figure 2: characteristics of path development processes

Change of environmental

conditions

flexibility non-predictability

efficiency

predictability inflexibility/improbability

inefficiency

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Strategic paths are not necessary inefficient from the beginning of lock in situations. Even

after a lock in has occurred, organizations and strategies can perfectly fit to all relevant

environmental conditions. The critical aspect of paths is, that path dependent strategies can

not be changed, when environmental changes necessitates it. That is, from the beginning of

strategic lock-ins, path dependent strategies are at least potentially inefficient and with

ongoing environmental dynamics the probability of inefficiency (in difference to other

strategic alternatives) increases.

Tight-knit with inefficiency, also „inflexibility“ is widely accepted as a characteristic of

emerged paths. So far this predicate is understood as result of the (due to the processes of self-

reinforcement) narrowed scope of strategic action (Holtmann 2008; Pierson 2000; Sydow,

Schreyögg and Koch 2009). Because of path examinations are normally ex-post

examinations, the observer only recognizes that relevant strategic patterns have been retained

unchanged. This continuity becomes so far only attributed to the previous self-reinforcing

processes. In this view the path stabilizing role of strategic management in lock-in situations

is perhaps underestimated. From an ex-ante perspective, it could be useful to distinguish the

notion of inflexibility and to differentiate between impossibility and improbability of adopting

other strategic choices as characteristics of organizations in lock-in. Why this eventually does

the complexity of paths more justice and simultaneously opens the perspective for a process

of path stabilization in lock-ins, will be shown in the next section.

4. Unfolding the path: A three level shaping of strategic lock-in processes

The theory of organizational and strategic path dependence is primarily an ex-post theory,

with the aim to analyze and explain a special kind of problematic stabilities. Due to the nature

of path development processes described above (e.g. „non-predictability“) the theory can so

far only in a small scale serve as a basis to give suggestions for locked organizations.

However, the phase of strategic stability is up to now little investigated. That is why a deeper

investigation of lock-in situations of systems could give valuable insights, how to better act

and what to take more into consideration in strategic lock-ins. Therefore it is necessary to

further conceptualize the lock-in phase of the path model in more detail. Few studies started

to examine how paths (potentially or successfully) could be left (e.g. Dobusch 2008),

especially by considering discourses in or between organizations (Phillips and Hardy 2002).

But with the focus of path breaking, also the question comes to the fore, if and how systems

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actively stabilize paths. So far, it is still unclear what in locked organizations really happens

and if there could be processes in lock-in phases which again stabilize the path dependent

pattern despite a situation is favorable for potentially leaving or breaking the path. Stabilizers

of path dependent patterns could be unintended strategic side effects - but probably not in

every system status.

So far path observations (as ex-post observations) generally were content with the

identification of persistency despite the necessity of change in lock-in phases. This

persistence was than attributed to the self-reinforcing mechanisms, appearing in phase (II).

Given the fact, that lock-in phases can last very long (for an economic example remember the

QWERTY keyboard case (David 1985) and for exemplary cases of long-lasting organizational

or strategic lock-ins see (e.g. Brunninge and Melin 2010; Holtmann 2008; Koch 2008b;

Schüßler 2009)), and that environmental conditions changes over time, it has to be asked, if

there are other reasons than the past self-reinforcing mechanisms driven process of building

up a strategic pattern why organizations persist on a path. More: in a sense of permanent

strategic activity, persistence also implies the stabilization through aware or unaware parts of

action (Giddens 1984). For a stabilization perspective on paths it is necessary to examine the

kind and broadness of the scope of action in lock-in phases by answering the question, why

path dependent organizations are seen inflexible over time from an ex-post view.

Stability as well as change are directly related to an organizations resources (Barney 1991;

Peteraf and Barney 2003; Wernerfelt 1984) and routines (Dosi, Nelson and Winter 2000;

Feldman and Pentland 2003; Hannan and Freeman 1977; Hannan and Freeman 1984; Hannan

and Freeman 1989; Koch 2008a; Koch 2009; Nelson and Winter 1982; Teece, Pisano and

Shuen 1997). Therefore also path dependence is directly linked to these both levels (cf.

Gilbert 2005; Koch 2008b; Tripsas and Gavetti 2000): Observing a path dependent strategic

pattern means to identify a locked combination of resources and/or routines. Because routines

are recurring behavioral patterns (Nelson and Winter 1982), the continuance of such patterns

reflects particularly specific norms and cognitions anchored in the organization (see van

Nieuwaal 2010). Therefore and in more detail, the problematic dependence of locked strategic

patterns can be attributed to levels of resources, norms and cognitions (see also Sydow,

Schreyögg and Koch 2009). A path dependent pattern is normally not outstretched over all

three levels equally, thus each one can dominate the others. Depending on which level

outweighs the others, a lock in situation can be called resource dominated, normative or

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cognitive dominated. Koch (2008b) mentioned that systems may not overcome lock-ins

because of three reasons: there are no strategic alternatives, the management does not

recognize such alternatives or the management recognizes alternatives, but does not recognize

the necessity to adopt them. Maybe a fourth reason should be added: the management

recognizes possible strategic alternatives as well as the necessity to change, but dismisses the

specific recognized alternatives for normative reasons.

As mentioned above, lock-in situations are not necessary problematic from the beginning.

Indeed, the exploration (March 1991) of new strategic alternative is not possible with

available resources, this system status becomes critical as recently as environmental

conditions changes and the strategic arrangement no longer fits to the relevant environment.

Especially in turbulent environments (Burns and Stalker 1961) such major environmental

changes certainly also occur after a lock-in situation became critical. This in turn can effect

that also before locked resource combinations now could possibly allow the exploration of

new strategic alternatives again. Thus, a once more change of environmental conditions could

broaden the scope of action again. In this point of time, path breaking is a potential

possibility. When such alternatives occur in problematic lock-in situations, organizations will

probably not attempt to increase the level of dependence again, because of their actual

inefficiency. Strategic decisions in such time frames rather will aim to more open the future

scope of action, in order to become efficient again. If nevertheless a pattern of strategic action

remains observable (ex-post), this only could be explained by cognitive or normative

restrictions. Such a possible process is informed by the assumption, that lock-in situations are

not only rather resource based, normative or cognitive over the whole time of lock-in, but that

the status of path dependence alters over these three levels due to changes of environmental

conditions. If as a result of such changes a scope of strategic action occurs again, the strategic

alternatives will not remain achievable enduring. When alternatives become not chosen

because of normative or cognitive restrictions, they will disappear as possibilities over time,

for example because specific strategic choices exclude each other, the market develops further

or competitors became too powerful (e.g. Tripsas and Gavetti 2000). The disappearance of

unselected alternatives is perhaps not intended as well as this process may remains unnoticed.

Thus, as the side effect of specific (normative and cognitive restricted) strategic decisions in

such time frames, the level of dependence and therefore the system status changes once again,

because the scope of action becomes narrowed once more (figure 3).

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Figure 3: possible choices and path stabilization process in lock-ins

From the ex-post perspective, the pattern will be only observed as stable and the organization

as inflexible, despite the scope of action, the level of dependence and the system status had

changed during a complex process. The again narrowed scope of action might be the result of

side effects. That means, the notion of inflexibility has to be differentiated: The question is,

why are Organizations inflexible in lock-ins, and depending on the time frame the answer

could be different: because of (1) resources, (2) norms or (3) cognitions.

While it is - due to the definition of path dependence - impossible to leave paths during

periods of locked resources (ceteris paribus), environmental changes could provide the

opportunity to break the path. Due to normative or cognitive restrictions routines possibly be

continued and nearby decisions will be made. Those restrictions therefore could serve as

trigger for path stabilizing side effects. To explain this side effect triggering process, it is

important to further examine the three levels of inflexibility.

(1) Change of environmental

conditions

(2) Change of environmental

conditions

(ex post observation) inflexibility

inefficiencyefficiency

impossibility

predictability

increasing possibility but improbability

= side effect

= routines (levels of dependence: norms, cognitions)

= (ex-post identified) pattern

decreasingpossibility

im-possibility

(3) System status change: last alternative

disappeared

t

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4.1. Resource dominated lock-ins

Strategic activities are directly linked to the resource configuration of an organization.

Resource dominated lock-in would mean time frames, when an organizations resource

configuration does not enable the organization to adopt any (new) strategic alternative.

Despite this significant constraint, competitive advantages (Barney 1991; Peteraf and Barney

2003) could possibly be achieved, at least short after a lock-in has emerged. To achieve

competitive advantages, resources have to be tied into the organization with routines or

practices, resulting in strategic practices (Feldman and Pentland 2003; Gilbert 2005; Koch

2008b). Particularly deep embedded into an organizations structures, are core competencies

(as behavioral patterns handling with valuable, rare inimitable and non-substitutable

(„VRIN“) resources (Barney 1991; Schreyögg and Kliesch-Eberl 2007)).

When the competitive advantage - as an attribute of the resource configuration - disappears,

the former core competence (behavioral pattern) can become a core rigidity (Julian, Ofori-

Dankwa and Justis 2008; Leonard-Barton 1992). This perhaps can be the case, when self-

reinforcing mechanisms caused that the resource configuration of an organization no longer

enables the adoption of other than the actually reproduced strategic alternative.

During the process of self-reinforcement, the organization assimilated itself more and more to

a specific environmental state, because of positive feedback, increasing returns and probably

with the aim to exploit the competitive advantage. After this „fit“ between the system and its

environment has disappeared, the resources do not any longer provide a basis for strategic

decisions, satisfying the requirements of environmental conditions. The scope of action in this

case is such narrowed, that self-reinforcing mechanisms (which forced the lock-in) need not

necessary to appear in time frames of resource dominated lock-in, but the organization is

anyhow forced to reproduce the actual strategic pattern (Schüßler 2009). Because the system

only can reproduce the specific strategic pattern, side effects of strategic decisions can‘t have

any consequence for the pattern itself or the relationship between system and pattern, in

resource dominated time frames.

4.2. Cognitive and normative dominated lock-ins

The initial point for unfolding the path, was the consideration, that environmental changes,

which are also responsible for the acute inefficiency of path dependent patterns, could

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potentially refit the organizations resources to environmental conditions and therefore make

new strategic options achievable. One could say, that the organization is no longer path

dependent in this moment. But the question rises up, how to grasp that organizations further

reproduce the path dependent pattern, despite changes expended the scope of action. If this

phenomenon can be attributed to the levels of norms and cognitions (Burgelman 2002; Gilbert

2005), path dependence (as an ex-post observation) would not end in this critical point but

only shifts towards another level. In first, the ex-post observation would be quite simple: an

organization dismissed or did not recognize the newly emerged options and followed specific

(strategic) routines (cf. Koch 2008b). Expounding the problems of norms and cognitions ties

in with the insight, that locked systems are sub-complex, because locked organizations can‘t

adapt to their more complex environment adequately (Kauffman 1991; Levy 1994; Lewin

1999). To understand, why therefore routines become retained unchanged and why the new

options and new resources are not developed, but old resources stay important for path

dependent organizations, it is helpful to give a short overview about cognitive and normative

structures in organizations. Strategic decision making in organizations ever faces the problem

of complex areas of action (Luhmann 2000), so especially for the levels of norms and

cognitions, the question is relevant, how organizations adopt to their complex environment

(Lüer 1998).

Cognitions

The perspective of cognitions on strategy making is not very new and considerable work has

been done to highlight the importance of cognitive processes in organizations (cf. Dosi 1982;

Gioia and Thomas 1996; Porac, Thomas and Baden-Fuller 1989; Tripsas and Gavetti 2000;

Weick 1995). The topic of cognitions as an individual psychological phenomenon was thereby

matched with the analysis of organizational structures. In doing so, not the cognitions itself

became relevant, but the cognitive structures as cognition enabling and restraining structures,

which are social constructed through interaction. To explore cognitions in organizations, it has

to be differentiated between the operational individual level and the regulating level of social

context. In the case of decision making, the closer social context is a group of decision makers

within an organization (Lüer 1998; Schneider and Angelmar 1993; Walsh 1995). Because of

the interaction between individuals within the social (organizational) context, not only the

individual, but especially the organizational perspective became relevant (Johnson 2009;

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Kaplan 2008; Schneider and Angelmar 1993; Walsh 1995; West 2007). Precisely, the

organization as individual context of acting overlaps and affects the cognitions of single

decision makers (Sutcliffe 1994), and therefore the investigation of organizational rigidities

necessitates to abstract from the individual and rather to focus on organizational structures.

The organizational structures significantly affect, what members can (and will) recognize as

strategic relevant (Lüer 1998). This is achieved by shared cognitive maps, which cause the

separation of a relevant sphere of activity, including relevant suppliers, relevant technologies,

relevant competitors or the perceived intensity of competition (Dosi 1982; Huff and Reger

1987; McNamara, Luce and Tompson 2002; Porac and Thomas 1989; Porac, Thomas and

Baden-Fuller 1989; Porac, Thomas, Wilson, Paton and Kaufer 1995; Reger and Palmer 1996).

Causal maps (as a form of cognitive maps) cover also ,cause and effect‘ relationships, which

are perceived as valid within organizations (Hall 1984; Lehner 1996; Tolman 1948). From

this view, the differentiation of strategic groups within a branch (e.g.), are cognitive constructs

by industry representatives (Huff and Reger 1987). Similar Weick (1995) conceptualized the

sensemaking of business environments: the sense of relevant environments becomes actively

constructed by the members of an organization.

The interaction between members of an organization within this social context leads to a

recursive perspective: the managerial context informs the cognitive structures and therefore

the orientations guiding perceptions and reasoning (Day and Lord 1992; Schneider and De

Meyer 1991), but vice versa the context that informs decisions, including the orientation

about what are the relevant environmental conditions, is created as a cognitive reflection

effort within the same organization (Johnson and Hoopes 2003; Sparrow 1999). The level of

cognition concerns in particular the question, how the environment becomes constructed and

therefore: how environmental conditions become interpreted (Thrane, Blaabjerg and Müller

2010; van Nieuwaal 2010).

Norms

While cognitions mean to perceive and to reason (Neisser 1979), norms are responsible for

valuation. The most significant concept, concerning the normative level of organizations, is

the organizational identity, which is based on cognitions and reflects the shared beliefs (Albert

and Whetten 1985). Identity can be related to a historical and to a comparative dimension

(Kirchner 2010). In respect of this two dimensions, identity reduces the complexity by

providing an idea about what options are typical fitting to the organization (Whetten 2006), in

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order that single decisions become related to the whole organizational system (Luhmann

2000). That is, identity is about how an organization sees itself (for identity in path

dependence cf. Brunninge and Melin 2010; Fuchs 2010; Koch 2008b; Koput, Conaway and

Olson 2010). Despite, the identity becomes reproduced continuously by acting (Gioia and

Chittipeddi 1991; Gioia and Thomas 1996), it is per definition a construct of stability (Albert

and Whetten 1985; Kærgaard 2009). Like cognitions, norms and especially identity are deeply

informed by the relevant context. Identity as well as beliefs underlie strategic decisions:

several studies showed that options, not fitting to the self-image of an organization, became

excluded (cf. Burgelman 2002; Tripsas and Gavetti 2000; Walsh 1995) and also Koput,

Conaway and Olsen (2009) highlighted the significance of identity for the adoption of new

practices and technologies.

Rigidity of cognitions and norms in lock-ins

As showed in figure 3 above, the phase-III-side effect of strategic lock-in (leading to an again

narrowed scope of action) is based on the choice of a path dependent option, despite other

options became available or at least achievable after environmental conditions had changed.

Because this norm and cognition shaped routinized choice triggers the strategic side effect, it

is important to better understand, why norms and cognitions are restricted in this specific

moment of environmental change and therefore make the side effect hard avoidable. With

regard to the distinction, made in (4.) organizations may (1) simply do not recognize the other

option(s) as well as that they (2) misinterpret the options as not relevant, not necessary or as

not fitting to the organization (cf. Koch 2008b). And (3) it is possible, that organizations

recognize some choices and decide to adopt one, with out recognizing that this strategic

alternative is also based on the path dependent pattern. Thus, three different forms of

normative/cognitive lock-in arise, which will be clarified in the following.

(1) When organizations do not recognize the new options: When the path developing phase II

leads into a lock-in, it can be assumed that this phase of self-reinforcement was

accompanied by significant strategic successes, because major failures would probably

force the abort of path development. Cognitive structures than become closely tied to the

successful competencies and strategic decisions of phase II. The close relationship to

formerly successful competencies (which is normative and cognitive) makes the

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replacement of orientation patterns very difficult (Gioia and Thomas 1996; Schreyögg and

Kliesch-Eberl 2007). Especially when the environmental conditions are fast changing, for

example that time of the first change within a lock-in, making the path problematic, can

mental modes if at all only change slowly (Reger and Palmer 1996).

After the lock-in occurred, the organization is fixed on reproducing the (at the beginning

potentially still successful) strategic pattern. While being resource based locked, the

normative and cognitive structures over time became reduced in their connectivity

potentials to other options, to enhance the complementarity to the pattern itself. This could

especially be the case, as long as no crisis occurs and the path remains successful.

In a time frame of resource dominated lock-in, also the absorptive capacity (Cohen and

Levinthal 1990; Todorova and Durisin 2007; Tsai 2001; Zahra and George 2002) might be

affected. The absorptive capacity is, inter alia, a function of prior knowledge and provides

structures for absorbing and processing new knowledge. Over time, the complexity of the

system becomes reduced, as the knowledge base will be not further developed any longer

and therefore integrating new knowledge becomes even more difficult.

The organizational perception of and reaction to environmental conditions in tn is based on

the cognitive structures, that evolved until the end of tn-1. The cognitive structures at the

end of a phase of self-reinforcement are aligned to a specific environmental state. And also

after a change exposed the problem of a lock-in situation and later on a renewed change

leads to new potential options, the up to this moment path dependent system probably has

not the structural (cognitive) dispositions to make the new environmental state

successfully accessible. It is a characteristic of path dependence, that a locked system can

only fall back on established and sub-complex structures. This structures perhaps make a

new option not recognizable as such.

(2) When organizations misinterpret the options as not relevant, not necessary or as not fitting

to the organization: Organizations try to harmonize actual observations and past

experiences (Steinbrunner 1974). When organizations are facing a new environmental

constellation, they will try to create stability (Kærgaard 2009; Weick 1995). Is there one of

many options, which provides a fit to the organizational identity, it is likely, that the

organization will adopt it, despite others. In contrast, other options not fitting to the

organizational self-image become dismissed (cf. Burgelman 2002; Tripsas and Gavetti

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2000; Walsh 1995). Furthermore, the ordinary understatement of threat can cause the

rejection of alternatives (Gilbert 2005; Hambrick, Geletkanycz and Fredrickson 1993).

(3) When organizations adopt a new alternative, which is based on the path dependent pattern:

Apart from the reasons, mentioned for the other two cases above, it is likely that

organizations expect to enhance their scope of action with their choice of a specific new

alternative, because the cognitive structures do not allow them to realize a specific path

dependent pattern as the source of present problems. This especially could be the case,

when organizations expand to new markets (with established competencies). Strictly

speaking, such actions can be same identity driven as in the case of misinterpretation and

moreover, the cognitive structures do not enable the organization to recognize that the new

strategic choice is based on a problematic pattern. Potential real new strategic options

within the new market are therefore not recognized or possibly wrongly assessed. In

particular when values and believes got stuck, actual change will be hard (van Nieuwaal

2010).

As described above, self-reinforcing mechanisms are very central for cognitive and normative

rigidities occurring in lock-in situations. For example, it can be the result of coordination

effects, that organizations take rules or structures for granted (as a cognitive process (Koput,

Conaway and Olson 2010)), because they assume the impossibility to leave a system of

coordinated institutions. Also adaptive expectations can cause, that recognized options

become not relevant, because it is assumed that competitors or consumers will act as hitherto.

The cognitive maps possibly only include an old scheme of competitors, which became rigid

during the periods of self-reinforcement and previous resource based lock-in. Due to this

established and shared organizational cognitive map, adaptive expectations may fall short,

because the organization would rather need to face new competitors.

Especially after a crisis occurred while an organization is locked, some self-reinforcing

mechanisms can turn to opposite, so effects like coordination effects and network effects

come under pressure and returns are not longer increasing but decreasing. For this reason it

can be attractive trying to recover the effect of this self-reinforcing mechanisms, as soon as

scope originates. The self-reinforcing mechanism becomes a strategic goal itself. In particular

also the attractiveness of reaching a former positive effect of self-reinforcing mechanisms is

- 17 -

based on cognitive and normative structures, which evolved during the timeframe of positive

feedback and increasing returns and is tight-knit with the organizational identity.

At least the development of resources can become achievable after environmental changes in

strategic lock-ins, but can fail due to normative an cognitive rigidities, changing the level

towards a normative or cognitive lock-in. This both levels highlight, that it is not only

important to observe strategies and resources of path dependent organizations, but also how

such organizations perceive and evaluate itself, their strategies and strategic options.

Figure 4: Cognitions and norms in the resource-environment relation

Norms and cognitions filter and create the relevant environment in a recursive process and

therefore affect the handling of resources (figure 4). Thus, strategic decisions are inter alia

shaped by the organizational identity and by the particular way, how environmental conditions

are perceived.

Due to the sub-complexity of organizations in lock-ins, cognitive and normative patterns can

cause, that environmental conditions become misvalued, change becomes misjudged, new

strategic options stay unrecognized and therefore a strategic routine is continued (see figure 3

again). The question, if other options are imaginable, is independent of whether the resources

would enable the organization to embrace this alternatives or not (Brunninge and Melin

2010). That is, only when resources do not allow strategic alternatives in a specific

environmental state, it is a matter of resource dominated lock-in. As soon as organizations

misinterpret, or do not perceive potential options due to cognitive or normative rigidities and

thereby (possibly even unintended) reproduce a path dependent pattern, the matter is a

cognitive or normative lock-in. Because the system in this case not only can reproduce the

specific strategic pattern, but the resources would potentially allow other strategic options, the

Environment(options, change ...)

Resources(scope of action)

Norms

Cognitions

- 18 -

choice of an (eventually unintended) path dependent alternative can have side effect

consequences for the future scope of action.

4.3. Lock-in as a process: the effect of cognitive and normative restrictions on path stabilizing

The initial strategic decision or action in the transition from a resource dominated to a

normative or cognitive dominated lock-in can be to some extend a side effect caused by

previous time frames of self-reinforcement and resources dominated lock-in (see above). But

more important, it is also the triggering event, for side effects causing that the just expanding

scope of action narrows again. Drawing on the three cases of cognitive/normative lock-in

(distinguished in 4.2.) the path stabilization process can be explained for both possible results

of that strategic decision or action: the achievement and the missing of its targets.

Missing targets and narrowing scope of action: To miss a target implies, that the organization

recognized different options and has chosen one of them for good reasons. Especially in the

case of a still occurred crisis this would probably be even the target to extend the future scope

of action (4.2., case 3). An example could be, that environmental changes led to a new market

and the path dependent organization, knowing about its crisis situation, tried to develop this

market with new products based on its competencies (including the path dependent strategic

pattern). The intention behind this action might be to compensate losses with new revenues.

But this intention is a result of the organizations restricted cognitive and normative structures.

Due to the sub-complexity of the system, the path dependent pattern in this case will likely be

recognized later on as remained stabile beside the perhaps at first sight innovative decisions or

products. Because the situation is more complex than the organization could handle after the

timeframes of self-reinforcement and resource dominated lock-in, not all causalities will be

anticipated. Simultaneously, the path dependent pattern becomes transported and established

in the new market whereby the future scope of action decreases also for this new market,

business segment or product. Possibly, the path dependent pattern is such tight-knit with the

organizational identity (Hall 1984; Tripsas and Gavetti 2000; van Nieuwaal 2010), that it is

not recognized as problematic. Similar to the case of small events, the intercorrelation

between action (or event) and future scope of action becomes probably visible not before the

organization is once more locked due to their resources and a crisis remains or occurs again

- 19 -

(cf. Arthur 1989; Arthur 1994; Sydow, Schreyögg and Koch 2009). As a a result of this scope

narrowing side effect (the unintended transportation of a path dependent pattern), the initial

goal becomes missed (Ambrose and Carroll 2007) as the scope of action is narrowed again.

Path stabilization despite achieving targets: If identity and cognitions cause, that

organizations reject or do not perceive specific options (4.2., cases 1 and 2), they nevertheless

eventually achieve their intended goals. But as a side effects of not adopting other possible

options, the future scope of action narrows once more. Perhaps because the system is in t2 not

longer able to adopt an option, that was adoptable in t1 (especially see: Tripsas and Gavetti

2000). Even if the cognitive structures will enable the organization to identify and evaluate

this options after a certain amount of time, the scope of action is than already narrowed again,

as a side effect of not adopting the choice before: Strategic options, that are achievable with

given specific resources today, might be not any longer relevant tomorrow. This can be

because different strategies directly excludes each other, the competencies of some

competitors are later far developed and/or the market entry barriers increased. That is, in

timeframes of normative and cognitive lock-ins path breaking is not impossible but rather

improbable (see figure 3 again) - dependent on how fast the organization can develop the

necessary cognitive structures to adapt to the new environmental conditions.

In all three cases of normative/cognitive lock-in (4.2.), the structures of the sub-complex

system in the moment of transition between resource dominated and cognitive or normative

dominated lock-in, cause that the system won‘t anticipate the impact of specific strategic

decisions on the future scope of action. As a side effect of continuing and reproducing the

path dependent pattern, the scope of action becomes narrowed again. Afterwards, the

organization is once more locked due to their resources. Finally, the scope narrowing side

effects of strategic decisions in lock-in phases, triggered by normative and cognitive

restrictions could explain why path dependence can persist over a long period of time, despite

major changes of environmental conditions. It highlights, that even the (ex-post) stable lock-

in phase is subject to a process of changing levels of dependence.

- 20 -

5. Conclusion

Few is known about lock-in situations and how path dependent patterns further evolve. The

thoughts imply, that environmental changes could reopen the scope of action in lock-in

situations and that this scope becomes narrowed as a result of strategic side effects, triggered

by normative or cognitive restrictions, as a problem of organizational sub-complexity. In an

extreme case, also innovations could stabilize a path dependent pattern (e.g. see the examples

of Brunninge and Melin 2010; Thrane, Blaabjerg and Müller 2010), by transporting this

pattern to new business fields or products.

The distinction between resource dominated and normative or cognitive dominated time

frames of path dependence, also highlights differences in the possibility of path breaking:

While it is almost impossible to leave path dependent strategic patterns in periods of resource

dominated lock-in, at least this possibility can evolve with environmental changes, leading to

a renewal better fit of the organizations resources to environmental conditions. Considered

from an ex-post perspective, the persistence of a path dependent pattern has than to be

attributed to cognitive and normative structures, which became closured during the previous

periods of self-reinforcement and resource dominated lock-in. That is, in the moment of

transition between the different levels of lock-in and with the intended or unintended

reproduction of the path dependent strategic pattern despite alternative options, the

management has to be considered as more responsible for stabilizing the path. Even when the

triggered scope narrowing side effect is (due to the nature of side effects) hard avoidable (e.g.

Baker 2000), the reason for this is that the system lost its necessary complexity to adapt to

changes in the environment. As the scope of action potentially enhances after environmental

changes, it is up to the organization to adapt their normative and cognitive structures, in order

that the path dependent pattern not persists any longer and the future scope of action becomes

not narrowed again as a side effect of this critical strategic decision.

To sum up, the work contributes to path dependence theory, as it has shown that the stability

in lock-ins should be better considered as a process, in which path dependent patterns may

change their level of dependence depending on changing environmental conditions. Thus, it

also shows that side effects could not only cause paths (when they are triggered by small

events (Arthur 1989; Arthur 1994; Sydow, Schreyögg and Koch 2009)), but could also cause

the path reproduction and stabilization when specific environmental conditions change and

the system becomes minor locked due to its resources.

- 21 -

More empirical work has to be done, to better understand, how timeframes with different

levels of dependence alternate and to investigate, how organizations recognize and handle

path dependence of own strategic patterns. Not least, empirical work should give attention to

cognitive structures in path dependent organizations, making the occurrence of path

stabilizing side effects likely.

- 22 -

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