Even though the theory ofpath dependency originated in economics through the work of Paul David (1985), it was adopted to understand organization dynamics by behavioral scientists(Hanna & Freeman, 1984; Tripasas & Chia, 2002). One of the core concepts of path dependency theory (PDT) is that of the legacy of history. PDT assumes that past decisions restrain present and future choices (Sydow, Schreyogg, & Koch, 2009). For instance, the past decision of the auto company to equip new robots in the first case study constrains present strategic options to embrace the recommended job enrichment program. Also, in the example of the online music download company, the past aggressive relationship the online music down-load company had with its labor union impedesits move to encourage self management practices.
Figure 1 describes three stages of PDT. The initial decisionsentailmore diverse choices and more flexibilitythan subsequentdecisions based on previous choices.As firms make successive decisions aftertheir initial choices through the expenditure of more time and energy,they eventually become committed and subject to their previous actions.This moment of setting the path dependency is called as “critical juncture”(Collier & Collier, 1991). Thus, over time, the scope of choices available to firms in such situations gradually abates, whether companies are aware of this or not.
When initial decisions result in positive feedback, self reinforcing dynamics start becoming apparent in organizations (Sydow et al., 2009). Stimulated by the positive returns or rewards of their original choices, firms put more confidence and credibility into the initial decision. By making subsequent choices and repeating similar actions as they did in their initial decision, firms might reap more positiveoutcomes such as learning and increases in productivity and performance. Furthermore, the desires of organizations to have reliability and accountability for their systems have led them to standardize structures that are reproducible and stable over time (Kelly & Amburgey, 1991).
Figure 1: Constitution of an Organization Path
Source: Adapted from an original in Sydow et al. (2009)
Organizational members can get used to the advantages of institutionalized structures such as stability, reproducibility, and convenience. As a result, when old systems have to be replaced by emerging new systems, people generate strong resistance against such changes and try to maintain the status quo, leading to organizational inertia (Hanna & Freeman, 1984). For example, the executive of the software companyfrom the example described in theprevious sectionsimply made use of previous solutions to deal with current problems because they had succeeded in the past (self- reinforcing effects). Moreover, when middle managers in the first case study found that employers had a plan to apply self-managed team to its workplaces, they perceived the new system as a threat to the status quo. Middle managers recognized that self-managed teams might take over their current responsibilities and duties ofcontrollingand monitoring workers. Self- managed teams alsowould haverequired middle managers to perform totally new roles such as coach, coordinator, and team liaison. Clearly, the positive rewards of initial decisions generate self-reinforcing dynamics. Standardized and established structures and practices created by this self-reinforcing effectsstand against the organizational change.
The carry-over effects of history limit the scope of choices of organizations and self -reinforcing effects institutionalize systematic patterns of organizational behaviors. As a result, their previously determined patterns of choices create inflexibility to future choices. This kind of a situation is called a“lock-in”(David, 1985).In a lock-in situation, even though organizations seem to select optimal choices among various options, their choice is actually set in deterministic patterns (Mahoney, 2000). Furthermore, the perspectives of organizations become obsessed with present paradigms. For instance, the executive of the software company as described in the previous case studywas trapped by previous success.She could not determine the cause of her company’s productivity problems due to her myopic view. As a result, the organization might lose its capability to cope with a complex and changing environment (Sydow et al., 2009).