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The Path of Most Persistence: An Evolutionary Perspective on Path Dependence and Dynamic Capabilities

TL;DR: In this article, the authors extend the dynamic capability view and research on organizational path dependence by arguing that path dependence can be a property of capabilities when a contingently-triggered capability path is subject to self-reinforcement (i.e., a set of positive and negative mechanisms that increases the attractiveness of a path relative to others).
Abstract: This paper extends the dynamic capability view and research on organizational path dependence by arguing that path dependence can be a property of capabilities when a contingently-triggered capability path is subject to self-reinforcement (i.e. a set of positive and negative mechanisms that increases the attractiveness of a path relative to others). The paper introduces an evolutionary perspective, which specifies the underlying selection mechanisms of the property of path dependence in internal and external firm environments. This theorization sheds new light on three paradoxes that currently blur the theoretical contribution of path dependence to research at the managerial, organizational, and industry levels: (1) the problematic coexistence of path irreversibility and managerial intentionality; (2) the ambivalent strategic value of lock-in with regard to competitive advantage; and (3) the relative homogeneity in observed dynamic capabilities, despite their (possible) path dependence that should lead to a wider variety of outcomes owing to the presence of contingency. We highlight the contributions of this perspective to strategic management research and evolutionary theories.
Citations
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Journal ArticleDOI
TL;DR: In this paper, the authors analyzed the literature published between 1994 and 2011, using bibliometric methods, to explore the scope of the dynamic capability view and detect current research priorities.
Abstract: The dynamic capability view (DCV) is one of the most vibrant approaches to strategic management. In this study, the extant literature published between 1994 and 2011 is analysed, using bibliometric methods in order to explore the scope of this approach and detect current research priorities. For this purpose, the method of bibliographic coupling is introduced in management research, which shifts the focus of analysis from past traditions to current trends. Several clusters of thematically related research are extracted from bibliographic networks, which represent interconnected yet distinct subfields of inquiry within the DCV. The core cluster of the current DCV, which visualizes this research field's nascent but fragile identity, focuses on learning and change capabilities and relates them to firm performance, thus merging aspects of organization theory and strategic management. In addition, several peripheral clusters of research are identified, which reflect a parallel process of differentiation in the overall field. Both trends, i.e. of integration and differentiation, attest to the emancipation of the DCV as a distinct approach to strategic management. However, the DCV still lacks consensual concepts that allow comparisons of empirical studies and advance the theoretical understanding of dynamic capabilities. In the light of the above, some implications of this analysis for further research are discussed.

471 citations

Posted Content
TL;DR: The authors provide a formal definition of path dependence that disentangles process and outcome, and identify the necessary conditions for path dependence; distinguishing clearly between path dependence and other 'history matters' kinds of mechanisms; and specifying the missing link between theoretical and empirical path dependence.
Abstract: Path dependence is a central construct in organizational research, used to describe a mechanism that connects the past and the future in an abstract way. However, across institutional, technology, and strategy literatures, it remains unclear why path dependence sometimes occurs and sometimes not, why it sometimes lead to inefficient outcomes and sometimes not, how it differs from mere increasing returns, and how scholars can empirically support their claims on path dependence. Hence, path dependence is not yet a theory since it does not causally relate identified variables in a systematized manner. Instead, the existing literature tends to conflate path dependence as a process (i.e. history unfolding in a self-reinforcing manner) and as an outcome (i.e. a persisting state of the world with specific properties, called 'lock-in'). This paper contributes theoretically and methodologically to tackling these issues by: (1) providing a formal definition of path dependence that disentangles process and outcome, and identifies the necessary conditions for path dependence; (2) distinguishing clearly between path dependence and other 'history matters' kinds of mechanisms; and (3) specifying the missing link between theoretical and empirical path dependence. In particular, we suggest moving away from historical case studies of supposedly path-dependent processes to focus on more controlled research designs such as simulations, experiments, and counterfactual investigation.

375 citations

Book ChapterDOI
01 Jun 1996
TL;DR: In this paper, the authors consider a scenario where participants in an exchange know the relevant characteristics of each other's preferences, technology, and endowments, and suggest that mutually advantageous bargaining opportunities will not be ignored.
Abstract: The analysis in Chapter 4 suggests that in a world of zero transaction costs, where participants in an exchange know the relevant characteristics of each other's preferences, technology, and endowments, mutually advantageous bargaining opportunities will not be ignored. The individuals may be expected to agree on a Pareto-efficient allocation. The traditional Pigouvian tax/subsidy literature, by contrast, assumes at the outset that equilibrium outcomes may indeed be inefficient. In particular, it presupposes that existing markets will not function in such a way as to eliminate all potential sources of inefficiency and that the introduction of taxes and subsidies into a market system can help by confronting individuals with those costs and benefits that their consumption and production activities generate for other parties and that are not internalized by the market mechanism. In order to justify the possibility of inefficiency in equilibrium, we need to examine more closely the idea of positive transaction costs. We hinted earlier that one way of thinking about such costs is to see them as arising from the presence of private information. Participants in an exchange may know their own preferences, endowments, and technology but may not be so well informed about the relevant characteristics of other potential participants. In analyzing the bargaining process that leads to an equilibrium, it is important to consider carefully the precise nature of the process, the information available to each party, and the implications of such matters for the properties of the equilibrium.

339 citations

Posted Content
TL;DR: In this article, the authors draw on the categorization and stigmatization literatures to predict the amount of negative social evaluations received by firms, i.e. disapproval, and highlight how managers can modify categorical associations at the industry and customer levels to decrease disapproval.
Abstract: Using qualitative and quantitative methods, the paper draws on the categorization and stigmatization literatures to predict the amount of negative social evaluations received by firms, i.e. disapproval. Association with a stigmatized category does not automatically result in disapproval, because straddling multiple categories dilutes stakeholder attention from the stigma. Findings highlight how managers can modify categorical associations at the industry and customer levels to decrease disapproval, and I discuss implications for diversification and internationalization strategies. Results also show that 9/11 modified the saliency of the categories used by arms industry stakeholders. Finally, the paper suggests that stigmatized industries manage to thrive in the long run despite stigmatization thanks to their members’ category straddling behavior, which makes social evaluations more neutral (less negative).

272 citations

Journal ArticleDOI
TL;DR: Findings illustrate how the nature of the dynamic capability and the economic context in which it is utilized shape its value, thus offering a more nuanced conceptualization of theynamic capabilities-performance relationship.
Abstract: We move the dynamic capabilities view (DCV) forward in two important ways by meta-analysing prior empirical studies. First, we evaluate the two core theoretical tenets of the DCV: (1) Dynamic capabilities are positively related to performance, and (2) this relationship is stronger in industries with higher levels of technological dynamism. We find support for the former (rc = 0.296) but not for the latter, though results suggest the existence of moderators. Second, we theorize and demonstrate empirically that higher-order dynamic capabilities are more strongly related to performance than lower-order dynamic capabilities, lower-order dynamic capabilities partially mediate the relationship between higher-order dynamic capabilities and performance, and dynamic capabilities contribute more to performance in developing economies than in developed economies. These findings illustrate how the nature of the dynamic capability and the economic context in which it is utilized shape its value, thus offering a more nuanced conceptualization of the dynamic capabilities-performance relationship. [ABSTRACT FROM AUTHOR]

259 citations

References
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Journal ArticleDOI
TL;DR: The dynamic capabilities framework as mentioned in this paper analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change, and suggests that private wealth creation in regimes of rapid technology change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm.
Abstract: The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difftcult-to- trade knowledge assets and complementary assets), and the evolution path(s) it has aflopted or inherited. The importance of path dependencies is amplified where conditions of increasing retums exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding intemally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.

27,902 citations

Posted Content
TL;DR: In this paper, the authors developed an evolutionary theory of the capabilities and behavior of business firms operating in a market environment, including both general discussion and the manipulation of specific simulation models consistent with that theory.
Abstract: This study develops an evolutionary theory of the capabilities and behavior of business firms operating in a market environment. It includes both general discussion and the manipulation of specific simulation models consistent with that theory. The analysis outlines the differences between an evolutionary theory of organizational and industrial change and a neoclassical microeconomic theory. The antecedents to the former are studies by economists like Schumpeter (1934) and Alchian (1950). It is contrasted with the orthodox theory in the following aspects: while the evolutionary theory views firms as motivated by profit, their actions are not assumed to be profit maximizing, as in orthodox theory; the evolutionary theory stresses the tendency of most profitable firms to drive other firms out of business, but, in contrast to orthodox theory, does not concentrate on the state of industry equilibrium; and evolutionary theory is related to behavioral theory: it views firms, at any given time, as having certain capabilities and decision rules, as well as engaging in various ‘search' operations, which determines their behavior; while orthodox theory views firm behavior as relying on the use of the usual calculus maximization techniques. The theory is then made operational by the use of simulation methods. These models use Markov processes and analyze selection equilibrium, responses to changing factor prices, economic growth with endogenous technical change, Schumpeterian competition, and Schumpeterian tradeoff between static Pareto-efficiency and innovation. The study's discussion of search behavior complicates the evolutionary theory. With search, the decision making process in a firm relies as much on past experience as on innovative alternatives to past behavior. This view combines Darwinian and Lamarkian views on evolution; firms are seen as both passive with regard to their environment, and actively seeking alternatives that affect their environment. The simulation techniques used to model Schumpeterian competition reveal that there are usually winners and losers in industries, and that the high productivity and profitability of winners confer advantages that make further success more likely, while decline breeds further decline. This process creates a tendency for concentration to develop even in an industry initially composed of many equal-sized firms. However, the experiments conducted reveal that the growth of concentration is not inevitable; for example, it tends to be smaller when firms focus their searches on imitating rather than innovating. At the same time, industries with rapid technological change tend to grow more concentrated than those with slower progress. The abstract model of Schumpeterian competition presented in the study also allows to see more clearly the public policy issues concerning the relationship between technical progress and market structure. The analysis addresses the pervasive question of whether industry concentration, with its associated monopoly profits and reduced social welfare, is a necessary cost if societies are to obtain the benefits of technological innovation. (AT)

22,566 citations

Journal ArticleDOI
TL;DR: Seeks to present a better understanding of dynamic capabilities and the resource-based view of the firm to help managers build using these dynamic capabilities.
Abstract: This paper focuses on dynamic capabilities and, more generally, the resource-based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed ‘best practice’). This suggests that they are more homogeneous, fungible, equifinal, and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic, stable processes with predictable outcomes. In contrast, in high-velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well-known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high-velocity markets, it is on selection. At the level of RBV, we conclude that traditional RBV misidentifies the locus of long-term competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high-velocity markets. Copyright © 2000 John Wiley & Sons, Ltd.

13,128 citations

Journal ArticleDOI
TL;DR: In this paper, the authors draw on the social and behavioral sciences in an endeavor to specify the nature and microfoundations of the capabilities necessary to sustain superior enterprise performance in an open economy with rapid innovation and globally dispersed sources of invention, innovation, and manufacturing capability.
Abstract: This paper draws on the social and behavioral sciences in an endeavor to specify the nature and microfoundations of the capabilities necessary to sustain superior enterprise performance in an open economy with rapid innovation and globally dispersed sources of invention, innovation, and manufacturing capability. Dynamic capabilities enable business enterprises to create, deploy, and protect the intangible assets that support superior long- run business performance. The microfoundations of dynamic capabilities—the distinct skills, processes, procedures, organizational structures, decision rules, and disciplines—which undergird enterprise-level sensing, seizing, and reconfiguring capacities are difficult to develop and deploy. Enterprises with strong dynamic capabilities are intensely entrepreneurial. They not only adapt to business ecosystems, but also shape them through innovation and through collaboration with other enterprises, entities, and institutions. The framework advanced can help scholars understand the foundations of long-run enterprise success while helping managers delineate relevant strategic considerations and the priorities they must adopt to enhance enterprise performance and escape the zero profit tendency associated with operating in markets open to global competition. Copyright  2007 John Wiley & Sons, Ltd.

9,400 citations