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81Principle · Group 9

Path Dependence

Path dependence in business

“Early, often accidental decisions determine which paths remain open later; that is why beginnings matter more than they seem to at the time.”

What is possible today depends on the path taken so far. At the start, many paths are open.

Group 9: Markets and OrganizationsT6 Business Strategy
Go to the in-depth section ↓
A first gold dot draws a slightly curved line around a small circle across a surface of mist-blue dots; further dots follow exactly this line until it becomes a strong gold track. Then the circle fades, a shorter, straight line appears beside it, only dashed in mist-blue, and the dots still stay in the curve.
In short

Early, often accidental decisions determine which paths remain open later; that is why beginnings matter more than they seem to at the time.

What it’s about: What is possible today depends on the path taken so far. At the start, many paths are open. Then a decision is made, often for a reason that has little to do with its later significance. Habits, investments, rules and expectations grow up around it. Each of them makes staying easier and switching more expensive, until the path is set, even if the original reason has long since disappeared.

In depth

The principle in detail

Three steps through the principle: grasp it, place it, put it to work. Open each topic on its own.

The core messageCore statement and 3 clarifications
In essence

Early decisions reinforce themselves. Habit, investment, adoption and rules make a path firmer with every step.

It does not say
That the path that prevails is the worse one. In the case of the QWERTY keyboard, the superiority of the alternative has not been proven.
It does not say
That paths last forever. Crises and technological leaps can break them.
It also says
Stopgaps need a review date, or they turn into permanent solutions.
The explanationOften a path is valuable precisely because many people take it.

This does not mean that every path that has grown over time is a mistake. Often a path is valuable precisely because many people take it.

The question

Which decision are you making right now that nobody will be able to change in three years?

The signs3 signs when you heed it · 3 when you overlook it
When you heed it
  • Every stopgap you introduce gets an expiration date.
  • With new projects, you ask early on what can no longer be changed later.
  • You can explain why an existing process still holds up, not just that it has always been done that way.
When you overlook it
  • Makeshift solutions have been running for years.
  • Initial decisions such as the first tool or the first rule are made in passing.
  • A switch fails because nobody knew everything that depended on the old path.
The backgroundTradition T6 Business Strategy
  1. 1985
    OriginPaul A. David

    Clio and the Economics of QWERTY

  2. 1989
    OriginW. Brian Arthur

    Competing Technologies, Increasing Returns, and Lock-In by Historical Events

  3. 1990
    SupplementedDouglass C. North

    Institutions, Institutional Change and Economic Performance

  4. Tradition T6
    TraditionBusiness Strategy

    Michael E. Porter, Richard P. Rumelt, Henry Mintzberg, Clayton M. Christensen, W. Chan Kim and Renée Mauborgne

    See the tradition on the Origin page
Read more: the full background

From Paul A. David’s essay “Clio and the Economics of QWERTY” (1985) and W. Brian Arthur’s model “Competing Technologies, Increasing Returns, and Lock-In by Historical Events” (1989). Supplemented by Douglass C. North’s application of the idea to institutions (1990).

The research4 sources: 2 case studies, 2 theories · 1985–1990 · with limitations of the research
4 sources1985–1990 period2 case studies2 theories
Strength of evidence
  1. weak
  2. moderate
  3. strong

The model of increasing returns is recognized and illustrated by case histories; the claim that paths often lock in worse solutions is disputed.

  1. 1985
    Case study
    Paul A. David

    “Clio and the Economics of QWERTY”: the keyboard layout of the 1870s persists because generations of typists were trained on it.

  2. 1989
    Theory
    W. Brian Arthur

    “Competing Technologies, Increasing Returns, and Lock-In by Historical Events”: with increasing returns, small chance events decide which technology prevails; after that, the market locks in.

  3. 1990
    Theory
    Douglass C. North

    “Institutions, Institutional Change and Economic Performance”: applies path dependence to rules and institutions.

  4. 1990
    Case study
    Stan J. Liebowitz and Stephen E. Margolis

    “The Fable of the Keys”: disputes that the alternatives to QWERTY have been shown to be superior.

Where the research reaches its limits
  • The principle explains well why something persists, but it does not show that it is worse than the alternative.
  • When a switch is truly worthwhile, markets and people often find a way.
  • Paths can break, usually through crises or technological leaps.
  • The claim that beginnings matter more than they seem is a practical conclusion, not a measured quantity.
Read more: what research shows

Paul A. David popularized the term in 1985, using the QWERTY keyboard as his example. In 1989, W. Brian Arthur supplied the model: when a technology becomes more useful the more people already use it, small, random events at the start decide which of several technologies prevails. After that, the market locks in. In 1990, Douglass C. North applied the idea to institutions and used it to explain why countries hold on to rules that achieve little. In the same year, Stan J. Liebowitz and Stephen E. Margolis countered that in the case of QWERTY, it had not been proven that the alternative was better. What is well founded, then, is how paths arise and why they persist. What is disputed is how often they lead to worse solutions.

The related principles50 Resistance to the New · 77 Network Effects · 78 First Movers and Followers · 86 Unintended Consequences
Network EffectsFirst Movers and Followers

To go deeper, see 77 Network Effects (the more people take a path, the more valuable and the firmer it becomes) and 78 First Movers and Followers (whoever comes first can lay down the path)

Unintended Consequences

86 Unintended Consequences shows where many paths come from

Resistance to the New

50 Resistance to the New describes the interests that defend an established path against any switch

Read more: the full text

To go deeper, see 77 Network Effects (the more people take a path, the more valuable and the firmer it becomes) and 78 First Movers and Followers (whoever comes first can lay down the path); 86 Unintended Consequences shows where many paths come from. 50 Resistance to the New describes the interests that defend an established path against any switch.

The action steps5 things you can actually do

  1. When you introduce a stopgap, give it a date on which you will review it, and put that date in the calendar.

  2. At every beginning, ask: what part of this will be hard to change in three years? That is where care pays off.
  3. For an entrenched process, map out what depends on it: habits, investments, rules, other departments.
  4. Distinguish whether a path holds up because it is useful or because it is widespread. Both can be good reasons, but they are different reasons.

  5. Use upheavals such as a fresh start, a move or a crisis to review old paths deliberately.

The reflection questions3 questions: Which stopgap in your area has been running longer than planned, and what depends on it by now?
  1. Which stopgap in your area has been running longer than planned, and what depends on it by now?
  2. Which decision are you making this quarter that will be hard to change in three years?
  3. For which process do you no longer know why it was introduced in the first place?

Take your time with one question. Write down your answer – or talk it over with someone you trust.

To finish
The picture to rememberThe animation once more, with an explanation
  1. A first gold dot draws a slightly curved line around a small circle across a surface of mist-blue dots
  2. Further dots follow exactly this line until it becomes a strong gold track
  3. Then the circle fades, a shorter, straight line appears beside it, only dashed in mist-blue, and the dots still stay in the curve
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In context

Group 9: Markets and Organizations

Guiding question: How does an organization win in the long run?

Stage 3 of 5: Choose the path

Where the 92 principles come from: eight traditions of strategy, from classical war theory to dealing with uncertainty.

More about the origin

Background: WEGVISOR’s own selection from the strategy literature · More about the origin

Examples

The principle in practice

From the different spheres of society.

Business

Christopher Latham Sholes, QWERTY and Path Dependence

The sequence of letters on almost every English-language keyboard dates from the 1870s and comes from the workshop of a printer in Wisconsin. It has outlived the typewriter, the computer and the smartphone, not because it is the best but because everyone had already learned it.

Path Dependence
Government

Spain’s Time Zone since 1940 and Path Dependence

In March 1940, the Franco regime sets Spain’s clocks forward by one hour, to Central European Time. Intended as a wartime measure, it is still in force today. Ever since, the country has lived in a time zone that does not match its location, and it has organized its daily life accordingly.

Path Dependence
Culture & Sports

The 1908 London Marathon and Path Dependence

The odd figure of 42.195 kilometers goes back to the 1908 Olympic Games in London. At the time, the course was laid out so that it started at Windsor Castle and finished in front of the royal box. In 1921, this accidental length became the standard, and it still applies today.

Path Dependence
Family

Movie: Sliding Doors

In the movie “Sliding Doors” (1998), a young woman either catches her Underground train or misses it. From that moment on, the movie tells two lives side by side. It shows how a small, chance moment sets a path in motion that becomes firmer with every further decision.

Path Dependence
FAQ

Questions about Path Dependence

What does the principle of Path Dependence say?

Early, often accidental decisions determine which options are still available later. Habits, investments and standards reinforce a path once it has been taken, until switching becomes very expensive.

Where does the principle come from?

The economic historian Paul A. David popularized it in 1985, using the QWERTY keyboard as his example. In 1989, the economist W. Brian Arthur supplied a model of increasing returns, and Douglass C. North applied the idea to institutions.

What examples are there?

The QWERTY keyboard, Spain’s time zone since 1940 and the marathon distance of 42.195 kilometers show how accidental beginnings become lasting rules.

How well is Path Dependence supported by research?

Evidence: moderate – the model of increasing returns is recognized and illustrated by case histories; the claim that paths often lock in worse solutions is disputed.

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