Firm strategies are strongly constrained by their current position and by specific opportunities open to them in the future. In other words they are path dependent. At any point in time two sets of constraints make path to dependency in corporate innovation strategy, inevitable are those of the present and likely future state of technological knowledge and those of the limits of corporate competence.
Critics of technological determinism not withstanding pure technological development have their own internal logic, which helps define where firms will find innovative opportunities. Thus, we can marvel at the rapid rate of improvement in the performance price ratio of the electronic chip and at the economic and social changes it has made possible. But we can also be frustrated that our personal computers can rarely be made to run independently for more than three hours, or that battery driven cars so heavy limited in range and slow to be refueled in spite of extensive private investments, existing knowledge of battery technology has not enabled us to do much better. The energy density of gasoline fuel (i.e. energy generated per unit weight ) remains 100 times higher than electric batteries, similarly we can speculate that a set of technologies that could convert deep mined coal into oil and gas at the same price and with lesser adverse environmental consequences than existing supplies would have economic, social and political effects at least equal to those of the microchip. But it will remain a speculation since the present state of knowledge does not enable it to be done.
In addition to the constraints of knowledge there are those of competence in other words, of what specific firms are capable of learning and exploiting. As we have seen have seen innovation requires improvements and changes in the operation of complex technical and organizational systems. This involves trial, error and learning. Learning tends to be incremental since major step changes in too many parameters both increase uncertainty and reduce the capacity to learn. As a consequence firms learning process are path dependent with the directions of search strongly conditioned by the competencies accumulated for the development and exploitation of their existing product base. Moving from one path of learning to another can be costly, even impossible given cognitive limits – think of the problems of learning a foreign language from scratch.
Furthermore firms cannot easily jump one major path to another through hiring individuals with required competencies. Corporate competencies are rarely those of an individual and most often those of specialized interdependent and coordinated groups, where tacit technical and organizational knowledge is accumulated through experience which are of central importance this is why firms perform most of their innovative activities in house. And even when competencies come from outside the firms as part of a corporate acquisition different practices and cognitive structures may make their assimilation costly or impossible. For example it is no accident that electrical firms find it much easier to master and exploit semiconductor technology than chemical firms: the fields of technological competencies are required much more.
From the fact of path, dependency has emerged as the notion of technological trajectory first proposed by Nelson and Winter and later extended by Dosi. As we have seen above, it can be applied equally to a technology constrained by knowledge limits, and to a firm, constrained by limits of competence. We have shown that it can also be applied to a country which will often have more than one trajectory. These overlapping categories are inevitable since technologies develop in firms, which themselves are situated in sectors and countries.
Source: Managing Innovation