Management & Organizational History

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How history matters in organisations: The case of

path dependence

Georg Schreyögg , Jörg Sydow & Philip Holtmann

To cite this article: Georg Schreyögg , Jörg Sydow & Philip Holtmann (2011) How history
matters in organisations: The case of path dependence, Management & Organizational
History, 6:1, 81-100, DOI: 10.1177/1744935910387030

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MANAGEMENT & ORGANIZATIONAL HISTORY Vol 6(1): 81–100
DOI: 10.1177/1744935910387030
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M&OH
How history matters in organisations:
The case of path dependence
Georg Schreyögg   Freie Universität Berlin, Germany

Jörg Sydow   Freie Universität Berlin, Germany

Philip Holtmann   Freie Universität Berlin, Germany

Abstract
The quest to consider the historical side of managerial and organisational action has
become increasingly accepted. An open question still is how this can be achieved
systematically. In this paper we refer to the theory of organisational path depend-
ence as an interesting candidate to fill this gap. The problem with the notion of path
dependence is, however, that while being much quoted, its actual meaning and
logic have remained vague and ambiguous. In order to provide a clear template for
the consideration of historical relations and how they impact on present and future
developments, we present a comprehensive theoretical framework clarifying how
organisations become path-dependent. The process of an organisation – or some
of its subsystems – becoming path-dependent is conceptualised along three distinct
stages: preformation, formation and lock-in phase. A case from the German publish-
ing industry is used to demonstrate the potential explanatory power of this proces-
sual framework. The case study focuses on a book club that has, after years of huge
success, persistently suffered a decline and losses for more than 10 years. Reasons
are given for why and how this book club has become path-dependent and, finally,
locked-in.

Key words • business history • case study • complementarity • media industry

• organisation theory • path dependence • process theory

Any social setting can be read as a historical document of itself shelved momentarily
between past and present. Whatever the current social order, we know it became so
from what it was in the past. To where the social order evolves, we know it will
arrive there by some transformation of what it is now. (Barley 1990, 222)

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Introduction

The proposition that history matters in organisational decision-making and – more

generally – the development of social systems has become broadly accepted. The strik-
ing question nowadays is no longer if but rather how and to what extent history
matters in organisations. Among the current historically informed approaches, the
notion of path dependence features prominently. This increasing popularity, however,
has not yet advanced the clarity and coherence of the conception. On the contrary, the
notion of path dependence has been used to characterise so many different processes
that ultimately nearly all social processes have received this attribution. This is
because the notion is often merely used as a metaphor emphasising that history
matters when explaining cultural artefacts. That is too vague a conception, however.
In our view this is all the more regrettable as the analytical power of (concepts from)
the theory of path dependence offers a promising template for advancing systematic
historical explanations of organisational persistence. Hence, it is the aim of this paper
to demonstrate that explanations of institutional persistence and puzzling stability
can profit a lot from a specified concept of organisational path dependence. We
thereby build on the seminal studies on the diffusion of technologies and the emer-
gence of standards by Paul David (1985) and W. Brian Arthur (1989, 1994).
Though this is a mainly conceptual paper that builds on our earlier work in this
field (Schreyögg and Sydow 2010; Sydow, Schreyögg, and Koch 2009), we also aim to
demonstrate the usefulness of the advanced framework for empirical research. To this
purpose, we use a case study on the book club division of a German media conglomer-
ate that was extremely successful for quite a while but ended up suffering a dysfunc-
tional flip and becoming path-dependent (Holtmann 2008). Based upon the
theoretical framework and the empirical case study, we draw some conclusions and
point out some directions for managerial practice and future history-sensitive organi-
sational research. By presenting a theoretical framework and an illustrative case, we
picture one systematic way, but by no means the only one, that shows how history
matters in organisations.

Organisational path dependence: Theoretical framework

The basic point of any path dependence argument stresses the importance of past
events for future action or, more precisely, of foregoing actions for current and future
actions. Hence, organisational acts are conceived as historically conditioned:
‘bygones are rarely bygones’ (Teece, Pisano, and Shuen 1997, 522). Although this
insight has certainly advanced the building of a time-sensitive understanding of
organisational phenomena and helped to overcome the ahistorical and unbounded
view of rational choice thought (e.g. Booth and Rowlinson 2006; Kieser 1994;
Üsdiken and Kieser 2004), it is too vague a theoretical framework. Path dependence
is supposed to mean more than a mere ‘past-dependence’ (Antonelli 1999). Such

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all-embracing understanding of path dependence does not get us closer to a better

understanding of the specific dynamics of persistent organisational processes and
their underlying forces.
In a first attempt to develop a more specific understanding, we can say that path
dependence implies, at the very least, more than just one event, and more likely a
sequence of events. Furthermore, the dynamics of this sequence bring about a narrow-
ing of the scope of action, which eventually results in a state of persistence or inertia.
An important point of nearly all path dependence thought is that this development
must not be conceived as a negative spiral in terms of stabilising a bad decision or
action pattern. In contrast, most path dependence processes start quite promisingly;
it is only later that the situation changes and the development becomes troubled by a
dysfunctional flip. Path dependence, therefore, is inherently ambivalent in character.
Valuable insights into the dynamic nature of such eventually entrapping or lock-
ing processes have been provided by studies from evolutionary economics (Arthur
1994; David 1985; Dosi 1982, 1997). In these accounts, actions taken in the past
increasingly restrain future choices. The action pattern used repeatedly may even
amount to an imperative for the future course of action, so that ultimately no further
choice is left. In order to explain the dynamics of these processes, self-reinforcing
processes have been identified as major drivers. Such self-reinforcing dynamics usually
get incrementally beyond the control of the individual actor; the internal dynamics
increasingly take the lead (David 1985). This brief illustration already highlights
the fact that the process of path evolvement cannot be characterised by the same
structural properties at any point in time during the process. The initial situation
differs completely from the final situation. Therefore, we suggest subdividing the
whole process into different stages along the different regimes which are likely to
govern the process (cf. Sydow et al. 2009). We have identified three different regimes
and therefore suggest three phases: preformation, formation and lock-in phase.

Phase I: Preformation phase

The first phase can be characterised by a broad scope of action, where choices taken
cannot be predicted by prior events or initial conditions (Mahoney 2000). It seems to
be governed by a regime of unrestricted choice. Up to a certain degree, however, the
first phase is also influenced by the past (e.g. Child 1997). All choices are historically
framed and therefore, in a way, ‘imprinted’. Hence, we should refrain from conceiving
this phase as completely unrestricted choice in terms of rational choice models (as do
David and Arthur in their seminal work). The shadow in Phase I in Figure 1 is
intended to indicate this thought. Among the decisions made – on whatever basis –
one choice may turn out to be a ‘small event’ that triggers further developments. From
a path dependence point of view, this ‘innocent’ or even random decision gains impor-
tance if, and only if, it sets self-reinforcing processes into motion. The moment of
starting self-reinforcing processes can be conceived of as a ‘critical juncture’ (Collier
and Collier 1991).

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Phase II: Formation phase

In Phase II the range of options increasingly narrows and it becomes progressively

difficult to reverse the initial choice. In this – at least in the beginning, still quite
open and possibly contested – phase of path-building, a new regime takes the lead:
the dynamics of self-reinforcing processes. Arthur (1989, 1994) elaborates on these
driving forces, conceiving them as increasing returns. On a general level, the notion
of increasing returns highlights positive feedback processes in which the increase of a
particular variable leads to a further increase of this very variable. The notions of
increasing returns or positive feedback indicate self-reinforcing processes with grow-
ing benefits when using a specific pattern of action. Eventually, a dominant organisa-
tional solution emerges. The other side of the coin is that the whole process is
becoming more and more irreversible. Decision processes in Phase II are, however,
still contingent: while essentially constrained, choices are still possible. As David
(1985) put it, the processes are ‘non-ergodic’ – they are not accidental, but do not yet
fully converge to a fixed-point distribution.
In economic and institutional studies (Ackermann 2003; Arthur 1994; Cowan
1990; Katz and Shapiro 1985; North 1990) six types of self-reinforcing dynamics
have been identified to date: economies of scale, (direct and indirect) network exter-
nalities, learning effects, adaptive expectations, coordination effects, and complemen-
tarities. Most of these effects have, however, been modelled in a restricted economic
way, that is they develop only if the decision to reproduce a particular option is sug-
gested by a utility-maximising calculus in terms of increasing returns. Without
excluding this case, it seems too restrictive a starting point for an explanation of
organisational paths (see also Crouch and Farrell 2004; Eden 2004; Ortmann 1995).
As is well known from a long-standing tradition in organisation research, there are
other self-reinforcing patterns in organisations, for instance based on emotional
reactions, cognitive biases or political processes (e.g. Huff and Huff 2000). These
dimensions have to be included when setting out to understand the specific dynamics
of organisational paths. Our suggestion, therefore, is to broaden the scope of self-
reinforcing effects by including all kinds of positive self-reinforcing feedback cycles.
In this broader view, increasing returns represent a specific form of self-reinforcement –
among other forms of positive feedback. A broader perspective beyond individual
decision-making is also needed to account for the social setting in which the positive
feedback processes are embedded. It is the broader organisational context (the sedi-
mented institutions, the hidden assumptions of the organisation, the organisational
culture, the status and role system, etc.) which informs actors and presses for self-
reinforcing processes (see also Koch, 2011).
Take learning effects, for instance. The pure economic version holds that the more
often an operation is performed, the more efficiency will be gained when realising
subsequent iterations. The operations become more skilful (faster, fewer errors, etc.),
which, in turn, means a decreasing average cost per unit of output. And, the more
attractive (less costly) the chosen solution becomes, the less attractive it is to switch

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to other learning sites (where these actors would have to start from scratch). Only
sticking to the once chosen solution promises (increasing) returns. However, there is
not only the positive effect of increasing returns from learning. Rather, the literature
on organisational learning points to the fact that repeated exploitative learning may
gradually crowd out explorative learning (March 1991, 2006). For various reasons
(prevailing institutionalised rules, organisational culture, reward system, etc.), the
motivation to reproduce and improve everyday practices is likely to receive more
acceptance or legitimacy, whereas the attraction of looking for fresh alternatives and
critically examining well-established organisational practices shrinks step by step.
This myopia or preference for legitimate learning eventually builds another path
along the familiar practices.
A related unintended side effect of repetition has been highlighted by Miller’s
(1993) ‘Architecture of Simplicity’: an organisation develops a successful set of capa-
bilities and tends to focus all learning abilities on refining this success. It amplifies
these strengths while neglecting other opportunities. Ultimately, ‘it turns into a
monolithic narrowly focused version of its former self, converting a formula for success
into a path toward failure’ (Miller 1993, 116). Basically, these and the other effects
resulting from self-reinforcing dynamics refer to both push and pull explanations of
the formation of path dependence. It should be stressed that the effects are not fully
separate; rather often, they occur jointly and overlap. The same holds true for the other
self-reinforcing mechanisms.

Phase III: Lock-in phase

The transition from this second phase to Phase III can be characterised by a further
constriction which is likely to (but will not necessarily) lead into a lock-in – i.e. the
dominant pattern gets fixed and even gains a quasi-deterministic character. Further
processing is bound to the emergent path. One particular choice or action pattern has
become the predominant mode; flexibility has been lost. Even new entrants into this
field of action have to adopt it. A lock-in is not necessarily inefficient in a short-term
view, but is always problematic from a strategic perspective that requires organisa-
tional flexibility in increasingly ‘turbulent fields’ (Emery and Trist 1965). However,
the problem of a lock-in, even from a short-term perspective, becomes obvious in cases
where a more efficient alternative appears but a switch is no longer possible. The
result is actual or potential inefficiency.
Considering specifically organisational paths, it may be inadequate to conceive the
third phase as a situation of total rigidity; a somewhat modified conception of lock-in
seems to be required. Due to their social character, organisational processes are more
complex and ambiguous in nature than market standardisation (Cyert and March
1963). They are not likely to amount to a concrete monopolistic solution that excludes
any further choices. Rather, they are prone to bring about a specific action pattern
which gets deeply embedded in practice and replicated across various situations. Fixed

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recursive patterns of action, however, cannot be equated with determinism, as practices

have to be reproduced and all reproduction includes interpretation and at least some
minor deviation (Giddens 1984). For these reasons, we should refrain from reifying
paths and attributing an objective quality to them. Instead of a fully determined lock-
in, no matter whether cognitive, normative or resource based, a theory of organisa-
tional paths is well advised to conceptualise the final stage of a path-dependent process
in a less restrictive way, leaving some scope for variation (similarly Eden 2004; Martin
and Sunley 2006; Pierson 2000; Thelen 1999). By implication, it seems more adequate
to conceive of the lock-in state not in terms of total rigidity, but rather as a matter of
degree accounting for some variance in the actual practising of the path. A corridor
may serve best to illustrate this reasoning; the shadow in Phase III in Figure 1 is
designed to indicate this corridor.
In sum, the proposed theory (Figure 1) conceptualises an organisational path as
a historically imprinted social process that is initially, in Phase I, shaped by a con-
tingent choice, possibly leading to a critical juncture which is triggered by one or
several events. Phase II, the path formation phase, is governed by a regime of posi-
tive, self-reinforcing feedback loops, constituting and setting up a specific pattern
of actions (social practices), which gains progressive predominance against alterna-
tive solutions to such an extent that, at least potentially, it leads, in Phase III, into
a lock-in, in terms of a pattern underlying actions and/or practices. Thus, all three
stages pictured in Figure 1 are governed by different regimes allowing us to dif-
ferentiate the phases not only in the theoretical model but also in the empirical data.
Though this model focuses on the organisational level of analysis, it may also be
helpful to analyse path dependence on the (lower resp. higher) levels of organisa-
tional subsystems or organisational fields and to explore the interrelationships
among various paths.

Figure 1 The constitution of an organisational path (Sydow et al. 2009, 692)

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 SCHREYÖGG ET AL.: HOW HISTORY MATTERS IN ORGANISATIONS

This conceptualisation provides a more systematic view. While an uncountable

number of studies have investigated the persistence of institutions and/or the rigidity
of organisations, only relatively few have adopted an analytical approach based on
(strict concepts from) the theory of path dependence as presented above. Theoretical
explanations of institutional and organisational persistence provided so far point to
critical features and have their merits. This is particularly true for theoretical explana-
tions of organisational inertia such as escalating commitment (e.g. Ross and Staw
1993; Staw 1984), institutionalisation (e.g. Scott 2001; Tolbert and Zucker 1996),
imprinting (e.g. Johnson 2007; Stinchcombe 1965) or learning (e.g. Argote 1999;
March 1991). What they are missing, however, is a theoretical clarification of the
process of becoming persistent. The unanswered questions are: what are the underlying
dynamics of becoming trapped, and why do organisational members not resist institu-
tional rigidifying? And from a comparative point of view: in which cases do organisa-
tions get locked into their behavioural patterns and in which not?
The theory of organisational path dependence aims at answering these questions.
How organisations actually get trapped from a path-dependence perspective will be
specified by a case in the following section.

An empirical case of organisational path dependence

Our thoughts and conceptual suggestions will be exemplified in the following using
an in-depth case study on the book club division of Bertelsmann AG, the leading
German media conglomerate. The book club – the first and for a long time the best
performing division of the company – has been in economic trouble for over 10
years. The firm tried repeatedly to change the initial business model of the division,
but so far has not succeeded in doing so. It even considered selling its traditional
business, but no consensus could be reached to abandon the field. An explanation
for the company’s puzzling immobility could be that it has become path dependent
over this period.

Methodology

The book club division of the Bertelsmann AG has been studied in terms of a single
‘embedded case’ (Yin 2009) over a long period at different points in time. The time
span in this longitudinal or ‘diachronic’ (Barley 1990) study covered the years
1945–2007. The history-sensitive, qualitative approach adopted offered the possibil-
ity to reach a rich understanding of the major events and their linkages. In Langley’s
(1999) list of strategies for making sense of process data, our approach comes closest
to the temporal bracketing strategy, which, starting from the assumption of recur-
sive influences in social life, analyses mutual processes in a sequential order by tem-
porarily ‘bracketing’ (Giddens 1984) one of them. Moreover, ‘the decomposition of

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data into successive adjacent periods enables the explicit examinations of how actions
in one period lead to changes in the context that will affect action in subsequent
periods’ (Langley 1999, 703).
Apart from historical studies on Bertelsmann (Gohr 2006; Gööck 1968;
Langenbucher 1985; Lehning 2004; Schulze et al. 2005), our analysis is based on data
from two main sources. Our primary source was thousands of pages of archival
material. Bertelsmann was kind enough to provide access to major parts of its well-
equipped corporate archive that has been opened to the public and managed by
professional historians since 2003 (cf. Booth et al. 2007). One of the authors spent
several weeks there searching for relevant material. The archival material used
included annual reports, strategic reports to the board, minutes of board and executive
meetings, correspondence with external agents, press releases, book club catalogues,
advertising materials, the website, and articles in newspapers and book trade journals,
in particular, Börsenblatt des Deutschen Buchhandels. The analysis of the archival material
was supplemented by interview data as the second major source of data collection. In
all, 11 face-to-face, semi-structured interviews were conducted with current and
former executives in charge of the book club and with industry experts. The inter-
views lasted from one to three hours and were recorded and transcribed. Using mul-
tiple sources of evidence allowed for data triangulation and the improvement of
construct validity. All data collected for the case study have been documented and
organised in a ‘case study database’ (Yin 2009) so that other persons can check their
reliability and validity.
The analysis of the data from this database was organised along the theoretical
framework on path dependence presented above. The framework and its proposi-
tions, in particular, concerning the three-stage development, focused attention on
certain events (as potential triggering devices) and governed our analytical choices
(e.g. studying self-reinforcing processes). The analysis of the vast array of materials
and data was assisted by computer tools. For analytical purposes, codes for recurrent
patterns in the data were developed (such as strategic decisions or environmental
dynamics), relating the codes to the themes derived from the path-dependence
framework as the analysis proceeded; more often than not, data analysis induced new
inquiries or the search for additional material or interview partners, which amounted
to an iterative procedure. This was continued until a certain level of ‘saturation’ was
achieved (Suddaby 2006).

Findings

Bertelsmann’s book club (originally: Lesering. Das Bertelsmann Buch) was founded
in 1950 by Bertelsmann publishing company (C. Bertelsmann Verlag). After the
Second World War there was a shortage of bookstores in Germany, in particular in
rural areas, and at the same time a strong demand for entertaining literature (in
particular, from countries that were ‘forbidden’ during the Nazi regime). At that

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time, when looking for an effective channel of distribution with access to the mass
market, Bertelsmann Verlag chose direct selling as the most promising method. The
strategic guideline was: mass circulation, hardcover books at moderate prices.
Bertelsmann organised the direct selling in the form of a book club – a business
model that already existed at that time. It built up its clientele in a decentralised
way: the publishing house cooperated with independent distributing agencies
(which were in many cases established bookstores, an extra business for them). These
agencies drummed up customers and administered the distribution. In a way, this
amounted to an early franchise system, which allowed the publisher to grow rapidly
without capital-consuming investment in distribution facilities. The book club set
up the programme, produced the catalogue and printed the books. The independent
agencies managed the distribution.
Starting in 1951, the book club launched a new customer campaign encouraging
existing customers to ‘recruit friends and collect a bonus’ (Freundschaftswerbung),
which proved to be a huge success. The book club soon became a company on its own,
detached from the printing house and the publishing company. The Lesering, focusing
on selling a selection of very popular books at reduced prices to members of the book
club, not only grew rapidly, it also turned out to be a highly profitable business. It
soon became the major German book club and as early as 1962 it went international
and founded subsidiaries in other countries, including Spain, Austria, Switzerland,
Belgium and France.
In the 1970s, operating under the new brand name Bertelsmann Buchclub, many
competitors were acquired (in particular a 50% share in Deutsche Buchgemeinschaft –
DBG – and 100% of Europäische Bildungsgemeinschaft – EBG) and Bertelsmann
became the market leader in the German book club business. The market share of the
book club grew from 18% in 1972 to 66% in 1985. The company excelled in many
respects and the acting owner became a widely admired person in Germany and
abroad. There seemed to be no stopping him on his road to continued success.
However, in the 1980s the membership stagnated and began dropping progressively
afterwards (though there was a considerable short-term peak after German reunifica-
tion). In 2007 the number of members had dropped almost to the level of 1962
(Figure 2).
In the 1990s the economic situation of the book club changed dramatically; since
1999 the company has suffered losses year after year. The estimated cumulative loss
by 2007 was €110 million, according to an article in the Financial Times Deutschland
on September 26, 2006. In response to this deterioration of profitability, the company
started various strategic renewal programmes, but none succeeded. Actually, in most
cases they stopped the change initiative after two or three years and returned to the
established business model and related routines. Also, the owners have replaced the
top manager 12 times since 1990, but no one has been able to effectuate a structural
change so far. Hence, one cannot claim that the Bertelsmann management was not
aware of the problem. As a matter of fact, a puzzlingly strong strategic persistence has

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Figure 2 Membership development of Bertelsmann’s book club

developed over time; the company seems to be frozen, pointing to potential organisa-
tional path dependence. We examine this conjecture along the three-stage model
presented above.

Phase I

The initial situation right after the Second World War was characterised by some
imprints from the past. Before the war, Bertelsmann was a small publishing house
specialising in school books as well as religious products such as prayer books, cat-
echisms and theological literature. During the war Bertelsmann initially produced
cheap books for the soldiers (Feldpostausgaben). Towards the end of the war, air raids
destroyed nearly all production facilities (printing equipment) and stocks (Adron
1983). After the war, the family immediately tried to redevelop their business, but
except for some printing machines only a few minor publishing activities had
remained. The heritage focused the search for a means to rebuild the business, but
in general the strategic situation was quite open (Schuler 2005). There was a broad
scope of strategic alternatives after the Second World War, for instance focusing on

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high-margin books and selling via established retail bookstores. The company, never-
theless, decided to restart with producing and selling entertaining books at low prices.
Distribution turned out to be problematic. When looking for more effective dis-
tribution channels, the management backed the book club idea. To save money they
started acquisition and distribution in a very special, indirect way by making use of
freelancing distribution agencies run on a commission basis. The customers were (and
still are) ‘owned’ by the agencies, which also administer the membership (Schaper
1977; Tietz 1985). In many cases, these agencies were established bookstores, which
carried out these activities in addition to their traditional retail business. As many
German bookstores were interested in becoming book club agencies, Bertelsmann was
quickly able to develop a comprehensive network of multipliers and distributers. This
first cautious step, initially devised to keep the capital requirements and the risk at a
low level, proved to be of significant importance for the rapid development of the
club. And it turned out to be the triggering event for the development of the organi-
sational path. The agencies were extremely successful in acquiring book club members
and they kept the administrative load for the book club low. In one of our interviews,
a former division manager stated:
To make use of the existing chain of agencies can be seen as the big, big
invention of the book club founders.
Three other early decisions also proved to be of critical importance:
(i) to produce representative hardcover and leather-backed books (also intended to
serve decorative purposes on the bookshelf in the living room) at a low or at least
moderate price;
(ii) to offer only a very limited range of books (initially only 100, later 10 times as
many, but still few compared to others); and
(iii) to offer ‘suggested reads’ – every three months the club selects and sends a book
(which, however, can be returned by the customer) (Hutter and Langenbucher
1980).
Taken together, this shows that history already matters in this first phase. Furthermore,
the initial attempt to adopt the book club business model quickly amounted to a
critical juncture.

Phase II

The second phase of our theory of organisational path dependence is characterised by

self-reinforcing dynamics. In the Bertelsmann book club case we found various mech-
anisms that contributed decisively to building an organisational path that was in the
best interest of the corporation for many years. The first and major self-reinforcing
mechanism that could be identified and is assumed to have contributed first to the
constitution of the organisational path was economies of scale. The Bertelsmann book
club model implied a focus on relatively few and promising titles, which allowed the

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production of a single title with a high number of copies. The economies of scale in
book production are considerable; the unit cost decreases dramatically. A standard
calculation of publishers shows, for instance, a unit cost of €6.50 for an edition of
2,000 copies and €2.33 for an edition of 12,000 copies (Blana 1993). It is primarily
a fixed cost degressive effect. In the 1960s and 1970s the average edition of fiction
books in Germany was some 5,000 copies; in contrast, Bertelsmann could sell at least
100,000 copies of a title and thereby realise tremendous economies of scale (Beinsen-
Ruf 1980). Of course, it did not take the full difference – it sold the books at lower
prices than regular editions – but there was still a remarkable profit span. Particularly
successful were the so-called suggested reads. These books turned out to be a huge
success with enormous economies of scale. In 1955 the book club sold on average as
many as 725,000 copies of the suggested book and in 1960 no less than 1,450,000
copies. In combination with the distribution agencies, which held the distribution
investment cost down, and the small range of items offered in the catalogue, there was
an extremely rewarding economies of scale machinery (increasing returns) which
pushed for ever more members.
In addition, there proved to be a second self-reinforcing dynamic at work that
also produced many appreciated effects, at least for many years: complementarities.
The rapid growth of the book club produced a high demand for printing capacity.
The Bertelsmann printing house proved far too small to fulfil the needs of this rapid
growth. In 1954 only 50% of the book club copies could be printed using the com-
pany’s own printing facilities (Adron 1983). The management decided to expand
the printing facilities of the corporation considerably and founded a printing com-
pany that also served the (then) separate Bertelsmann publishing company. In 1961
75% of all printing orders were met in-house. High printing investment demands
full plant utilisation to bring the fixed unit cost down – implying an even greater
demand for more members. The same logic took place in the logistics, in particular,
in the distribution outlets. In order to manage the distribution of the huge editions
of the book club effectively and on time, Bertelsmann started to invest heavily in
logistics. It founded a separate corporation (Arvato), which managed the printing
and the mass distribution for all Bertelsmann media activities (the share of the book
club was, however, considerable), according to an article in Industriemagazin on
October 15, 1984. There were also complementarities between the publishing
house and the book club. In many cases, the book club bought the licences for
already published titles from the publishing house and produced a second special
book club edition of the same book. In 1960 40% of the book club titles were
derived from the Bertelsmann publishing companies’ programme. As a result, all
other Bertelsmann affiliates (now all part of its Random House division) profited
greatly from the growth of the book club. In order to keep pace with this growth,
the Bertelsmann group pushed the expansion of complementary investment. On the
other hand, this meant a high degree of interdependence – a tightly coupled net-
work – and the internal purchases of the book club became of crucial economic
importance for the whole group: the book club needed the services of the production

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and the logistics divisions and the affiliated publishing companies as much as ‘the
publishers needed the book club’.
Once under way, the two self-reinforcing dynamics proved to be mutually self-
reinforcing, economies of scale and complementarity effects even interacted and
accelerated the positive feedback process. However, there was also a downside to this
process: growing mutual interdependence and, subsequently, a shrinking reversibility
of the investments. As a result, it seems plausible to assume the building of an
organisational path. Paths become obvious when the environment changes. These
changes occurred: we saw the increasing importance of large stationary book retailers
(e.g. Hugendubel), technically advanced Internet booksellers (e.g. www.amazon.de)
and largely modified consumer preferences (e.g. more differentiated reading habits).
In sum, since the 1980s the situation of the German book market has changed con-
siderably (cf. Holtmann 2008, 169–82, for details).

Phase III

The analysis revealed that the first weak signals in the 1970s had already indicated
that the book club idea might no longer fascinate as many German readers as it had
in the years before and in the 1980s the Bertelsmann book club membership (and that
of all other German book clubs) stagnated. The company tried to overcome this stag-
nation by acquiring other (also stagnating) German book clubs, such as EBG or DBB.
Despite many acquisitions, there was no stopping the overall decline of book club
membership. In 2007 the number of members dropped almost to the level of 1962
(and the number has continued to drop since then) (see Figure 2 for more details).
The economic situation came to a turning point in 1999 when the book club
showed a loss for the first time since its foundation – and it has not recovered since
then. By 2007 the losses had accumulated to €110 million, according to an article
in the Financial Times Deutschland on September 26, 2006. Obviously, the dropping
number of members made the book club fall under the break-even point. Because of
the glorious past, the fixed costs and the concurrent complementing investments
stayed very high and capacities were underutilised. The possibilities to expand and
to bring the number of members beyond the break-even point once again seemed
limited. The general lifestyle and the ubiquitous availability of books no longer
favoured the book club idea. The whole concept had become fuzzy and old fashioned.
In addition, as nearly all German book clubs had already been acquired by
Bertelsmann, the reservoir had been exhausted. Responding to the obvious changes
and the upcoming crisis, the management (assisted by a couple of well-known
consultancies) developed a lot of strategic restructuring initiatives: broadening the
range of products and introducing catalogue selling without membership, founding
an Internet bookstore, launching stationary mega bookstores, and so forth. But sur-
prisingly enough, all the initiatives up to now have failed.
The pattern was always the same: the company started a new strategic initiative,
but after two or three years the strategic initiative was stopped and replaced by a

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subsequent project. As a result, the book club never actually assimilated the new
ideas; the old pattern proved so dominant that the new initiatives bounced off. A
former Bertelsmann executive provided his view of the failed change initiatives:
All the upcoming business ideas have been abandoned after a short period of
time. This goes back to a lack of patience to invest in these diversification
strategies sufficiently. The managers were not willing to wait to break even
and for profitability so they returned to the traditional core business, the book
club business.

It is interesting to learn that the Bertelsmann book clubs in France and Spain managed
a strategic renewal quite successfully at that time. In Spain the book club was sub-
stantially complemented by a wine club and in France by an agency for renting
vacation houses and apartments. Explorative learning seems to have been possible in
these locations; the decentralised organisational structure of Bertelsmann AG ensured
that foreign operations were able to act quite independently of the German book club.
The more puzzling issue, however, is that the German operative procedures obviously
did not allow for cross-unit learning – the national action pattern seems to be frozen.
Moreover, the continued economic successes in these countries even had an unfortu-
nate effect on the German book club: they could be and actually were used as an argu-
ment to hold on to the book club business model, according to an article in
Handelsblatt on December 16, 2004.
Concurrently, the strategy to exchange key managers failed, too. The owners have
replaced the management several times (top management alone six times from 1990
to 2007). But so far all the new top managers have failed to change the situation. It
appears that the system ‘Bertelsmann book club’ has entered a stage of organisational
rigidity that can be characterised as a lock-in. The structural change of the business
environment has been quite obvious since the 1990s and has turned a once very suc-
cessful business into an economic failure. But the organisation seems to stick closely
to the old business model and it seems to stick so firmly that any attempts to change
the situation have not been realisable – despite all efforts.
There were early warning signals discussed within the firm; former top managers
report that in the early 1980s, the first analyses were circulated saying that the business
model of book clubs was likely to become outdated in the near future:
In the book club, there used to be a surprising clarity. In the early 1980s there
were strategy papers outlining that the business model of those days could not
continue to be successful but would fail in the long run.

But due to the still successful business at that time, the proud tradition and the emotional
attachment of the owner family, no one dared to draw strategic conclusions. Another
Bertelsmann manager shared the following view with us in one of the interviews:
The pessimistic view was rejected. The managers referred to their monopolistic
position in the book club market and ignored any upcoming competition.

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Later on, in the face of falling membership and rapidly diminishing profits, the man-
agement began various interventions. The interventions were, however, not sustaina-
ble enough; the system had already become path dependent and was no longer
responsive. The large-scale investments in the book club and its affiliated businesses,
as well as their tremendous success, had fixed the practices reproducing the old busi-
ness model both physically and mentally.
After years of significant losses, even the exit decision has been taken into consid-
eration by the corporation, but it was eventually dismissed. On the one hand, there is
the glorious tradition; the family, the brand name, and the reputation of the company
have been closely associated with the book club and its former success as part of the
German Wirtschaftswunder. On the other hand, there are so many interdependencies
with other corporate activities and affiliates. The once so promising and reinforcing
complementarities have turned into a burden. While formerly elements of Bertelsmann’s
core capability, they should now be described best as part of a ‘core rigidity’ (Leonard-
Barton 1995). The corresponding affiliates and facilities (printing and logistic firms,
publishing house) depend heavily on the purchases of the book club in their cost
management – and are therefore in no way interested in closing it down. After the
turning point, the self-reinforcing complementarities amount to a path dependence
that seems extremely difficult to escape.

Conclusions and directions

This paper has suggested a theory of organisational paths that builds on the one hand
upon the seminal works of Paul David and W. Brian Arthur in order to transcend a
purely metaphorical use of the notion of path dependence, but on the other hand goes
beyond these works by first specifying the regimes under which the process of becom-
ing path dependent unfolds in organisations and, second, modifying important
assumptions in the light of organisation research.
By illustrating the process of the emergence of an organisational path, the case
of the Bertelsmann book club is used to demonstrate the importance of triggering
events and the narrowing character of the entire process. At its very beginning the
strategic situation was open, although history already mattered in this initial phase
of the process. Among the triggering events, the ‘small’ decisions to produce a rela-
tively limited programme only and to rely on freelancing distribution agencies
proved salient. The path came into being through self-reinforcing dynamics consist-
ing of a combination of economies of scale and complementarity effects. Though
other self-reinforcing mechanisms such as coordination, learning and adaptive
expectation effects (cf. Sydow et al. 2009) seem less important in this case, they have
also been at work. For instance, over the years Bertelsmann had certainly learned to
optimise the book club business, not least in face of the continuous internal growth
and the frequent acquisitions of other businesses in this field. However, and pretty
much in line with the proposed theory of organisational path dependence, this was

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a single-loop rather than a double-loop learning experience (Argyris 1976). Eventually,

in the final phase the whole process has become locked. In contrast to ‘simple’ organ-
isational or institutional persistence, other more efficient alternatives are no longer
realisable, and significant economic losses are the result. In contrast to escalating
commitment, the decisions originally taken were anything but inefficient at that
time. While the concept of escalating commitment implies that decision-makers
hold on to decisions that were wrong from the outset (‘throw good money after bad’),
this does not apply to the case under investigation, where the Bertelsmann Buchclub
was economically successful for at least two decades precisely because of the decisions
taken, which later proved to lead the organisation into a lock-in that still seems
impossible to break.
The theory of organisational path dependence presented in this paper helps to
reconnect business history with strategy and organisation theory, as called for by Booth
and Rowlinson (2006) as well as Kipping and Üsdiken (2008), for instance. Applying
this theory to an in-depth case study of a division of a large media conglomerate such
as Bertelsmann goes well beyond most former efforts, which have either inquired only
into the persistence of organisations like Firestone (Sull 1999) or Polaroid (Tripsas and
Gavetti 2000) or referred to the notion of path dependence in a rather loose way or
applied the theory of path dependence without necessary modifications, often in a
rather crude manner, to organisations such as NASA (Bruggeman 2002), car manufac-
turers (Hefferman 2003) or leading research organisations (Hollingsworth 2006). The
trade-off from this more precise analytical approach is that the intriguing phenomenon
of organisational path dependence may turn out to be quite rare.
The major limitation of the present study results most obviously from the fact
that only one embedded case has been investigated – though one that could be studied
extensively and over a very long period of time. Future studies of organisational path
dependence could and should nevertheless adopt a multi-case design allowing for
‘parallel analysis’ (Barley 1990) and at the same time pay even more attention to the
embeddedness of an organisation into an industry, region or field than was possible in
our (single) case. It may well be that major developments or institutional rigidities or
path dependencies in the field of book publishing and distribution (e.g. resale price
maintenance) prevented Bertelsmann from turning away from its book club business
in Germany or from renewing it. Finally, future studies of organisational path depend-
ence could be more precise when unpacking the interdependencies between the self-
reinforcing feedback processes at the core of the theory of path dependence in general
and of organisational path dependence in particular.

Acknowledgements

The field research reported in this paper has been conducted by Philip Holtmann
under the supervision of the first author. We are very grateful to the German Research
Foundation (DFG) for providing funds for the unique doctoral programme ‘Research

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on Organisational Paths’ (www.pfadkolleg.de) at the Freie Universität Berlin; it is in

this programme that the research was conducted. We are also grateful to the DFG for
sponsoring the sabbatical leave of the second author to the Australian School of
Business at the University of New South Wales, Sydney, Australia. Finally, we thank
Jan Hesse for critical comments from a historian’s point of view on a former version
of this paper. Former versions of this paper were presented at the 25th EGOS
Colloquium in Barcelona, Spain; at the 23rd ANZAM Conference in Melbourne,
Australia; and at the AAHANZBS Inaugural Conference at the University of Sydney,
Australia. Last but not least, we thank the two anonymous reviewers and guest editors
of this special issue for their helpful advice on how to improve the paper.

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GEORG SCHREYÖGG is currently Professor of Management and Organization Studies at the

School of Business & Economics of Freie Universität Berlin. He has published in several leading
journals; his recent research has focused on organizational change, strategic management, and
organizational capabilities [[email protected]].

JÖRG SYDOW is currently Professor of Management at the School of Business & Economics of
Freie Universität Berlin. He is a founding co-editor of two leading German journals, Management
forschung and Industrielle Beziehungen - The German Journal of Industrial Relations, and a member of

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the editorial boards of Organization Studies, Organization Science, Business Research and The
Scandinavian Journal of Management. His research focuses on strategic partnering, outsourcing
inter-firm networks in the service and media industry, industrial relations, innovation and project
management, organization and management theory [[email protected]].

PHILIP HOLTMANN earned his doctorate at the Pfadkolleg of the School of Business & Economics
of Freie Universität Berlin and is now the personal assistant to the chief marketing officer of a large
publishing house. His research interests concern management and organization theory, path
dependence, and strategic inertia [[email protected]].

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