contact information - freie universität · contact information thomas schmidt freie universität...
TRANSCRIPT
Contact information
Thomas Schmidt
Freie Universität Berlin
School of Business & Economics
DFG-Doctoral Program Research on Organizational Paths
Garystr. 21, 14915 Berlin, Germany
E-Mail: [email protected]
Timo Braun
Freie Universität Berlin
School of Business & Economics
Management Department
Chair for Inter-firm Cooperation
Boltzmannstr. 20, 14195 Berlin, Germany
E-Mail: [email protected]
1
Submission to 3rd
International Conference on Path Dependence
February 17-18, 2014
Freie Universität Berlin
School of Business & Economics
When cospecialization leads to rigidity:
Why even SAP couldn’t unlock interorganizational path dependence
--- anonymized ---
2
When cospecialization leads to rigidity:
Why even SAP couldn’t unlock interorganizational path dependence
Abstract
By taking advantage of interorganizational asset complementarity (cospecialization), interfirm
relationships allow to gain relational advantages. Nonetheless, in the long run, firms are sometimes
found to be unable to adapt these interorganizational arrangements (in order to access new markets
with innovative products). We investigate this problem by conducting a qualitative case study of
SAP’s initiative to enter the SME market with a new product and partner strategy from 2007 until
2013. We contrast these findings with a historical analysis of the rise of SAP’s product and partner
strategy in the last four decades. This research design allows us to relate current rigidities to
historical roots. We find that organizational and interorganizational long-term effects of co-
specialization can become barriers for path-breaking initiatives. In particular, we identify two
specific pitfalls for change initiatives in vertically disintegrated value chains: boundedness and
asynchronicity.
Keywords: path dependence, cospecialization, complementary assets, interorganizational
relationships, alliances, complementarity effects, ERP, SAP
Introduction
Interorganizational relationships are rarely associated with inflexibility, inertia or path dependence.
Quite the contrary, networks and alliances are rather assumed to increase flexibility (Powell, 1990)
and adaptability (Gulati, Lawrence, & Puranam, 2005). This positive view on networks and
alliances was influenced to a large extent by the debate on core competencies among scholars and
practitioners (Prahalad & Hamel, 1990; Quinn & Hilmer, 1994). According to this way of thinking,
firms should focus on their core business to gain benefits from specialization and outsource all non-
core activities. While some non-core activities can easily be accessed by market transactions, there
are complementary or cospecialized assets outside of the boundaries of a firm that can only be
accessed by long-term cooperation strategies (Teece, 1992). A large body of literature highlights the
role of complementarities for interorganizational relationships (e.g. Dyer & Singh, 1998;
Hagedoorn, 1993).
Yet, just a few articles render the topic problematic and ask for negative long-term effects like
3
interorganizational path dependence. The literature has pointed occasionally to the problem of
intraorganizational effects caused by outsourcing – that increasing disintegration may promote
specialized “silos” – thus inhibiting systemic innovation (Chesbrough & Teece, 1996; Jacobides &
Winter, 2005). However, there is still a lack of empirical research that investigates the long-term
rigidities of cospecialization processes in interorganizational arrangements (for an exception see
Weigelt, 2009). The aim of this study is to show that – when strong self-reinforcing
interorganizational complementarity effects are at work – interorganizational processes of the
participating organizations could fall victim to strategic path dependence, thus even path breaking
initiatives fail (Sydow, Schreyögg, & Koch, 2009).
We investigate this phenomenon by conducting a qualitative multi-level case study of a failed
initiative of the world largest enterprise software vendor SAP to enter the SME market with a new
product and partner strategy from 2008 until 2013. We contrast these findings with a historical
analysis of the rise of SAP’s established product and partner strategy in the last four decades. This
research design allows us to relate current rigidities to historical roots. Thereby our study seeks to
provide answers to the following research questions:
Why do firms with successful interorganizational strategies fail to enter new markets?
What are the organizational and interorganizational long-term effects of cospecialization
processes between firms and how do these effects inhibit change?
The research problem is studied theoretically with an extension of the theory of organizational path
dependence (Sydow et al., 2009) for interorganizational settings – integrating the concept of
cospecialization (Teece, 1992). We find that the complementarity effects of cospecialization
processes enfold an “avalanche-like” (Sydow et al., 2009: 697) dynamic leading to relational
advantages. This positive feedback further stabilizes the interfirm cooperation pattern and shapes
the identity of the participating organizations. This stability becomes an issue against the backdrop
of environmental change.
Relational advantages are volatile due to innovations by competitors and changing market
environments. As managers become aware, they may make strong efforts to restructure the value
chain and to reintegrate and/or develop alternative interorganizational cooperation patterns. But
even though decision makers see the need for change, they are found to be unable to disrupt the
established pattern of cooperation. This seems puzzling, but we work out why it is well explained
by an extension of the theory of organizational path dependence. In particular, we show with our
study that the problem of path dependence might become even more severe, when cospecialized
activity systems span across the boundaries of different specialized firms. It is well known that
4
complementarity effects within organizations are not only a source of competitive advantage, but
can also be the roots of rigidities (Leonard-Barton, 1992) – especially when activity systems with
strong complementarity effects (Stieglitz & Heine, 2007) are confronted with radical innovations
(Henderson & Clark, 1990). But considering large partner networks that can consist of thousands of
organizations multiplies the problem with different cospecialization trajectories within each partner
firm. Thus, it is a challenging endeavor to restructure a whole value chain at once, because it can
imply, for example, a massive reintegration of capabilities. As we analyze a timeframe of four
decades within our case study, we are able to show how interorganizational cospecialization
processes evolve during a long time period. By this, we identify reasons why there are specific
pitfalls for change initiatives within interorganizational path-dependent settings.
Our study comprises three major contributions to organizational and strategy research: First, we
adapt the concept of path dependence to an interorganizational setting. In the past, single
organizations were in the focus of this research stream while studies on interfirm relationships were
scarce – yet these relationships are a critical feature of the business model of many corporations and
may be also subject to inertia or path dependence (Gulati, Nohria, & Zaheer, 2000). Second, our
theoretical framework integrates path dependence theory with the concept of cospecialization and
complementarity in the tradition of Teece (1992). Third, the explorative approach allows us to
identify conditions for the failure of path breaking initiatives. Based on our case study we show that
bounded change within organizational subunits and asynchronous change among the collaborating
partners are the major reasons for relapsing to old strategic paths. This has implications not only for
research but also for the (practical) management of interorganizational relationships.
In the next section we will introduce the characteristics of interorganizational path dependence and
review important studies on complementarity and cospecialization in alliances. Then we set out our
research methodology and present the empirical results of our explorative case study. Thereafter, we
show how the findings relate to our theoretical framework and how we can add to and refine
previous research. The concluding section summarizes and reflects on the limitations as well as the
contributions of this study.
Theory
From organizational to interorganizational path dependence
The concept of path dependence was developed by Brian Arthur (1989, 1994) and Paul David
(1985) and it explains why even inferior technologies can become dominant standards. Early events
like the early adoption of a technology by a significant user base might lead to “increasing returns”
5
(Arthur 1989, 1994) and under certain circumstances to a lock-in-situation. The concept is useful to
understand the role of history not only for the adoption of technologies, but also for other social
processes. On this basis, the theory of organizational path dependence (Sydow et al., 2009) provides
an explanation of how self-reinforcing mechanisms (phase II) lead an organization from
contingency (phase I) towards lock-in (phase III). As shown in Figure 1, the potential (strategic)
options of organizations are reduced continuously in the course of becoming path dependent (see
Figure 1).
Figure 1: The constitution of an organizational path (Sydow et al., 2009: 692)
The most prominent self-reinforcing mechanisms in path dependence research on organizations are
complementarity effects and coordination effects. Complementarities on the one hand are described
as the synergy surplus that is generated by the combination of at least two separated elements
(Ennen & Richter, 2010; Milgrom & Roberts, 1995; Porter & Siggelkow, 2008; Stieglitz & Heine,
2007). This advantage might lead to positive feedback and thereby to virtuous (or vicious) cycles
(Masuch, 1985). Coordination effects on the other hand “build on the benefits of rule-guided
behavior” (Sydow et al., 2009: 699). Well-established organizational rules coordinate the activities
of multiple actors and make unilateral deviation unattractive. Different studies show that
organizations that are stuck too tightly to their established rules fail to respond to environmental
change (Gilbert, 2005; Koch, 2008, 2011; Tripsas & Gavetti, 2000). Complementarity as well as
coordination are also key concepts in the literature on interorganizational relationships. In this
respect, there is some evidence for relational lock-ins (Maurer & Ebers, 2006), persistence in
partner selection (Inkpen & Ross, 2001; Li & Rowley, 2002; Patzelt & Shepherd, 2008) and
interorganizational path dependence (Burger & Sydow, 2012; Kuschinsky, 2008; Levering, Ligthart,
Noorderhaven, & Oerlemans, 2013; Mallach, 2012).
6
Cospecialization in interorganizational relationships
Resource complementarity is an important explanation for the emergence of interorganizational
relationships in general and for alliances and networks in particular (Dyer & Singh, 1998; Gulati,
1995; Hamel, Doz, & Prahalad, 1989; Nohria & Garcia-Pont, 1991). This is particularly true for
innovating firms that do not possess all cospecialized assets necessary to appropriate value from
innovation (Chung, Singh, & Lee, 2000; Colombo, Grilli, & Piva, 2006; Hess & Rothaermel, 2011;
Parmigiani & Mitchell, 2009; Rothaermel & Boeker, 2008; Rothaermel, 2001, 2001; Santoro &
McGill, 2005; Teece, 1992). Yet, the way the notion of complementarity is used in this context often
implies a simple surplus that comes from the combination of two or more separated elements, for
example through the interplay of a technological innovation with a specific marketing competence.
However, the original concept of cospecialized assets (Teece, 1986, 1992) is more subtle and also
differentiates between the directions of the complementary relationships. Accordingly, an asset is
specialized, if there is a unidirectional dependence on another asset and assets are cospecialized,
when the dependence is bidirectional.
A further elaboration on the concept of cospecialized assets was developed by Jacobides, Knudsen
and Augier (2006). They unbundle the implicit dimensions of the concept: complementarity and
mobility.
Figure 2: Complementarity vs. mobility: dependence and complementarities (Jacobides et al., 2006: 1207)
Thus, one feature of cospecialized assets is (a positive form of) complementarity in the sense of
„superior returns to a combination of two or more assets, i.e. complementarity in products, services,
and processes“ (Jacobides et al., 2006: 1206). The other dimension is mobility which can be seen as
the opposite of asset specifity, meaning that assets can be complemented not only by one, but by
many partner firms.
7
„The second is (bilateral) dependence in the sense of the number of assets that can potentially enter a
combination, with negligible switching costs, i.e. mobility in assets that are components of a
combination” (Jacobides et al., 2006: 1206).
Assets with high complementarity and high mobility are different from Teeceian cospecialized
assets. The Teeceian concept can be viewed as an issue of conjunctural causality (Mackie, 1965;
Ragin, 2000), meaning in the case of complete cospecialization that one cospecialized asset would
be insufficient (worthless) without the other and vice versa.
“With co-specialization, joint use is not only value enhancing; It also will be asset specific (i.e. the co-
specialized assets do not have a market in which they can be sold for their full value)” (Pitelis & Teece,
2010).
This is the reason, why Teece advocates to vertically integrate critical, cospecialized assets, when
competition is high and approprability regimes are weak. By contrast, Jacobides et al. (2006)
conceive a concept of cospecialization stating that some firms are able to benefit from asset
complementarity not only in one, but in many interorganizational relationships. These firms are
willing to give up a part of the value chain and transfer parts of the value creation process to partner
firms. Means of managing this kind of asset complementarity are, for instance, open standards. With
this conceptualization, the idea of cospecialization becomes linkable to the discussion on platforms,
ecosystems and keystone advantages (Gawer, 2011; Iansiti & Levien, 2004).
Such kind of managed interorganizational cospecialization is a frequent phenomenon in industries
with fast innovation cycles and technological complementarities – like the microelectronics or the
software industry (Hagedoorn, 1993) and especially in industries with high (indirect) network
effects. The availability of complementary goods and services is a key for example for software
vendors to gain installed base advantages (Schilling, 1999) and to exploit technological path
dependence (Arthur, 1989, 1994). In a similar vein Venkatraman, Lee & Iyer (2008) find evidence
that software firms need to “interconnect to win” (see also Lee, Venkatraman, Tanriverdi, & Iyer,
2010; Shapiro & Varian, 1999). On the contrary, in these markets with increasing returns also
promising products with a good basis value can fall victim to the penguin effect (Katz & Shapiro,
1985), a cautious behavior of customers and other market actors, when the critical installed base is
not achieved quickly enough.
Cooperation patterns in complementarity-based alliances
The idea of managed complementarity also opens the concept of cospecialization for a broader unit
of analysis. When the mobility of assets is high, cospecialization processes do not only take place
on the level of one specific dyadic relationship, but also on a broader level of an industry or on a
network level. A focal firm may increase the value of its focal asset by cooperating not only with
one, but with a whole network of partner firms – thereby leveraging complementarity effects.
8
However, this managed complementarity is demanding, it requires the patterning of the
collaboration processes, i.e. a pattern of task alignment in the value chain. Jacobides et al. (2006)
describe these patterns as “industry architectures”.
“Thus, industry architectures provide two templates, each comprising a set of rules: (1) a template
defining value creation and the division of labor, i.e. who can do what and (2) a template defining value
appropriation and the division of surplus, or revenue, i.e. who gets what” (Jacobides et al., 2006: 1205).
In other words, the exploitation of complementarity effects across organizational boundaries also
increases the necessity of coordination. The management literature on complementarities points to
the effort of coordination that grows with increasing complementarities: “If corporate resources are
complementary, the need for some kind of coordination is apparent, since the added value of one
resource depends on the use of other resources and their individual deployment has to be
consistent” (Stieglitz & Heine, 2007: 3).
The same seems to be true for the coordination of interorganizational relationships (Gulati & Singh,
1998; Van de Ven & Walker, 1984). Because complexity goes hand in hand with interorganizational
complementarity, partnering firms need to establish stable cooperation patterns in order to
coordinate the interorganizational “alignment of action” (Gulati et al., 2005): the coordination of
highly interdependent tasks (Gulati & Singh, 1998). Grunwald and Kieser (2007) point to the role
of boundary spanners, e.g. dedicated alliance managers that work on both sides of a relationship.
Cooperation patterns may not only involve more or less standardized procedures to coordinate the
joint production or sales process, the joint project management or the ongoing training and
evaluation of existing partners, but also the selection procedures of appropriate new partners and the
re-selection of old partners (Sarker, Sahaym, & Bjorn-Andersen, 2012; Schreiner, Kale, & Corsten,
2009; see Sydow (2005) in general on network management practices).
Threats and rigidities
Even though the idea of managed complementarity may be attractive, there are also indicators for
threats and rigidities of interorganizational cospecialization processes. To analyze these possible
negative outcomes it is important to highlight the temporal dimension of interorganizational
cospecialization that has not received much attention in empirical studies so far, but that is of
particular interest for our study of interorganizational path dependence. “[C]omplementary assets …
shape going forward enterprise strategy, sometimes positively (in terms of returns to innovation)
and sometimes negatively” (Teece, 2006: 1135). It is important to ask for self-reinforcing
complementarity effects in the processes of cospecialization, because “[p]ure complementarities
without self-reinforcing processes characterize a stable situation of fitting resources, but not a
process that eventually leads to a lock-in” (Sydow et al., 2009: 697). We assume these rigidities on
9
two different levels:
(1) Rigidity in cooperation patterns: Cooperation patterns along the value chain can be seen as
common agreements necessary to reassemble these different but complementary parts. Grunwald
und Kieser (2007: 374) compare this with the coordination of concert musicians who do not need to
know everything about their colleagues’ instruments: “For example, knowledge about musical
notation and the conductor’s standardized movements reduce the communication required between
the members of an orchestra (i.e., specialists in different instruments) when rehearsing a concerto”.
If assets were similar and firms would possess the same step of the value chain, there would be no
need to collaborate – at least from a cospecialization point of view. Thus, the main goal of partners
is not always to acquire each other’s knowledge bases, but to combine the different but
cospecialized assets to jointly commercialize a more innovative product (Grant & Baden-Fuller,
2004; Grunwald & Kieser, 2007). Therefore, a certain degree of stability is necessary. Templates of
cooperation between different firms along the value chain may emerge in unique historical contexts,
but positive feedback of cospecialization processes may stabilize these templates. What is more,
these cooperation patterns may rigidify and became as source of path dependence. The majority
view in alliance research suggests that in interorganizational relationships coordination patterns are
easier to adapt (Gulati et al., 2005). There are only a few studies that found evidence for inertia in
some specific kinds of interorganizational routines, e.g. the selection procedures of firms in
strategic alliances (Li & Rowley, 2002). We aim to go a step beyond these findings and argue that
interorganizational cooperation patterns can become path-dependent in a way that they cannot be
adapted to environmental change or to the diverse demands of diverse user groups.
(2) Rigidity in asset specialization: The division of labour between firms also causes local learning
processes. The different partnering firms with their bounded rationality (Simon, 1979) and limited
resources engage in specialist learning and mainly focus on the development of their own assets
(Grant & Baden-Fuller, 2004; Grunwald & Kieser, 2007). Therefore, firms’ assets might become
increasingly different as they are becoming increasingly cospecialized. Especially when we think of
assets and capabilities that are characterized by ongoing change, specialization or life cycles
(Hansen, McDonald, & Mitchell, 2013; Helfat & Peteraf, 2003). These local learning processes may
foster the threat of specialized “silos” that can inhibit systemic innovation (Jacobides & Winter,
2005). Weigelt (2009), for instance, finds that outsourcing can negatively affect the performance of
a firm, because firms are losing context-specific knowledge. Furthermore, extensive vertical
disintegration may also inhibit systemic innovation (Chesbrough & Teece, 1996). A history of
interorganizational complementarity effects may have the consequence that assets are unequally
specialized across organizational boundaries (cospecialization) and cannot be re-coordinated
10
quickly enough to match new environmental demands.
Path dependence in complementarity-based alliances
Based on the existing theoretical insights on cospecialization as well as the model of organizational
path dependence by Sydow et al. (2009), we conceptualize the following four stages of path
dependence in complementarity-based alliances.
Phase I: From the initial preformation phase with real alternatives, a specific complementarity-
based collaboration mode is chosen by a focal firm and its partner firms. Sometimes activities that
were performed jointly within one organization, become separated activities that are rendered by
different vertically related firms along the value chain (Jacobides & Winter, 2005). This separation
of assets and the outsourcing to a partner firm or a partner network is an important prerequisite for
the efficacy of interorganizational complementarity effects: “On a more general level,
complementarities mean synergy resulting from the interaction of two or more separate but
interrelated resources, rules, or practices” (Sydow et al., 2009: 699, emphasis added).
In phase I, interorganizational cooperation patterns are not yet stabilized, but when firms start to
increasingly focus their learning processes on different cospecialized assets, this may lead to
complementarity effects that gain momentum and a critical juncture (Collier & Collier, 1991) leads
to the next phase.
Figure 3: A model of interorganizational path dependence
Phase II: In the path formation phase, the self-reinforcing complementarity effects render increasing
returns, relational advantages (e.g. through installed base advantage) and the interorganizational
11
cooperation pattern stabilize. These common templates allow both sides (focal firm and partner
firms) to reduce interpartner learning and to further specialize in the development of their
increasingly different but increasingly complementary assets along the value chain (see Figure 3).
Phase III: A lock-in occurs, when the focal firm's attempts to form and stabilize alternative
interorganizational cooperation patterns fail. This is because historically emerged cospecialized
assets are locked into “silos” and cannot be replaced or re-coordinated quickly enough across
organizational boundaries. Both sides fall back on old ways of coordinating that are (at least
potentially) inefficient for the focal organization.
Phase IV: The theory of organizational path dependence states that organizational lock-ins do not
last forever, but can be broken on a discursive, behavioral, systemic or resource-based level
(Schreyögg, Sydow, & Koch, 2003). Similar to the emergence of path dependence, the breaking of a
path occurs as an exceptional, emergent and not fully predictable process (Dobusch & Kapeller,
2013; Dobusch, 2008; Plowman et al., 2007). The same can be assumed for the breaking of
interorganizational path dependencies, but little is known about this issue. Drawing from our case
study we shed light into this phase of path dependence.
Research setting and design
We investigate the research problem with a case study of SAP’s initiative to enter the lower SME
market with a new product and partner strategy. The partnerships between SAP and its service
partner firms are a perfect example of cooperation based on complementary (cospecialized) assets
(Teece, 1992). This mode of collaboration in the ERP industry has been described as an example of
value co-creation (Sarker et al., 2012). It demands coordinating mechanisms like selection,
evaluation and training procedures and dedicated alliance managers on both sides (Schreiner et al.,
2009). Furthermore, the cooperation pattern between SAP and partners becomes deeply inscribed
into sociomaterial entanglements, such as a common programming language and a specific software
parameter logic. These software parameters can be thought of as programmed switches that are used
by consultants to implement and individually configure a copy of a standardized SAP ERP package.
A parameter logic allows SAP on the one side to continuously increase the functionality of the
software package by adding further parameters. The service partners on the other side can use these
parameters to customize the software package to specific customer needs (Lehrer & Behnam,
2009). SAP’s very comprehensive and complex ERP software (formally known as R/3) comprises
approx. 10,000 parameters and several modules.
Through this offer and in cooperation with partner firms (e.g. for sales and software
12
implementation), SAP has become the undisputed worldwide market leader among large enterprise
customers. For the SME market, however, this product strategy as well as the respective partner
model misfit and cause strategic inefficiencies. This is why SAP has been trying to heavily
restructure its product and partner model for the SME market since 2007. A new web-based
software called Business ByDesign has been developed. The new software should be purchased and
installed by customer-self-service via the Internet (software-as-a-service). As shown in Figure 4,
only 300 parameters should be enough to allow the customer to simply set up this software (Faisst,
2011). Nevertheless, to fulfill the different needs of individual SME customers, it was planned later
to engage partner firms to develop and distribute add-on-software on SAP’s commercial online
platform (platform-as-a-service). Until today, this initiative has fallen way short of expectations,
because in contrast to the plan of simple customer-self-service the software is delivered in a
complex large enterprise fashion, still demanding extensive consulting and customizing services by
partner firms.
Figure 4: Failed restructuring of SAP’s product and partner model and value chain
As we are interested in dynamics of interorganizational processes that are difficult to demarcate, we
choose a case study design (Yin, 2009). More precisely, we investigate our research question with a
holistic case study focusing on two critical episodes. This temporal bracketing of process data “can
be especially useful if there is some likelihood that feedback mechanisms, mutual shaping, or
multidirectional causality will be incorporated into the theorization” (Langley, 1999: 703).
The first part is a historical analysis of the rise of the ERP software vendor SAP’s partnering and
innovation strategy in the last four decades (R/3 episode). We analyze how SAP became the world's
13
biggest vendor of enterprise software with a network of about 10,000 partnerships (RAAD, 2012).
Most relevant for this process are the so-called service providers, because their activity is very
consulting-intensive (SAP, 2012). Leading service providers are, for instance, Accenture,
Capgemini, PriceWaterhouseCoopers or T-Systems.
The second part will investigate SAP’s recent initiative to enter the SME market with a new product
and partner model from 2007 until 2013. Our analysis focuses not only on SAP but also on partner
firms like IMPLEMENT, which is SAP’s most innovative Business ByDesign partner network
(Business ByDesign episode / short: BBD episode). This research design allows us to relate current
rigidities to historical roots.
Methods of data collection, coding and analysis
For our analysis we use archival data, data retrieved from documents, participant observation, as
well as interviews. We conducted 25 interviews with managers of SAP partner companies, 6
interviews with SAP customers, and 8 interviews with managers at SAP. The gathered data was
organized in a qualitative case study database to improve reliability (Yin, 2009). We gathered
written data (transcripts, protocols, Excel sheets, and presentations), audio data of workshops,
internal meetings, and telephone calls as well as research notes from participant observation
between 2011 and 2013. What is more, we triangulated our data with findings of previous studies
and press reports on SAP and its partners.
In the first step, we reconstructed the history of both the R/3 episode and the BBD episode as a
written thick description (Geertz, 1973). Then we analyzed why SAP has not been able to
restructure its product and partner model for the SB/SME market and we applied the concept of
path dependence to the case, e.g. relating present developments to causes in the past. More
precisely, we searched the data for concrete competencies and practices that were meant to be
changed, but that were resistant to change. We found that the specific way of coordinating tasks
between SAP and partners became a stable mechanism in the R/3 episode, enabling complementary
value creation and cospecialization. We used the software MAXQDA for coding (data from German
sources was translated into English) and started the coding process from two directions. On the one
hand we searched the data for concrete competencies and practices in the interorganizational setting
that were meant to be modified, but that were resistant to change (empirical codes). We also used
empirical codes to analyze barriers to change, critical events and other relevant contextual
parameters. On the other hand we simultaneously looked for empirical support for theoretically
derived indicators from the path dependence literature (theoretical indicators taken from Burger &
14
Sydow, 2012; Koch, 2008; Sydow, Windeler, Müller-Seitz, & Lange, 2012). Through this
interdependent coding process, an interpretative coding scheme was iteratively developed that fitted
to the general theoretical assumptions of the theory of path dependence as well as to the empirical
setting of interorganizational cospecialization and cooperation (see Figure 5). This coding strategy
is neither a grounded strategy approach (Glaser & Strauss, 1967), nor a deductive confirmation of
theoretical hypothesis, but can best be described as “pattern matching” approach (Yin, 2009) for the
purpose of theory development (extending the theory of organizational path dependence to
interorganizational settings).
Figure 5: Development of an interpretative coding scheme
We use Koch’s (2011) conceptual distinction between “on-path” and “off-path” to stress the fact
that managers might have clear concepts of how to unlock the path through change initiatives
(getting from on-path to off-path). However, the dynamics of self-reinforcing mechanisms may lead
to a relapse to the old cospecialization and cooperation patterns (which is path-relapse). Table 1
provides illustrative evidence for each of the interpretive codings:
15
Phase Interpretative
code
Example
On-path (the path-dependent pattern)
Competencies SAP
“Realtime, online and standardization. These were the unshakable elements of SAP. Because of the massive growth, we couldn’t do everything alone. […] It would have been too risky to hire so many consultants” (Interview, SAP, manager, 71).
Cooperation pattern
“Then we have trained our partners and their employees. Of course, when they do mistakes within an implementation project, people don't say the partner is bad, but they say SAP is bad. This is why we have put extreme value on the quality of the partners' employees, that they are well trained” (Interview, SAP, manager, 90).
Competencies SAP partners
“Today, the auditing firms are good SAP experts. Otherwise they couldn't audit” (Interview, SAP, manager, 115).
Strategic target “The R/3-world was characterized by a focus on large enterprises, corporations [...], companies with more than 1.000 employees” (Interview, SAP partner, manager, 46).
Off-path (the change initiative)
Competencies SAP
“The objective of this new approach is to significantly reduce the effort and length of implementation” (Faisst, 2011: 29).
Cooperation pattern
“In the beginning they had that way of thinking that you go to the portal, identify yourself as belonging, for example, to the retail industry and, immediately, your system is set up” (Interview, industry expert, 99).
Competencies SAP partners
“In the beginning we thought that we need partners with this Cloud-DNA, someone who can somehow sell a cloud” (Interview, SAP, manager, 79).
Strategic target “The strategic thrust focused the SB/SME market” (Interview, industry expert, 90).
Path-relapse (relapse to old patterns despite change initiative)
Competencies SAP
“SAP is using a technology called NetWeaver. The ABAP-Stack belongs to that technology and NetWeaver is very capable but also needs a lot of resources. That means Business ByDesign was extremely slow in the beginning, because it inherited the whole complex stack” (Interview, industry expert, 18).
Cooperation pattern
“And then they had to realize 'OK, we also need add-ons' and they said 'Maybe we need partners after all'” (Interview, industry expert, 99).
Competencies SAP partners
“But the primary assumption that Cloud needs a totally different type of partner is not true from my point of view, because the complexity to sell the solution remains the same after all” (Interview, SAP, manager, 5).
Strategic target “Silently SAP has [...] raised the target user numbers with that release change and focused this segment with direct sales to large enterprises” (IT-Reseller.de, 2012).
Table 1: Interpretative codings
16
Findings
The success spiral of SAP’s product and partnering strategy
SAP was founded in 1972 by five former IBM employees. They were among the first companies
that developed standardized instead of individual enterprise software. As requirements towards
enterprise software differ between organizations, it was not a trivial endeavor to develop software
that is highly standardized and at the same time suitable to idiosyncratic requirements within
different organizations. SAP’s software solved this trade-off between standardization and
adaptability by using a design principle called programmability (Lehrer & Behnam, 2009). The
shipped SAP software is so comprehensive and abstract in functionality that it can and has to be
customized by consultants setting the parameters to specific requirements.
“The complexity of the undertaking exceeds the capability of company IT departments, thus requiring
SAP or (more often) an external IT service or consulting company to supervise implementation of the
ERP system” (Lehrer, 2006: 197).
This technological separation of SAP software and services started back in the 1970s and allowed
SAP to transfer the service job to partner firms (see Figure 6).
Figure 6: Separation of the value chain and vertical desintegration
This led to the rise of the SAP service industry in countries like the US, France, UK or Germany
(Lehrer, 2006).
“The concept of customizing in R/3 was revolutionary, also in R/2. That is the reason why SAP exists,
because SAP was the first one who developed customizable software” (Interview, SAP, Manager, 14).
17
Even though there were many companies, especially in Germany, trying to develop standardized
enterprise software packages, SAP was the only company that consequently transferred the service
job to partner firms.
“The reason why SAP’s strategy was different from competitors’ strategies [...] was the consequent
realization of standardization in the R/2-development. The hereby achieved abstraction demanded a more
or less extensive consulting during implementation in the concrete user firm and firm or industry specific
supplements. This task could not be achieved by SAP alone and therefore it was reasonable to look for
consultancy firms as partners – especially because these firms often had the necessary know-how that
SAP did not have or could not build up” (Leimbach, 2007: 46).
Standardized SAP-software and the separated services are complementary in the sense that the
better they fit to each other the better the result for certain customer segments. By this self-
reinforcing mechanism the success spiral in the large customer segment gained its momentum. The
multi-level value chain did not only increase the distribution possibilities (during expansion partners
provide the necessary personnel very quickly). This complementarity effect of cospecialization also
increases the application possibilities of the product. SAP and SAP partners learn with each new
customer project: New knowledge is transferred back into the program code of the standardized
software and each project also enhances the knowledge of the SAP partners. This qualitative
improvement in turn reinforces the attractiveness for certain customer segments.
Interorganizational cooperation patterns
SAP and its partners could harvest the benefits of interorganizational cospecialization because they
found suitable practices of interorganizational coordination. After dividing enterprise software in
two distinct elements (development of standardized software packages and the customization of this
standardized software by partners), these two elements needed to be coordinated. Therefore, SAP
established a partner management that was responsible of selecting, evaluating and training the
service partners. The partner firms on the other side also mirrored this cooperation pattern by
engaging dedicated SAP partner managers, developers and consultants.
The cooperation pattern reinforces the creation of complementary assets (e.g. the specific role
ascription: SAP as software developer, partner firms as service providers). Therefore, when SAP
selects or evaluates partners, an overall objective is the reinforcement of the service capability of
partners:
“A partner who wants to provide services in the field of SAP ERP has to attend many certification courses
and all of his employees are certified. One of our metrics to evaluate the partner ecosystem is the number
of certified SAP consultants at the partner firm, because this means they are particularly good,
particularly well qualified” (Interview, SAP, Manager, 14).
18
During the years the requirements towards partners grew and their role as service partners was
reinforced:
“Because of their permanently changing software releases, SAP’s requirements towards their partners are
very high. You need to permanently train your workforce. We are gold partner. This brings the advantage
that we have a close contact to SAP [...]. They invite us to test new developments and we are also asked to
bring in new ideas” (Interview, traditional SAP partner, Manager, 44).
On the technical level, an increasing amount of software parameters constantly allowed a more
advanced coordination between SAP and service partners. Beside these technical means, complex
partner selection, evaluation and training procedures enabled a well-coordinated strategy of
interorganizational asset complementarity and together with its partner firms SAP became the
largest enterprise software vendor in the world. The revenue grew from almost 92 Mio. € in 1988,
when SAP went public, to 11,575 Mio. € in 2008. In the same time the number of employees grew
from 940 to 51,400 (Leimbach, 2007; SAP, 2008a). Simultaneously, the number of SAP consultants
grew up to 160.000 in 2008 (PAC, 2009). Most of these consultants work for SAP service partners
or at user firms. In the following, the world’s largest SAP service partners are listed – each with the
year of the first collaboration with SAP in brackets: IBM (1972), Accenture (1975), CSC (1979),
BearingPoint (1982), SIS (1982), Capgemini (1985), Atos Origin (1989), Ciber (1989), HP (1990),
T-Systems (1990), Reply (1992), Mahindra (1995), MHP (1996), Infosys (1998), itelligence (1998),
msg systems (1998). Meanwhile, “[t]hese system integrators (SI) have grown substantially with
SAP and SAP has grown with the SIs, too” (Meyer, 2008: 11).
The flip-side of SAP’s product and partnering strategy
Quite early, the success of SAP’s product and partnering strategy revealed a flip-side. In the large
enterprise segment complexity of the R/3-ERP-software was more of a competitive advantage than
a disadvantage, because it meant a wider range of applicability. Complexity was also the driver of
the business model of partner firms, because they gained their revenue with customizing and
consulting services. But when SAP’s growth potential in the large customer segment diminished
due to market saturation, the tremendous product complexity and the costs for service partners
hindered the exploitation of upcoming market potential in lower market segments.
“SAP's use of programmability to resolve the standardization-adaptation tradeoff came at the cost of
increasing product complexity and hence difficulty of implementation by users …” (Lehrer & Behnam,
2009: 286).
Various failed SME initiatives underpin the assumption that SAP’s partner and product strategy did
not fit to the SME market (Eisenhardt, 2002). Until today all SME initiatives had to struggle with
19
the legacy of SAP’s chosen path. First attempts to enter the SME market can be traced back to the
late 1980ies, when SAP built stakes in different service firms that had an expertise for the SME
market. But the acquisition model turned out to be a failure and this is why SAP later tried to enter
the SME market with a partner model (Computerwoche, 1995). In 1995, the Systemhausinitiative
was launched. Systemhaus is a German term for (often small) service providers in the IT industry.
With their industry expertise these new partners tried to reduce the complexity of SAP’s complex
software package, programming SME industry solutions. Partial success could be achieved by this
strategy among larger SME customers, but the structural problem within the lower SB/SME market
could not be resolved (Computerwoche, 1995, 1996, 1997). This also applies to the product
relaunch during the new economy boom between 1999 and 2001 (Computerwoche, 1999, 2001).
The most important change that could be achieved within the SME initiatives was that partner firms
were engaged to pre-customize the R/3-software for certain midsize firms with 1,000 and more
employees in sub-industries. By this, some market share in the upper midsize market could be
achieved. However, despite an extreme effort, SAP is a long way from reaching a share in the SME
market comparable to that in the segment of large customers. In fact, the interorganizational
cooperation pattern has not been changed substantially for the upper midsize market. The technical
platform remains R/3 and the parameter logic is used to coordinate SAP’s software development
and the customizing by service partners. The role of service partners in the upper midsize market is
also mainly the role of service partners.
Figure 7: German market for business software (SAP, 2008b: 5)
In the SME market the demand for simplicity and efficiency collides with the consulting-intensive
SAP offerings. This is the reason why even after more than 20 years of SME initiatives SAP is far
from reaching as high market shares in the SME market as in the large customer market. Figure 7
illustrates the German market for enterprise software in 2008, broken down by customer size of
corporate customers. SAP customers are shown in gray, the untapped markets in white.
20
SAP’s attempt to diversify product and partner strategy
The constant problem in the SME market became even more relevant in the 2000s, when the cloud
computing trend emerged. The idea of cloud computing is that IT resources are not installed on the
customer's premise any more but accessed via the Internet. Software that is accessed in a cloud
computing fashion is called software-as-a-service, because the customer does not pay for licenses,
implementation and maintenance separately, but with a monthly subscription fee instead (Yang &
Tate, 2012). The launch of SAP Business ByDesign addressed this radical new approach. In the
long run, this software was intended to replace the (R/3-based) ERP platform that has been
continuously enhanced, but not fundamentally changed since it was introduced in 1993 as R/3.
Because it was supposed to become the “new R/3”, Business ByDesign has important strategic
significance for SAP. Against this backdrop, Henning Kagermann, SAP’s CEO in 2007, commented
on the corporate strategy as follows:
“I have been at SAP for 25 years, and this is the most important announcement I have made in my career
here […]. We designed this product to launch a new business model. It's a new way to design, develop
and implement business software” (Kawamoto, 2007).
Bounded change: Reintegration through automatization
SAP managers were aware of the fact that product complexity and the high costs for SAP
consultants had impeded the success in the lower SME market. Thus, the plan was to automatize
services and sales processes by integrating these steps into the new Cloud Computing software.
“We said, we build the implementation method into the product” (Interview, SAP manager, 4).
“When I came to SAP, they said 'It will be implemented online by customer self-service and paid by credit
card'” (Participant observation, SAP, 1).
Looking at the value chain, this plan meant nothing less than a significant reintegration of activities
that had been vertically disintegrated within former cospecialization processes. The plan was to
develop “consulting-free” software: easy ERP solutions that could be purchased and set up by SME
customers via Internet-self-service.
Asynchronous change: New interorganizational cooperation patterns
However, after the first product announcement in 2007, it turned out that the new sales and service
approach did not meet the SME customers’ needs. The new product is more than a low-weight line
of business solution; it is a fully integrated ERP suite with different modules from financials and
human resources to compliance and project management. This is why SAP experts are necessary
after all – for implementation and for the sales process. Therefore, SAP started to develop a new
21
partner program between 2007 and 2010. Inside of SAP, discussions of how to change the
coordinating with partners took place.
“There were almost ideological discussions whether to commercialize this new product with or without
partners. Hasso Plattner, our chairman [and SAP co-founder] was very engaged in that project during
that time and he wanted to sell this product without partners, because a web-based product is predestined
for a web-based direct distribution” (Interview, SAP, Manager, 14).
In this regard, there were attempts to overcome the underlying semantics of the old coordinating
mechanism:
“A part of this project was to question SAP's existing concepts and the terminology was adapted,
especially where there were negative connotations. 'SAP implementation', for example, has the
connotation 'Lasts forever and is unbelievably expensive'. The same is the case for the word 'customizing'
[...]. This is why it was prohibited for some time to talk internally about implementation or customizing.
When you had these words on your slides you were kicked out of the presentation. This is why we spoke
only about 'go-live'”(Interview, SAP, Manager, 14).
As the new software should have been implemented by customer self-service as far as possible, the
question aroused whether the established partner model could work for the new strategy at all. After
internal discussions, SAP assigned a new role to their partner firms. They should primarily develop
and distribute “add-ons” for SME customers on an online “platform-as-a-service” (Faisst, 2011).
This online development was meant to become the new way of adapting standard software-as-a-
service to customers' individual needs. The online platform was also planned to become a new
practice of technical coordinating, because it offers an online development environment for SAP
partners. The partner selection, evaluation and training procedures were also planned to become
simple online processes with a minimum of bureaucracy.
However, the promising SAP Business ByDesign initiative has failed until now. It was planned to
gain 10,000 SME customers and a turnover of 1,000 Mio. € in 2010, but in 2011, only 1,000
customers could be convinced and a total turnover of 18 million € was achieved (stern.de, 2012).
Although rapidly gaining a critical mass of partners and customers would have been important to
forge a new form of asset complementarity and to profit from a new technological path, the
opposite has happened.
Relapse to established interorganizational cooperation pattern
Companies like salesforce.com are very successful in distributing simple enterprise software-as-a-
service to large and small customers. They also found innovative practices of coordinating with
partners in a platform-as-a-service model. In other words, there were success stories in the
enterprise software market. By contrast, SAP’s attempt to develop simple software-as-a-service
22
failed. Coming from the large enterprise world and used to the coordinated collaboration with
highly specialized consulting firms, the new product Business ByDesign was developed in such a
comprehensive and complex way that it still needs a lot of consulting by service partners.
Therefore, the original plan to distribute Business ByDesign without customization has failed and
the new practices of coordinating have not come into life. This has also thwarted the plan to sell
software-as-a-service without partners via the Internet. Similar to the large enterprise segment,
partners have been engaged as service providers who adapt the product complexity to individual
customers’ needs with consulting and customization. Additionally, because SAP could not reach
small and medium enterprises via the Internet, they also had to assign the role of offline resellers to
partner firms that engage in complex sales cycles. Contrary to the plan, all these difficulties have
led to a relapse to old complex partner selection, evaluation, training procedures, because well
trained partner firms were needed for these complex challenges.
Our interview partners frequently compared SAP’s coordinating practices with the partner
management of “web-born” companies like salesforce.com or Google. Unlike SAP, they have been
very successful in efficiently coordinating with partners in the online business, whereas SAP’s
selection and evaluation procedures are still imprinted by the old bureaucratic coordinating
mechanisms:
“There are still many formal barriers at SAP. They have the wrong contracts, wrong contractual
constructs with inappropriate conditions for a partnership with COMPLEMENT” (Interview, New SAP
partner COMPLEMENT, Manager, 1).
Furthermore, SAP has not been able to find new “web-born” partner firms for that new business.
Even the most innovative SAP partner network dedicated to Business ByDesign consists to a large
extent of old SAP consultants. Originally, it was planned to acquire consultants who are not
“spoiled” by the old R/3 consulting business.
“There are ten or twenty thousand consulting partners in the old saturated SAP business in Germany [...].
Sometimes it is better to find partners that are web-born and who are not from the world of SAP large
enterprise projects” (Interview, New SAP partner IMPLEMENT, Manager, 108).
Additionally, in contrast to SAP’s plan, we observed that partner firms still receive their old role
instructions in the daily communications with SAP. Even though it was planned to engage partner
firms in new roles as online add-on-developers, in the daily practice they are still encouraged to sell
services on premise and to adjust their business model to consulting.
From bounded and asynchronous change to path-relapse
Within the Business ByDesign initiative SAP attempted to unlock the path-dependent
23
interorganizational cooperation pattern that had been stabilized by
cospecialization processes with service partners in the large enterprise market. The plan was to
integrate the value creation activities (e.g. services) into a new Cloud software through
automatization (bounded change, see Figure 8).
Figure 8: Change initiatives and path-relapse
However, the complexity of ERP implementation and sales still required the work of SAP experts
and between 2007 and 2010 a new partner program was developed by SAP (asynchronous change).
In particular, partners should receive new roles that should fit to the new Cloud paradigm. Yet, in
practice the new concepts of the new partner program were not adopted by the staff at SAP partner
firms and at SAP and were quickly replaced by existing concepts that have proofed their worth in
the established SAP ecosystem.
Discussion
In this study we show why SAP has been unable to unlock interorganizational path dependence. The
interorganizational asset cospecialization processes that set in motion a success spiral in the large
enterprise market stabilized an interorganizational cooperation pattern that cannot be disrupted for
new environments. Thus, SAP’s interorganizational cooperation pattern has become path-
dependent. According to Sydow et al. (2009) path-dependent processes are characterized by three
different stages, a phase of contingency, a phase of path formation and a phase of lock-in.
Indicators for all three different phases can be found in the case at hand. At first, there were real
24
alternatives. The founders of SAP could have gone the way of their competitors and distribute and
implement their software without service partners. Secondly, after the partnering path had been
taken, the increasing interorganizational complementarity effects led to further stabilization of the
interorganizational cooperation pattern. In the case at hand, the cooperation pattern increasingly
relied on a specific interorganizational role ascription that SAP cospecializes in software and
partner firms cospecialize in the complementary services. Thirdly, the interorganizational
cooperation pattern is locked-in in the sense that SAP cannot engage old or new partners in new
roles, e.g. as online add-on developers. The interorganizational alignment of action in the new cloud
business is different from the established ways of coordinating. SAP managers were aware of this
fact and developed new practices of coordinating that should differ fundamentally from the old
ways of coordinating. Over the years, there has always been change within SAP’s partering strategy.
Nevertheless, the concept of path dependence (Sydow et al., 2009) can explain why – despite
incremental change – the overarching “architecture” of coordinating could not be substantially
modified. The increasing functionality and complexity of SAP’s software has gone hand in hand
with an increasing cospecialization (Teece, 1992) of SAP partners in software consulting and
customizing – indicating a self-reinforcing complementarity effect. The process has increased the
attractiveness of SAP’s offerings for large corporate clients with a high demand for
consulting/customizing services. Yet at the same time, the high expenses that have come along with
these services have decreased the attractiveness for small businesses. After several decades of
successful interorganizational cospecialization, assets have become increasingly diverse as they
have become increasingly cospecialized. This unequal distribution of capabilities across
organizational “silos” (Chesbrough & Teece, 1996; Jacobides & Winter, 2005) makes it ever more
challenging to change the whole value chain at once, heavily reducing the adaptability of
interorganizational cooperation patterns. Without the cooperation with partner firms SAP did not
learn quickly enough to reintegrate formerly disintegrated assets for the development of simple,
end-user friendly software within the Business ByDesign initiative. So they fell back on the old
cooperation patterns, delegating the “complexity reduction job” to partner firms like it had been
reasonably learned in the large enterprise segment.
An important finding of our study is that long-term effects of cospecialization processes between
firms do not only stabilize the interorganizational cooperation pattern and the asset base of the
collaborating firms. Interorganizational cospecialization processes also have long-term effects
within the participating organizations because the dominance of specific cospecialized assets shape
the (bounded) rationality of a firm. Therefore, to fully understand why SAP was unable to unlock
25
their path-dependent interorganizational strategy, we have to extent existing concepts that are
known in the path dependence literature. Within our case study we could identify two traps for path
breaking initiatives that are relevant especially in interorganizational settings. Per definition,
interorganizational relationships consist of different autonomous levels and interorganizational path
dependence that is driven by positive feedback of asset complementarity leads to an increasing
cospecialization (thereby these assets also become increasingly different). Therefore, it is not
surprising that managers focus on their own assets first within change initiatives and it is quite
likely that these path breaking initiatives start with bounded change in only one organization or in
organizational subunits of only some organizations. However, this might be not enough if path-
breaking requires radical and encompassing change. Therefore, we name this problem the (1) trap
of bounded change. In the case of SAP Business ByDesign we could observe an autonomous path
breaking initiative in the beginning. In the first years SAP focused only on their own “silo”, trying
to develop a completely new product in a new subunit without dealing with the partner side. The
other side of the path dependence – the interorganizational dimension – was addressed later.
Figure 9: Failed path-breaking in interorganizational settings
This reveals another problem of path breaking initiatives in interorganizational settings, the (2) trap
of asynchronous change. Asynchronous change is a problem since the cooperating partners cannot
appropriately adjust their highly interdependent business processes (see Figure 9). Meanwhile, if
partners do not coordinate their change patterns early enough, it is likely that the positive feedback
of the old path will quickly neutralize path-breaking dynamics.
Both traps, the trap of bounded change and the trap of asynchronous change, may lead to a relapse
to the old path, especially when the attracting forces of the old path are still very strong or even
growing (see Figure 10).
If the breaking of an existing path dependence is intended in the long run, there are many
indications that the change patterns would have to be comprehensive and synchronous. It is
subunit 1 O O O O O O O O O O O O O O O O O O O O
subunit 2 O O O O O O O O O O O O O O O O O O O O
subunit 3 N N N N N N N N N N N N N O O O O O
subunit 3 N N N N N N N O O O O O
subunit 2 O O O O O O O O O O O O O O O O O O O O
subunit 1 O O O O O O O O O O O O O O O O O O O O
t
O = old path / N = new path
organization A
Bounded change
Relapse to old path
organization(s)
B, C …
Bounded change
Asynchronous change
26
questionable if this kind of de-locking, which demands radical (inter-)organizational change
(Greenwood & Hinings, 1996), as well as radical (Henderson & Clark, 1990) or disruptive
(Christensen & Raynor, 2003) product innovations can be achieved within a path dependent value
chain that is driven by the complementarity effects of cospecialization: “That is, excessive and
sustained specialization may create ‘silos’ that inhibit systemic business improvement“ (Jacobides
& Winter, 2005: 404).
Figure 10: Path-breaking versus path-relapse
SAP still has its thriving large enterprise business with established complementarity effects that
serve as a cash cow and will so for several years. In a new market with a new product, however, the
critical mass of new customers could not be reached. It seems that the winner that takes all in one
market can sometimes not win much in very different markets. This has implications for
diversification strategies of firms in digital markets and other domains with high network effects
where complementarity-based alliances are common. As Stieglitz and Heine (2007: 13) put it,
diversified firms “... desire to fully exploit existing complementary assets across different markets
with the need to establish specialized activity systems for each one”. Thus, the establishment of new
cooperation patterns can be very challenging.
Conclusion
Companies utilize interorganizational cospecialization in order to gain relational advantages. The
coordination of such relationships that reach beyond organizational boundaries can be challenging.
Firms are sometimes unable to adapt these interorganizational arrangements (e.g. for the access to
new markets). We have analyzed this problem by focusing on a qualitative case study of SAP’s
effort to enter the market of small and medium enterprises which had been a more or less untouched
in recent years and which is known to be a difficult terrain. SAP decided to enter this market with a
new product and partner strategy in recent years. We have precisely reconstructed the period
between 2007 until 2011 through interviews and archival data. Between 2011 and 2013 we have
27
accompanied the process using participant observation. We have compared the findings with a
historical analysis of the rise of SAP’s product and partner strategy in the last four decades. This
allowed us to relate current rigidities to their historical origins. More precisely, we have presented
evidence for the relapse to the old, alleged success-path and based on the empirical evidence we
have discovered bounded change and asynchronous change to be the critical traps. Thus,
cospecialization and cooperation patterns which emerged historically became path-dependent and
therefore path-breaking fails.
To avoid the failing of path breaking initiatives, managers should reflect on the specific aim of their
initiatives. Different approaches are necessary, depending on whether path-breaking or path-
coexistence is the aim of the change initiative. It is possible to establish a new path that coexists (for
example a new product line) with an existing path, when the attracting forces of both paths do not
interfere with each other. SAP, for example, acquired the Business Intelligence Software called
Business Objects in 2007. This product line does not interfere with the core business of SAP, but is
a logical supplement. The initiative of Business ByDesign, however, has strong interferences with
the core business of SAP. But it was not clear, if the new product and partnering strategy should
substitute the old product and partnering strategy in the long run (path-breaking), or if the Business
ByDesign path should be run parallel to the R/3 path (path-coexistence). In the course of time, a
partial path-relapse emerged, because of the traps of bounded and asynchronous change (see Figure
10 once again).
Ultimately, our study has contributed to the research on path dependence adding new insights from
interorganizational alliances. This comprises not only a theoretical integration of path dependence
theory with the concepts of cospecialization and complementarity effects but also empirical
evidence from our explorative case study. Thereby, we extended the existing knowledge about path-
breaking failures. More precisely, we have identified two critical conditions for path-breaking
failures. Despite this contribution, our study has several limitations that should be mentioned. Just
as in all (single) case studies the issue external validity can be raised. In this study, the historical
development of a very specific organization and its relationships to external partners is analyzed.
These interorganizational arrangements historically evolved in many years and led to a certain
structural embededdness of the focal firm SAP and its partners. The exploratory approach and the
qualitative data offer starting points for criticism towards the question of internal validity and
reliability. Even though these limitations can never be resolved completely, the triangulation of
several sources and references to internal and external data sources as well as the coding and
interpretation of the data by two researchers with different expertise should by and large ensure the
28
quality of the methods used. Additional research may contribute to substantiate our findings. For
example, cases with successful path-breaking initiatives in the same/similar industries could be
valuable as a contrast to our case study. Most relevant for this is Figure 9, which demonstrates the
identified traps of path-breaking and could be further examined and validated. Also, it might be a
challenge to assess this phenomenon quantitatively which, however, will be a difficult undertaking
due to the dynamic and interdependent processes that are involved over time.
Literature
Arthur, W. B. (1989). Competing Technologies, Increasing Returns, and Lock-in by Historical
Events. Economic Journal, 99(394), 116–131.
Arthur, W. B. (1994). Increasing Returns and Path Dependence in the Economy. Ann Arbor:
University of Michigan Press.
Burger, M., & Sydow, J. (2012). How Inter-Organizational Networks Can Become Path-Dependent:
Bargaining in the Photonics Industry. Schmalenbach Business Review (2014), 66. Retrieved
from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2125188
Chesbrough, H. W., & Teece, D. J. (1996). When Is Virtual Virtous? Organizing for Innovation.
Harvard Business Review, 74(1), 65–73.
Christensen, C. M., & Raynor, M. E. (2003). The Innovator’s Solution: Creating and Sustaining
Successful Growth. Boston, MA: Harvard Business Review Press.
Chung, S., Singh, H., & Lee, K. (2000). Complementarity, Status Similarity and Social Capital as
Drivers of Alliance Formation. Strategic Management Journal, 21(1), 1–22.
Collier, R. B., & Collier, D. (1991). Shaping the Political Arena: Critical Junctures, the Labor
Movement, and Regime Dynamics in Latin America. Princeton, NJ: University Press
Princeton.
Colombo, M. G., Grilli, L., & Piva, E. (2006). In Search of Complementary Assets: The
Determinants of Alliance Formation of High-tech Start-ups. Research Policy, 35(8), 1166–
1199.
Computerwoche. (1995). Partnerkonzept sieht Branchenunterstuetzung vor SAP versucht sich noch
einmal am Mittelstand - computerwoche.de - Archiv 1995 / 6. Retrieved January 19, 2012,
from http://www.computerwoche.de/heftarchiv/1995/6/1112136/
Computerwoche. (1996). Systemhaus-Geschäft soll ausgebaut werden: Im Mittelstand kommt SAP
nur langsam voran - computerwoche.de - Archiv 1996 / 39. Retrieved January 19, 2012,
from http://www.computerwoche.de/heftarchiv/1996/39/1109433/
29
Computerwoche. (1997). “Wir müssen mit einem Schuß ins Schwarze treffen” - computerwoche.de
- Archiv 1997 / 13. Retrieved January 19, 2012, from
http://www.computerwoche.de/heftarchiv/1997/13/1097840/
Computerwoche. (1999). SAP lehnt sich weit aus dem Internet-Fenster - computerwoche.de -
Archiv 1999 / 38. Retrieved January 19, 2012, from
http://www.computerwoche.de/heftarchiv/1999/38/1088830/
Computerwoche. (2001). Bringt Mysap.com den Durchbruch für das Mittelstandsgeschäft?: SAP-
Systemhäuser zwischen den Fronten - computerwoche.de - Archiv 2001 / 11. Retrieved
January 19, 2012, from http://www.computerwoche.de/heftarchiv/2001/11/1064058/
David, P. A. (1985). Clio and the Economics of QWERTY. The American economic review, 75(2),
332–337.
Dobusch, L. (2008). Windows versus Linux: Markt-Organisation-Pfad. Wiesbaden: VS Verlag für
Sozialwissenschaften.
Dobusch, L., & Kapeller, J. (2013). Striking New Paths: Theory and Method in Path Dependence
Research. Schmalenbach Business Review, 65(in print).
Dyer, J. H., & Singh, H. (1998). The Relational View: Cooperative Strategy and Sources of
Interorganizational Competitive Advantage. The Academy of Management Review, 23(4),
660–679.
Eisenhardt, K. M. (2002). Has Strategy Changed? MIT Sloan Management Review, 43(2), 88–91.
Ennen, E., & Richter, A. (2010). The Whole Is More Than the Sum of Its Parts— Or Is It? A
Review of the Empirical Literature on Complementarities in Organizations. Journal of
Management, 36(1), 207–233.
Faisst, W. (2011). Die nächste Generation der Unternehmens-Software am Beispiel von SAP
Business ByDesign. Wirtschaftsinformatik & Management, 2011(4), 24–30.
Gawer, A. (2011). Platforms, Markets and Innovation. Cheltenham (UK): Edward Elgar Publishing.
Geertz, C. (1973). The Interpretation of Cultures. New York: Basic Books.
Gilbert, C. (2005). Unbundling the Structure of Inertia: Resource Versus Routine Rigidity. Academy
of Management Journal, 48(5), 741–763.
Glaser, B. G., & Strauss, A. L. (1967). The Discovery of Grounded Theory: Strategies for
Qualitative Research. London: Wiedenfeld and Nicholson.
Grant, R. M., & Baden-Fuller, C. (2004). A Knowledge Accessing Theory of Strategic Alliances.
Journal of Management Studies, 41(1), 61–84.
30
Greenwood, R., & Hinings, C. r. (1996). Understanding Radical Organizational Change: Bringing
Together the Old and the New Institutionalism. Academy of Management Review, 21(4),
1022–1054.
Grunwald, R., & Kieser, A. (2007). Learning to Reduce Interorganizational Learning: An Analysis
of Architectural Product Innovation in Strategic Alliances. Journal of Product Innovation
Management, 24(4), 369–391.
Gulati, R. (1995). Social Structure and Alliance Formation Patterns: A Longitudinal Analysis.
Administrative Science Quarterly, 40(4), 619–652.
Gulati, R., Lawrence, P. R., & Puranam, P. (2005). Adaptation in Vertical Relationships: Beyond
Incentive Conflict. Strategic Management Journal, 26(5), 415–440.
Gulati, R., Nohria, N., & Zaheer, A. (2000). Strategic Networks. Strategic Management Journal,
21(3), 203–215.
Gulati, R., & Singh, H. (1998). The Architecture of Cooperation: Managing Coordination Costs and
Appropriation Concerns in Strategic Alliances. Administrative Science Quarterly, 43(4),
781–814.
Hagedoorn, J. (1993). Understanding the Rationale of Strategic Technology Partnering:
Interorganizational Modes of Cooperation and Sectoral Differences. Strategic Management
Journal, 14(5), 371–385.
Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989). Collaborate with Your Competitors–and Win.
Harvard Business Review, 67(1), 133–139.
Hansen, J. M., McDonald, R. E., & Mitchell, R. K. (2013). Competence Resource Specialization,
Causal Ambiguity, and the Creation and Decay of Competitiveness: The Role of Marketing
Strategy in New Product Performance and Shareholder Value. Journal of the Academy of
Marketing Science, 41(3), 300–319.
Helfat, C. E., & Peteraf, M. A. (2003). The Dynamic Resource-Based View: Capability Lifecycles.
Strategic Management Journal, 24(10), 997–1010.
Henderson, R. M., & Clark, K. B. (1990). Architectural Innovation: The Reconfiguration of
Existing Product Technologies and the Failure of Established Firms. Administrative Science
Quarterly, 35(1), 9–30.
Hess, A. M., & Rothaermel, F. T. (2011). When Are Assets Complementary? Star Scientists,
Strategic Alliances, and Innovation in the Pharmaceutical Industry. Strategic Management
Journal, 32(8), 895–909.
31
Iansiti, M., & Levien, R. (2004). The Keystone Advantage: What the New Dynamics of Business
Ecosystems Mean for Strategy, Innovation, and Sustainability (Vol. 253). Boston, MA:
Harvard Business School Press.
Inkpen, A. C., & Ross, J. (2001). Why Do Some Strategic Alliances Persist Beyond Their Useful
Life? California Management Review, 44(1), 132–148.
IT-Reseller.de. (2012, August 31). SAPs Vertriebsstrategie von Business Bydesign. Retrieved May
14, 2013, from http://www.itreseller.ch/artikel/art_drucken.cfm?aid=70954
Jacobides, M. G., Knudsen, T., & Augier, M. (2006). Benefiting from Innovation: Value Creation,
Value Appropriation and the Role of Industry Architectures. Research Policy, 35(8), 1200–
1221. doi:10.1016/j.respol.2006.09.005
Jacobides, M. G., & Winter, S. G. (2005). The Co-Evolution of Capabilities and Transaction Costs:
Explaining the Institutional Structure of Production. Strategic Management Journal, 26(5),
395–413.
Katz, M. L., & Shapiro, C. (1985). Network Externalities, Competition, and Compatibility. The
American Economic Review, 75(3), 424–440.
Kawamoto, D. (2007). ByDesign, SAP Introduces On-Demand Business. CNET News. Retrieved
December 29, 2012, from http://news.cnet.com/ByDesign,-SAP-introduces-on-demand-
business/2100-1012_3-6208931.html
Koch, J. (2008). Strategic Paths and Media Management - A Path Dependency Analysis of the
German Newspaper Branch of High Quality Journalism. Schmalenbach Business Review,
60(1), 50–73.
Koch, J. (2011). Inscribed Strategies: Exploring the Organizational Nature of Strategic Lock-In.
Organization Studies, 32(3), 337–363.
Kuschinsky, N. (2008). Stabilisierung von Hersteller-Lieferantenbeziehungen als pfadabhängiger
Prozess. Frankfurt am Main: Peter Lang.
Langley, A. (1999). Strategies for Theorizing from Process Data. The Academy of Management
Review, 24(4), 691–710.
Lee, C.-H., Venkatraman, N., Tanriverdi, H., & Iyer, B. (2010). Complementarity-Based
Hypercompetition in the Software Industry: Theory and Empirical Test, 1990–2002.
Strategic Management Journal, 31(13), 1431–1456.
Lehrer, M. (2006). Two Types of Organizational Modularity: SAP, ERP Product Architecture and
the German Tipping Point in the Make/Buy Decision for IT Services. In M. Miozzo & D.
Grimshaw (Eds.), Knowledge Intensive Business Services: Organizational Forms and
National Institutions (pp. 187–204). Cheltenham, MA: Elgar.
32
Lehrer, M., & Behnam, M. (2009). Modularity vs Programmability in Design of International
Products: Beyond the Standardization-adaptation Tradeoff? European Management Journal,
27(4), 281–292.
Leimbach, T. (2007). Vom Programmierbüro zum globalen Softwareproduzenten: Die
Erfolgsfaktoren der SAP von der Gründung bis zum R/3-Boom, 1972 bis 1996. Zeitschrift
für Unternehmensgeschichte/Journal of Business History, 52(1), 33–56.
Leonard-Barton, D. (1992). Core Capabilities and Core Rigidities: A Paradox in Managing New
Product Development. Strategic Management Journal, 13(special issue), 111–125.
Levering, R., Ligthart, R., Noorderhaven, N., & Oerlemans, L. (2013). Continuity and Change in
Interorganizational Project Practices: The Dutch Shipbuilding Industry, 1950–2010.
International Journal of Project Management, 31(5), 735–747.
Li, S. X., & Rowley, T. J. (2002). Inertia and Evaluation Mechanisms in Interorganizational Partner
Selection: Syndicate Formation Among U.S. Investment Banks. The Academy of
Management Journal, 45(6), 1104–1119.
Mackie, J. L. (1965). Causes and Conditions. American Philosophical Quarterly, 2(4), 245–264.
Mallach, R. J. (2012). Pfadabhängigkeit in Geschäftsbeziehungen. Wiesbaden: Springer Gabler.
Masuch, M. (1985). Vicious Circles in Organizations. Administrative Science Quarterly, 30(1), 14–
33.
Maurer, I., & Ebers, M. (2006). Dynamics of Social Capital and Their Performance Implications:
Lessons from Biotechnology Start-ups. Administrative Science Quarterly, 51(2), 262–292.
Meyer, R. (2008). Partnering with SAP: Business Models for Software Companies. Norderstedt:
Books on Demand.
Milgrom, P., & Roberts, J. (1995). Complementarities and Fit. Strategy, Structure, and
Organizational Change in Manufacturing. Journal of Accounting and Economics, 19(2–3),
179–208.
Nohria, N., & Garcia-Pont, C. (1991). Global Strategic Linkages and Industry Structure. Strategic
Management Journal, 12(Special Issue), 105–124.
PAC. (2009). Pressemitteilungen - Das SAP Skills-Ecosystem – 160.000 Gründe, dieses Thema zu
diskutieren! Retrieved June 9, 2012, from http://www.blogspan.net/presse/das-sap-skills-
ecosystem-160000-grunde-dieses-thema-zu-diskutieren/mitteilung/42978/
Parmigiani, A., & Mitchell, W. (2009). Complementarity, Capabilities, and the Boundaries of the
Firm: The Impact of Within-firm and Interfirm Expertise on Concurrent Sourcing of
Complementary Components. Strategic Management Journal, 30(10), 1065–1091.
33
Patzelt, H., & Shepherd, D. A. (2008). The Decision to Persist with Underperforming Alliances: The
Role of Trust and Control. Journal of Management Studies, 45(7), 1217–1243.
Pitelis, C. N., & Teece, D. J. (2010). Cross-border Market Co-Creation, Dynamic Capabilities and
the Entrepreneurial Theory of the Multinational Enterprise. Industrial and Corporate
Change, 19(4), 1247–1270.
Plowman, D. A., Baker, L. T., Beck, T. E., Kulkarni, M., Solansky, S. T., & Travis, D. V. (2007).
Radical Change Accidentally: The Emergence and Amplification of Small Change. Academy
of Management Journal, 50(3), 515–543.
Porter, M., & Siggelkow, N. (2008). Contextuality Within Activity Systems and Sustainability of
Competitive Advantage. Academy of Management Perspectives, 22(2), 34–56.
Powell, W. W. (1990). Neither Market nor Hierarchy: Network Forms of Organization. In L. L.
Cummings & B. M. Staw (Eds.), Research in Organizational Behavior (Vol. 12, pp. 295–
336). Greenwich, CT: JAI.
Prahalad, C. K., & Hamel, G. (1990). The Core Competence of the Corporation. Harvard Business
Review, 68(3), 79–91.
Quinn, J. B., & Hilmer, F. G. (1994). Strategic Outsourcing. Sloan Management Review, 35(4), 43–
55.
RAAD. (2012). Wegweiser ins SAP Ökosystem | RAAD Research. Retrieved March 4, 2012, from
http://www.analyst-review.de/2011/wegweiser-ins-sap-oekosystem/
Ragin, C. C. (2000). Fuzzy-Set Social Science. University of Chicago Press.
Rothaermel, F. T. (2001). Incumbent’s Advantage Through Exploiting Complementary Assets Via
Interfirm Cooperation. Strategic Management Journal, 22(6-7), 687–699.
Rothaermel, F. T., & Boeker, W. (2008). Old Technology Meets New Technology:
Complementarities, Similarities, and Alliance Formation. Strategic Management Journal,
29(1), 47–77.
Santoro, M. D., & McGill, J. P. (2005). The Effect of Uncertainty and Asset Co-specialization on
Governance in Biotechnology Alliances. Strategic Management Journal, 26(13), 1261–
1269.
SAP. (2008a). Annual Report.
SAP. (2008b). Strategie und Ausrichtung im Mittelstand. Retrieved January 16, 2012, from
http://www.aiinformatics.com/speedforum/vortraege/01_SAP_Strategie_fuer_den_Mittelsta
nd.pdf
SAP. (2012). SAP - Partnering with SAP: SAP Services Partners. Retrieved March 14, 2012, from
http://www.sap.com/partners/partnerwithsap/services/index.epx
34
Sarker, S., Sahaym, A., & Bjorn-Andersen, N. (2012). Exploring Value Cocreation in Relationships
Between an ERP Vendor and its Partners: A Revelatory Case Study. Management
Information Systems Quarterly, 36(1), 317–338.
Schilling, M. (1999). Winning the Standards Race: Building Installed Base and the Availability of
Complementary Goods. European Management Journal, 17(3), 265–274.
Schreiner, M., Kale, P., & Corsten, D. (2009). What Really is Alliance Management Capability and
How Does It Impact Alliance Outcomes and Success? Strategic Management Journal,
30(13), 1395–1419.
Schreyögg, G., Sydow, J., & Koch, J. (2003). Organisatorische Pfade – Von der Pfadabhängigkeit
zur Pfadkreation? In G. Schreyögg & J. Sydow (Eds.), Managementforschung 13:
Strategische Prozesse und Pfade (pp. 257–294). Wiesbaden: Gabler.
Shapiro, C., & Varian, H. R. (1999). Information Rules (A Strategic Guide to the Network
Economy). Boston: Harvard Business School Press.
Simon, H. A. (1979). Rational Decision Making in Business Organization. American Economic
Review, 69(4), 493–513.
stern.de. (2012). Cloud-Computing: Die Wolke des Grauens - Digital. Retrieved July 9, 2012, from
http://www.stern.de/digital/online/cloud-computing-die-wolke-des-grauens-1795640.html
Stieglitz, N., & Heine, K. (2007). Innovations and the Role of Complementarities in a Strategic
Theory of the Firm. Strategic Management Journal, 28(1), 1–15.
Sydow, J. (2005). Managing Interfirm Networks – Towards More Reflexive Network Development?
In T. Theurl (Ed.), Economics of Interfirm Networks (pp. 217–236). Tübingen: Mohr
Siebeck.
Sydow, J., Schreyögg, G., & Koch, J. (2009). Organizational Path Dependence: Opening the Black
Box. The Academy of Management Review, 34(4), 689–709.
Sydow, J., Windeler, A., Müller-Seitz, G., & Lange, K. (2012). Path Constitution Analysis - A
Methdology for Understanding Path Dependence and Path Creation. Business Research,
5(2), 1–22.
Teece, D. J. (1986). Profiting from Technological Innovation: Implications for Integration,
Collaboration, Licensing and Public Policy. Research Policy, 15(6), 285–305.
Teece, D. J. (1992). Competition, Cooperation, and Innovation: Organizational Arrangements for
Regimes of Rapid Technological Progress. Journal of Economic Behavior & Organization,
18(1), 1–25.
Teece, D. J. (2006). Reflections on “Profiting from Innovation.” Research Policy, 35(8), 1131–
1146.
35
Tripsas, M., & Gavetti, G. (2000). Capabilities, Cognition, and Inertia: Evidence from Digital
Imaging. Strategic Management Journal, 21(10-11), 1147–1161.
Van de Ven, A. H., & Walker, G. (1984). The Dynamics of Interorganizational Coordination.
Administrative Science Quarterly, 29(4), 598–621.
Venkatraman, N., Lee, C.-H., & Iyer, B. (2008). Interconnect to Win: The Joint Effects of Business
Strategy and Network Positions on the Performance of Software Firms. In T. J. Rowley & J.
A. C. Baum (Eds.), Advances in Strategic Management (Vol. 25, pp. 391–424). Bingley
(UK): Emerald.
Weigelt, C. (2009). The Impact of Outsourcing New Technologies on Integrative Capabilities and
Performance. Strategic Management Journal, 30(6), 595–616.
Yang, H., & Tate, M. (2012). A Descriptive Literature Review and Classification of Cloud
Computing Research. Communications of the Association for Information Systems, 31(1),
34–61.
Yin, R. K. (2009). Case Study Research: Design and Methods (4th ed.). Thousand Oaks: Sage.