Business history shapes business strategic options and decisions. Sometimes it can give an unique advantage, but sometimes it can be a significant barrier to change. The sense of history and culture is important for business environmental analysis as it is relevant to the capabilities of the organisation.
Path dependancy
Path dependancy is an useful way on determining the influence of business history on the organisation. This suggests that the strategy decisions may be historically conditioned. This historical way of working can be locked-in through systems and technology, customers and suppliers in the value system, the day-to-day habits of managers and employees, formal and informal professional standards and the training systems that condition the pattern of behaviour.
Path dependancy tends to reinforce three types of strategy:
Comprehensive change, where trying to change one thing without changing others may fall short.
Conservatism, sometimes its not worth changing everything to influence one small element.
Path creation, managers need to be aware that choosing a point of action may tie them to a long-term path,
Path dependancy analysis is a strategic concept that emhasises how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may not longer be relevant.
In the context of strategic planning, it is the idea that the choices of a business has made in the past constrain its future options. This is often due to various factors like existing investments, established processes, customer expectations and even regulatory restrictions.
Analysing path dependancy can help strategists understand how past choices have shaped the organisation's present state and potential future directions. It helps in making informed decisions and devising strategies that take into account both the opportunities and the constraints shaped by past decisions.
For example, a company that has heavily invested in a particular technology may find it difficult or costly to shift to a different technology, even if the new technology is superior. This past investment thus "constrains" future strategic options.
However, path dependancy doesn't imply that change isn't possible. It means that change may require more significant effort, resources and strategic planning. It helps organisations to acknowledge their past to better navigate the future.
Conducting a path dependancy analysis involves examining the historical decisions, actions, and events of the organisation to understand how they impact the current status and future options.
Here is the general step by step guide to perform path dependancy analysis:
Trace historical decisions and events. Begin by identifying and tracing the major decisions, actions and events in the organisation history. This could involve significant investments, strategic choices, market shifts and regulatory changes.
Identify pivotal moments. Determine which historical decisions and events have had the most significant impact on the organisation's present state. These could be decisions that resulted in major change, locked in certain practices or lead to substantial investment.
Analyse the consequences. Examine the consequences of these pivotal moments. How did they shape the current state of the organisation? How did they influence the strategy, operations, culture and structure of the organisation?
Understand the constraints and opportunities. Based on the past decisions and their consequences, identify the constraints and opportunities facing the organisation. constraints could include outdated technology, established processes, or sunk costs that limit strategic options. Opportunities could be unique capabilities and resources developed as a result of past decisions.
Develop future strategies. Use the insights from the analysis to inform future strategic planning. Recognise that while past decisions might constrain the available options, they can also offer unique opportunities.
This analysis should be tailored to specific needs and context of the organisation. The goal is to gain a deeper understanding on how the organisation's history influences its present and future, which can provide valuable insights for strategic planning.
History as a resource
Although historical lock-in does create inflexibility, history can also be useful managerial resource.
Learning from the past. There may be some practices that repeat themselves. For example a customer or competitor response to certain actions in the past can allow to predict future behaviour.
Building capabilities. Lessons from the past can give raise for new ideas and innovation.
Legitimising strategy and change. Past successes may show business potential in managing change and innovation to encourage commitment for future changes.
Historical analysis
History analysis can be conducted in number of ways.
For example, through chronological analysis that involves setting down the chronology of key events showing change in the organisation and what were the consequences. Media information may be useful for such evaluations. Key events and decisions made in the past can also have significant influence on strategy. This could be key industry changes or significant strategic decisions. These could be good decisions and provide clear overall business direction or major barriers to challenging existing strategies or changing strategic direction.
People also inform about company's events through historical story telling and many organisations will have parts of their information showing on the websites. The stories people tell can often reveal clues about how the organisation see the past and the origins of its success.
Historical analysis plays a vital role in strategy development for several reasons.
We can understand past decisions, that allows to reflect on past actions, initiatives and helping to understand what worked, what did't and why. These insights can inform future strategic choices, enabling the organisation to replicate successful approaches and avoid past mistakes.
Through historical analysis we can identify trends and patterns over time. This can provide a valuable context for understanding the organisation's current position and predicting future trends. This also allows for recognising constraints and opportunities that may limit the strategic choices such as legacy systems or sunk costs. At the time, it can also highlight unique opportunities that have emerged as a result of past decisions.
Through historical analysis we can evaluate performance over time, providing a benchmark for evaluating current performance and setting future goals. It can share light on a braoder context in which the organisation operates, including changes in the market, competition, regulation, and technology. This can provide valuable insights for strategic planning.
by integrating historical analysis into strategic planning, organisations can make more informed decisions, anticipate future challenges and opportunities and develop more effective strategies.
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