Path Creation for Latecomer Countries – 3 of 5

The New York Times yesterday, July 13, 2009, reported. “Microsoft Office 2010 Starts Ascension to the Cloud.”

(Click this link to NYT: http://bits.blogs.nytimes.com/2009/07/13/microsoft-office-2010-starts-ascension-to-the-cloud/?scp=1&sq=Office%202010%20cloud&st=Search).

Two months ago, on May 9, I predicted that Microsoft will install browser-based version of Excel, PowerPoint, Word in my Post #53, Opportunity from Adjacency. I did make the same prediction some time ago when Google acquired Writely.

The Value Lock & Recovery matrix – technology x business model – embedded in my definition of Innovation process (See Categories in the SYNTHESiST Home page) indicated that this path creation by Microsoft will come in due time. Fortunately for me as blogger and not academic, I can attempt to walk before I learn to crawl.

After agreeing with Professor Patarapong in yesterday’s Post #811 that the NIS of latecomer countries need to be surveyed differently from first mover countries, I further aver that latecomers need to engage in path creation more than follow on existing paths as catch up strategy. A multi-country case study to develop latecomer path creation theory can be a great help to policy makers in defining leapfrogging for these countries, i.e. the Philippine.

The paper marked “preliminary draft” presented by Professor Lee Kuen of the Seoul National University (Find his paper at the ASIALICS site.) makes the same hypothesis on path creation above using Nelson and Winter’s simulation approach. I do not think, like Professor Lee, that using this methodology works as well for path creation even as it works well for path dependence – Nelson & Winter’s original purpose – in catch up situations.

The apparent superiority of path creation concluded in his draft paper seems just a function of the magnitude of the assumptions – productivity, risk, mix – overlaid on the S-curves rather than man-created for specific firms, as the evolutionary approach specifies. It could well be that tweaking the distribution of risk upward for new path-creating firms based on true historical figures over a duration – say covering the past twenty years for path creating dot-com start-ups – will yield different results.

For path creation, the clinical case method outlined by Kathleen Eisenhardt (Building Theories From Case Study Research, October 1989, The Academy of Management Review – Mohan, Thanks.) seem more appropriate given that the created paths, by definition, are detours from linear antecedents, ie offshoots from the normal path. More on this below.

Path dependence already has a long pedigree as theory. Both neoclassical (B Arthur) and evolutionary (R Nelson) economists have written about it. There are two main differences between the two schools.

For the evolutionists, Schumpeter identified the first as agency, ie humans making rational choices in technology evolution are key to evolution rather than the free,” i.e. neoclassical, preference for causation derived from mutually-exclusive and highly-correlated variables.

R Nelson in a later paper (Economic Development from the Perspective of Evolutionary Economic Theory, Working Paper no. 07-02, ISBN: 978-970-701-963-8) added ‘institutional complexity’, rather than the free-marketers’ institution-free Walrasian space, as the second difference. It is these institutions that make the clinical case method the better methodology for new theory development for path creation.

Click image for link to GLOBELICS’ site with R Nelson’s Paper

From the success stories in the next paragraph, path creation do support Prof Lee’s hypothesis on its superiority. Indeed, for latecomer countries like the Philippines path creation seems to provide the way out to leapfrog into the fore.

The archetype cases of successful path creation in the literature include Finland and the mobile phone, Denmark and the wind turbine, and Taiwan and the PC. The theory derived from a clinical case study of these successes can then, in the language of Kathleen Eisenhardt, be triangulated against longitudinal data within themselves to develop new, rich theory.

This theory may also be tested against future results of Singapore’s choice of life science (and private banking?), Malaysia’s selection of ICT, Brazil’s choice of sugar-based ethanol as created paths. Given the non-linear nature of path creation from the past technology trajectory, this methodology ought to work better at the firm or institution level.

The definition and theory behind Path Creation – unlike path dependence – has just had a brief stay on the academic stage. Labeled as differentiation, it has a longer pedigree in management literature – as one half of the duality with market need in the concept of Positioning.

At the conference, D. Abrol, asked ‘power’ related questions – as is his wont – based on demand-pull and consumer need types of influence, i.e. positioning, on the path creation model.

Also at the conference, my question from the firm level was not answered. I gave two examples of firms in pairs that could not be explained by the econometric approach.

For the product path ‘mobile music,’ the introduction of the flash drive on a digital playback was a new path created to lengthen battery life, improve music experience, increase storage, and create a more robust product. It was first introduced by Creative Technologies; it was Apple’s iPod that captured most of the growth.

For the product path ‘mobile phone’, the introduction of the touch screen was a path creation leading to a more seamless customer experience. It was first introduced by HTC of Taiwan but, again, it was Apple’s iPhone which cleaned up on the market.

In both cases, the component technologies used in the detours – flash drive and touch screen, respectively – were available from other applications like computer memory and instrumentations, respectively. The path creators merely emulated into a new application. Apple’s success makes D. Abrol’s implied question relevant, was it path creatin innovation or the power exercise of branding and marketing that created the superiority?

A way out for Professor Lee’s draft paper’s model is to aggregate the results of the two brands into one equation and derive new theory with the rest of the model. Still, it begs the question, what defines a path creation? Without a clear answer, path creation is difficult to model and replicate. Hence, a clinical case approach for building the theory as prescribed by K Eisenhardt seems the better option.

‘Real options,’ a relatively new application path-created out of Black-Scholles options pricing theory, can be added to the arsenal of K Eisenhardt’s within-case analytical method to cover discovery-driven paths or delays in technology trajectories. Of course, any one of the five real option variables can be represented by distributions to make the analysis even more realistic.

For latecomer countries, developing and proving this new theory is of paramount importance – an exciting study area at the edge waiting for the venturesome academic.

Click here for Part 1, 2, 4 or 5.