Path Dependence Feedback Loop

"If you do not change direction, you may end up where you are heading." Lao Tzu

Understanding Path Dependence Feedback Loops in Leadership

“Path Dependence” is a dynamic theory which assumes that initial decisions can increasingly restrain present and future choices.

The theory originates in historical studies in the economics and political field carried out by Paul David (1985, 1986), and Douglass North, who explored the development of QWERTY keyboard technology.

It refers to the idea that the decisions we make are heavily influenced by the historical context in which they occur, and that the set of choices available at any given point in time is constrained by choices made in the past, without ever considering if the circumstances that led to making those choices are still relevant.

The “Feedback Loop” aspect emphasizes how then the outcomes of these decisions end up reinforcing the path taken, creating a cycle difficult to break. The interaction between historical choices and present decisions forms the feedback loop, where past actions influence present options, which in turn shape future actions.

A Real-Life Example: General Motors in the 20th Century

For much of the 20th century, General Motors (GM) was the world’s largest and most successful automaker. Its dominance was built on a strategy of scale, efficiency, and a reliance on internal combustion engine vehicles. For decades, GM’s leadership focused on a strategy based on optimizing production lines, designing large cars, and outpacing competitors.

This a strategy that worked, until it didn’t anymore.

By the 1970s, increasing gas prices, concerns about the environment, and an increased competition from Japan with smaller and fuel-efficient cars disrupted the market. GM, locked into its path dependence, struggled to adapt and its feedback loop anchored in investing in larger vehicles and doubling down on traditional manufacturing methods only reinforced priorities that did not yield the results needed to compete and lead in this new reality. And even when the need for change became clear, the ability to pivot strategy for GM was slow and difficult because of their structure, culture, and resource allocation.

The consequences of this rigidity had severe consequences. By the early 2000s, GM was losing market share and in 2009 GM had to declare bankruptcy, requiring a massive government bailout to survive.

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The 3 Risks of Path Dependence for Leadership

Complacency

The risk of sticking to familiar strategies because they’ve worked in the past, failing to question whether they’re still effective or even where they came from in the first place. This can prevent innovation and leave you unprepared for change.

Tunnel Vision

The risk of focusing too heavily on existing paths which can create blind spots, making you unaware of emerging trends or alternative approaches. Opportunities for growth and evolution may be overlooked, competition coming at you may be unseen.

Resistance to Change

The risk that presents realizing that the longer a path is followed, the harder it becomes to change course. When you become aligned with the status quo (teams, cultures), you create significant barriers to transformation.

Path dependence creates inertia,

preventing the ability or sense of urgency to adapt to new realities.

While feedback loops can reinforce what works,

they also have the risk to blind you to better opportunities or needed change.

The power of feedback loops

How to Break Free from Path Dependence

Three (3) Suggestions to Reverse Path Dependence

1. Conduct a Strategic Audit
   Regularly step back and analyze the paths you’re following. Ask critical questions:

   • Why are we doing this? What were our initial assumptions? Are they still true?

   • Does this strategy still serve us? What are we choosing not to do? Why?

   • What alternatives exist? Have we evaluated trade-offs carefully?

   By questioning the rationale behind established practices, you can identify the root cause to present problems, outdated patterns that are no longer relevant and major opportunities for change

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2. Foster a Culture of Experimentation
   Encourage teams to test new ideas and explore alternatives, to challenge the status quo, to see around the corner and not just in straight line. Create safe spaces for failure, encourage taking calculated risks, reward those that fail and understand why they have failed and what will be corrected for the next iteration. Let people know that you are after mastering the process for long term breakthroughs and not after short term (accidental or low effort) wins only. This approach disrupts entrenched feedback loops and opens the door to new possibilities.

3. Embrace Bold Pivots When Necessary
   Reversing path dependence will require decisive action, don’t underestimate the need for change and what it takes to reverse course. When IBM decided to pivot from hardware to software under Lou Gerstner, the shift was extremely bold for a well established organization and it was important to understand that the the bold moves needed to happen even if it meant letting go of deeply ingrained (and succesful) practices. More often than not this evolves reallocating resources, redefining goals, or reimagining an organization’s core identity.

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Creating a New Dynamic: The Power of Self-Disruption

Breaking free from path dependence isn’t just about avoiding pitfalls, it’s about creating a new, dynamic feedback loop that reinforces innovation, adaptability, and resilience. A leader willing to actively disrupt their own patterns will inspire their teams to think differently, act boldly, and embrace change.

Path dependence starts in your own mind.

When leaders recognize the patterns shaping their decisions, they can harness that awareness to chart a new and better course, one not constrained by history but inspired by possibility.

Step back, question, and pivot. Create the new, don’t just try to fix the old

P.S. Before I go, here you have “The Treat,” where I share some of the music that made me company while writing … Enjoy as you bid farewell to this post

“Lead yourself, Learn to live. Lead others, Learn to Build.”

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