Networks struggling with path-dependence (or lock-in) tend to be stuck in old traditions, specializing in over-ripe industries which are already in decline. Their competitiveness is reduced due to low levels of learning and poor innovation capacity (Tödtling & Trippl, 2005). Such networks also tend to focus on incremental changes rather than product oriented and radical innovations (Tödtling & Trippl, 2005).
Grabher (1993) has identified different types of lock-in:
- Functional lock-ins caused by lack of flexibility in company networks.
- Cognitive lock-ins due to lack of diversity in world-views.
- Political lock-ins caused by too strong and interlocking relationships between central private and public actors, which restrains industrial restructuring.
When firms do not engage in networking and interactive learning with other companies and with knowledge institutions, this may result in fragmented regions which suffer from lower levels of technology development and entrepreneurship than expected (Tödling & Trippl 2005). In such regions firms and knowledge institutions do not cooperate. Firms may also be too little involved in networking with other firms. According to Tödling & Trippl (2005), researchers point in different directions concerning what is more favorable for innovation in agglomerations; specialization or diversification. Tödling & Trippl (2005) conclude that Feldman and Audretsch (1999) give an accurate description when claiming that innovation is stimulated most efficiently when complementary industries share a common knowledge base.
What is institutional capacity?
The literature describes three important components for institutional capacity: knowledge, relations and ability to mobilize. Institutional capacity is something we find in all networks and which tells us something about how the network or the business handles change prompted by external forces. This is a dynamic capacity that may be built, strengthened and developed over time.
By institutional we here imply innovative networks or businesses that participate in such networks, and where participants share a set of values, joint objectives or similar. By capacity we here imply the ability the “institutions” have to mobilize to face an external force of change or challenge (threat or opportunity), by using the available knowledge and relations (network) they have.