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for the coherence and dynamic of the institutional architecture as such. Taking into
consideration the institutional hierarchy, the transformation of one institution within
institutional coni gurations need not necessarily destabilize the coherence of a whole
architecture. That may explain why several regional innovation systems with region-
specii c institutions may exist and can be absorbed by the key institutional arrangements
at the national level. But on the other hand, institutional change in one sphere can
increase pressure and have a snowball ef ect on complementary institutions to change
gradually. The accumulation of incremental change over time may lead to what Streeck
and Thelen (2005) describe as 'transformative change'. Institutional complementarity
therefore plays an ambiguous role by contributing to the stability of path-dependent
developments and, at the same time, feeding into the plasticity of paths.
Streeck and Thelen (2005) argue that it is not clear at all whether the two basic models
of institutional change - incremental and disruptive change - exhaust the possibilities, or
even that they capture the most important ways in which institutions evolve over time.
They refer to 'transformative change' of institutions as a type of change contributing to
capturing current developments in the economy of modern capitalism. Dif erent modes
of gradual transformation of institutions such as displacement, layering, drifting or con-
version and exhaustion are explored, resulting in institutional discontinuity.
The perspective of path plasticity lays emphasis on the interpretative l exibility at the
micro level, which enables the slow evolution of institutions and the elasticity of institu-
tional arrangements at the macro level, supporting institutional change and institutional
dynamics. Plasticity allows institutional variations, the attachment of new elements to
existing institutions, the slow rise of peripheral meanings to dominant institutions and
their conversion by the redeployment of old institutions to new purposes (Streeck and
Thelen, 2005). Processes and modes of institutional change within a given institutional
setting of a technological development path make it possible that initially incompat-
ible innovations may over time evolve into innovation systems. In the following section
empirical evidence is provided by the evolution of the German business software indus-
try, which has been developed despite the institutional disadvantages ascribed and
caused by the dominant institutional coni gurations of the national innovation system.
4. The evolution of the software industry in Germany
The evolution of software as an independent industry is a relatively recent phenomenon.
As a cross-sector technology, software has become a major integral part in processes,
products and services. Software development and software services are provided for the
market by i rms in the primary software branch, but also by corporations in user branches,
the so-called 'secondary industry branches', such as mechanical engineering, vehicle
construction or telecommunications (Friedewald et al., 2001). A pronounced secondary
software industry is a special characteristic of the German innovation system. Customarily
such i rms are dif erentiated with regard to their performance spectrum into providers of
standard software, called
packaged software
, and providers of
customized software
.
The software industry belongs to knowledge-intensive business services and as such it
has sector-specii c institutional characteristics:
The intensive user-producer interaction and communication linked with the pro-
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duction of software goods. This is particularly necessary during the creation of
