Geography Reference
In-Depth Information
role for the accumulation of the distinct competencies. The German i rms are able to use
these competencies favourably in innovation processes. Obviously they are able to i nd
ways of overcoming the two main disadvantages resulting from the production of mainly
customized business software. The limited re-use of parts of the developed business
software and the high degree of necessary interaction-intensive service activities used to
implement the enterprise solution are a major limitation for tradability and achieving
economies of scale.
An enabling factor is the transfer and adaptation of experience-based knowledge of
engineering and industrial production and the business processes used in the complex
production systems of the core manufacturing industries to both the software devel-
opment and the service process. Software engineering and the so-called 'service engi-
neering' (Streich and Wahl, 2006) are means of enhancing the ei ciency of developing
customized software products by using modularization and standardization. In turn,
modularity and standardization permit a higher degree of labour division both in the
software development and in the service process by creating possibilities for externalizing
parts to other specialized providers. Particularly in the last years growth has been strong
in the IT outsourcing market in Germany and therefore questions have been raised
about its laggard position (Lehrer, 2006). The specialization in software architecture and
the design of highly complex and comprehensive solutions allow the German software
i rms to use their competencies in innovation processes favourably. Heinzl and Oberweis
(2007) identify the systemic way of thinking and the engineering and process knowledge
that have evolved over decades as a sustainable competitive advantage for the German
customized business software.
5. Conclusions and challenges for further research
The chapter contributes to the evolutionary economic geography approach by address-
ing the role of institutions and modes of institutional change in path-dependent processes
of innovation, knowledge accumulation and competence building in innovation systems.
It argues that there is a lack of discussion regarding institutional dynamics within path-
dependent developments. Processes of institutional change are mainly seen either as
incremental, leading to continuity of the present technological path, or as abrupt and
disruptive, leading to the breakdown and replacement of institutional settings. Especially
when new knowledge bases are incompatible with the dominant institutional coni gura-
tions of a path, it is argued that innovation creates the need to break away from the
established institutions.
The evolution of German customized business software points out that radical
institutional change is not always necessary for the successful introduction of innova-
tion even in non-favourable institutional settings of the dominant path. The success
of this industry is an indication that paths are not coherent in themselves. Actors
have harnessed the plasticity of institutional coni gurations by selecting peripheral
and dominant elements to combine and adapt these for their requirements. Plasticity
permits institutional variations and the conversion and redeployment of established
institutions for new purposes by agents. The customized business software industry
chooses hybrid solutions for dealing with disadvantages of the institutional setting.
The advantages of the existing institutional arrangements are not replaced totally by
the introduction of new ones. By recourse to peripheral elements of the dominant path
