Preager (2007) defined path dependency as the decisions made by an individual or a group of people is directly effected by the decisions made in the past whether the past circumstances are still relevant or not.
Path dependency can result results in path dependent or path creating decisions/actions. There are some certain factors that directly effect whether a decision/action is going to be a path dependent or a path creating one. These factors can be stated as:
• Resource Advantage (The Resource Advantage Theory)
• Organizational Learning (Knowledge and Experience)
• Actors–Network (Actor–Network Theory)
• Lock-in (Behavioral Lock-in, Technological Lock-in)
• Managerial Intentionality
• Bootlegging
If you are interested in these subject, you can find detailed information about these topics in internet. Here below, you can find evaluation of Vestas Wind Systems A/S in terms of path dependency and factors directly effecting it.
Vestas Wind Systems A/S
H.S. Hansen bought the local blacksmith workshop in 1898 on the west coast of Denmark which is considered to be the first step on the path of establishing Vestas.
In 1928 Smith Hansen and his son made test window frames. After the approval of buyer, they started to produce steel frames. After considerable amount of orders from the market, they were able to establish Dansk Staalvindue Industri which was making steel window frames for industrial buildings. They had expanded this business until World War II, when occupation and rationing restricted metal supplies. It can be indicated that role of buyers in this case can be considered as an effect of network which was indicated in Actor-Network Theory. Due to high demand from network, Hansen was able to develop his business. World War II can be also considered as a network effect which later than blocked company’s expansion.
After the end of World War II in 1945, Smith Hansen, his son Peder and his colleagues established VEstjysk STaalteknik A/S which later then shortened to Vestas. This compony’s main focus was to make household appliances such as mixers and kitchen scales (Url-1). Wold War II’s network effect resulted in path creating decision for Hansen family and colleagues. On the other hand, managerial intentionality plays an important role on such business switching decisions.
In 1950, Peder got a worldwide patent for Vestas’ milk urn cooler. This can be considered as the first of Vestas on the path of internalization. It was indicated on www.vestas.com that “Vestas’ employees… know that agricultural equipment must be robust and practical. They apply their know-how and experience to produce equipment they know customers will want”. So it is indicated they know-how and experience collected beginning from 1945 had shaped their success in the market. Organizational learning and knowledge and experience gained through it beginning from 1928, resulted in Peder’s patent in same industry which can be considered as a path dependent decision. For they also know buyers, suppliers and logistic channels for this industry, Actor-Network is considered to shape Peder’s decision on patenting milk urn cooler. Vestas exported their first products mainly to Finland, Germany and Belgium.
In 1956, Peder’s brother Soren Hansen became a partner to Burmeister &Wain Shipyard in terms of developing new type of cooler for turbo charges. So, Vestas had opened a new track for their product range. These turbo charger coolers became the star of Vestas product range in terms of quantity of sales. By using their experience on coolers, they adapted their know-how and experience to turbo charges. Managerial intention to expand business to a new track resulted in this investment. They had achieved success in such a short time by the help of their resource advantage in cooler manufacturing process.
In 1959, Peder Hansen bought all shares of Vestas. This step increased the power of managerial intentionality and focused company’s decision only to Hansen family. Although their offices and warehouse burnt in 1960, they achieved to increase their turnover than previous years and they established a new company.
Due to market demand in 1968, they started to manufacture hydraulic cranes for trucks. They had exported this product to 65 countries. In these years, Vestas’ 96 percent of production was these hydraulic cranes. Buyers that created the demand in market (actors) and market forces (network) broke the relatively technological lock-in in production line and relatively behavioural lock-in of employees by the help of this managerial decision. It can be also considered that managerial intention was resulted in a path creating decision.
1971 can be considered as a new era for Vestas. Their first engineer which they employed for their hydraulic crane factory, Birger Madsen developed a technology turning wind energy into electricity. Vestas was used their cranes to erect different types of wind turbines before Birger Madsen’s development. By the help of their network in hydraulic crane business, they were able to meet wind energy industry. It is not indicated in any source, but it can be considered that Birger did not share his idea with management until it came to some maturity level. So, period before sharing his thoughts with top management can be given as an example to bootlegging. Managerial intention on this subject had direct effect to shape future of Vestas.
Vestas carried out their experiments about wind turbines in secret. They had built their first a giant egg whisk like prototype in 1978 which was failed to produce sustainable, economical electricity. Birger used his know-how and experience which was gained in crane business while erecting wind turbines and considered to be deficient to develop this technology.
On these days, two blacksmiths Karl Erik Jorgensen and Henrik Stiesdal developed a new wind turbine model. Because of the lack of financial power, they requested Vestas to test their design. Vestas accepted this offer and invited these two blacksmiths to work with them. In 1979, Vestas sold and installed its first wind turbine with specifications of 10m rotor, and 30 kW capacity. The resource advantage theory showed itself on this subject for Vestas had required financial power and means to realize Karl’s and Henrik’s development while they did not.
In 1980, Vestas sold two wind turbines to American company Zond. After the autumnal storms in certain restrict of Denmark, Vestas realized that there was a design flaw in their products and decided pay compensation to their customers.
Vestas found the design flow in 1981 after one year investigation. To solve this problem, Vestas decided to produce its own fibreglass components with high quality. A certain problem in their current network caused Vestas to choose a path-creating alternative which was later fed by their know-how and experience in wind turbine components. After the tax breaks in the USA, Zond ordered 155 wind turbines. After a short period they had ordered another 550 wind turbines. A positive development in the network helped Vestas to sell considerable amount of wind turbines. Vestas increased number o of employees from 200 to 870 after this progress. Vestas’ agricultural background played an important role for Zond to choose Vestas in terms of having ability to manufacture strength and robust products. It can also be considered that their know-how and experience in agricultural industry played an important role for Zond to choose Vestas wind turbines.
In 1985, Vestas manufactured first pitch-regulated wind turbines which increases the efficiency of wind turbines. The other innovation was fine-tuning system of angle of the blades which was named as optitip. Technology lock-in was never a matter of subject for Vestas for they had developed many Technologies for wind turbines. After starting to manufacture product with these innovation, Zond company ordered another 200 wind turbines which was subject to be delivered on 1st of December. On the second shipment of order, shipping company went bankrupt. Vestas missed the deadline fr this reason and Zond refused to accept wind turbines. Shipping company as an actor in Vestas’s network caused deep injuries for the company.
In 1986, Vestas faced problems for they a huge stock of wind turbines in Denmark. Danish government lowered the tax on wind turbines to make Vestas overcome this situation.
Vestas decided to sell group companies, other then the company focused on wind energy in 1986. After this decision, many group companies had been sold and Vestas Wind Systems A/S was born. After a few months, this new company received orders for six different projects in India by the help of Danish State-Financed Aid Agency. For wind energy business had the biggest share among other businesses, managerial intention directed companies future into a path dependency in terms of focusing on wind energy industry.
Vestas lowered its blades’ weight from 3800 kg to 1100kg in 1990. Another American company ordered 342 wind turbines for their wind farm in California. As result of many years of organizational learning which resulted in considerable amount of knowledge and experience, Vestas added another technological innovation to its wind turbines.
Vestas sold its 1000th wind turbine in 1991. It had exported wind turbines all around the world, from India to Great Britain to New Zealand. As its network expanded, there would be more incentives that effect company directly according to Actor-Network Theory.
Vestas came up with 600 kW wind turbines and other innovations in 1994. In 1995, Vestas constructed one of the first offshore wind power park in Denmark which can be considered as a path dependent decision for both onshore and offshore wind turbines had many similarities.
In 1997, Vestas manufactured the world’s largest commercial wind turbine which produces 1,65 MW per hour.
In 1998, Vestas went public on Copenhagen Stock Exchange. It also became te world’s biggest company in terms of installed capacity. Only one year after, Vestas had introduced V80-2 MW wind turbines. Top management’s decision on this subject can be considered as a path creating decision for shareholders decisions would also be effective while managing Vestas.
In 2000, Vestas got the largest order to date with 1800 turbines for Gamesa Eolica S.A. Vestas also offered shares to its employees which is later accepted by 80 percent of employees. Vestas had supplied around 26 percent of the installed capacity in this financial year (Url-2). Actors in Vestas started to have a voice in the management by the help of this progress.
Vestas constructed world’s largest offshore wind farm with installed 80 wind turbines in 2001. These turbines did not work properly and most of them was replaced. The problem that Vestas faced, was an expensive lesson for the company. For Vestas’s mastery was in onshore wind turbines and there were slight difference in manufacturing process of onshore and offshore wind turbines, technological lock-in in onshore wind turbines could be considered the main reason of this problem.
In 2003, Vestas introduced 1,8 MW, 2 MW and 3 MW Vestas V90 wind turbines which brought down the cost per kWh of electricity. In 2004 Vestas merged with NEG Micon which another big wind energy company from Denmark. Market share was increased up to 32 percent with this merge, but Vestas announced loss for this financial year. After this merge, knowledge and experience pool was expanded and possible behavioral lock-in for employees was removed indirectly. On the other hand, increasing resources provided many advantages for the success in the market.
2005 was a though year for Vestas due to high steel prices and delays on delivery time of suppliers, but Vestas achieved to awarded its biggest order to date from Horizon Wind Energy in USA. While one of the actors in the market (steel) caused a very big problem for Vestas, another actor (customer) helped Vestas overcome those though days.
In 2006, Vestas opened a blade factory in China to meet increasing demands. Vestas also lost considerable amount of money because of the repair costs in guarantee period of wind turbines. After training 80 engineers only to repairing wind turbines, it achieved to increase its share price by 10 percent. Managers intention to solve problem by the help of path creating decisions helped Vestas overcome another though period.
2008 was a golden year for Vestas. It achieved record financial results by having an operatiing profit of EUR 668,000,000.
Summary of historical development of Vestas Wind System A/S can be found below in Table 1.1.
In general means, Vestas continue to protect its leader position by the help of path creating decisions feeding from company’s organizational learning skills and ability to adapt itself to actors’ and network’s demands both in micro and macro scales.
Abbreviations
ANT : Actor Network Theory
BL : Bootlegging
LI : Lock-in
MI : Managerial Intentionality
MIS : Micro Scale
MAS : Macro Scale
OL : Organizational Learning
PD : Path Dependent
PC : Path Creating
RAT : Resource Advantage Theory
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A.Yigit NEPHAN
27.06.2010
