Products and services must be in sync for success
There are some things in life that go together – they complement each other. To have one without the other is simply a travesty. It can be much the same in business.
Business language is full of military metaphors and clichés, such as “capturing” the market or making a “killing.”
Co-operation is a term not usually associated with commerce. However, the changing nature of business has forced entrepreneurs to recognize the need for a balance between competition and cooperation.
There are two approaches we can consider as illustrative of a cooperative approach: co-opetition and partnerships.
Adam Brandenburger and Barry Nalebuff clearly describe the concept of co-operation or ‘co-opetition’ between businesses in their book Co-opetition.
According to Brandenburger and Nalebuff, in the new business model of co-operation, co-opetition seeks to provide complementary products and services – that is, a good or service that makes other goods or services more attractive to the consumer. Computer hardware and software products are complements, as are hot dogs and mustard, cars and car loans, cable television and the TV Guide, the Internet and high-capacity digital phone lines. These are products and services that complement one another.
When businesses enter new markets, attention to complementary firms and organizations is critical. Without key complements, the market may never take off. In established markets, attention to complements is less dramatic but can still provide your business with increased value if you can make your complimentary product or service more attractive to the consumer.
Old mental-model business strategies largely focus on the competition – the ongoing battle between Coke and Pepsi is a classic example. This undermines the notion of the complement. There isn’t even a word to describe providers of complementary products.
So Brandenburger and Nalebuff have created one – complementor – the natural counterpart to a competitor.
You probably know a lot about your competition. What do you know about your complementors? Do you even know who your complementors are? Even a great product can sit on the shelf unless key complements are accessible to the consumer.
Consumers may not see the value of a product that meets one aspect of their need, without the availability of complements to ensure that all aspects of the need are met. You have to work cooperatively with others to ensure that complements exist in a way that best addresses consumer needs – or create a complement yourself.
The high-tech sector is by necessity cooperative in developing complementary products and services. Intel, one of the world’s leading computer chip manufacturers, understands this and sets an example for every business. The company’s engineers continually develop more powerful computer chips. The computer chip is a tiny but critical part of a more extensive system.
But staying ahead of the competition is not enough. Intel must stay in sync with advances made by the producers of the larger systems and their other components in order to ensure market demand for its next-generation computer chips. Similarly, it is quick to recognize opportunities in the technology that drives the industry. So, Intel is constantly on the lookout for complementors.
For example, it has developed a partnership with MCI to provide increased bandwidth for networks, ensuring a stage on which its powerful chips can perform. It is also working with computer game developers to create complex, interactive web-based games that will require computers containing the latest Intel computer chip to operate.
Intel is even venturing beyond the computer industry to ensure that other complementors such as ProShare, a company that develops videophone products, are flourishing. Intel has invested more than $100 million in ProShare. Why? As desktop video conferencing grows, upgrading to Intel’s latest chip becomes a necessity, not a luxury.
Let’s look at the automobile industry for a moment. At the turn of the last century, the car was a technological revolution. The value of a car and the demand for its use was severely limited by the lack of essential complementary products such as roads, gas stations and mechanics.
The fledgling automakers did not leave the development of these markets to chance. They worked with complementors such as the Canadian Automobile Association in promoting highway construction.
Some complementors to the automobile, such as banks and financial institutions, already existed and provided car loans. The dealership credit managers could arrange for your bank financing when you bought your car – i.e. they work directly with the banks.
When you become a complementary business, you must consider the return on investment from a different point of view. The profitability of two complementors cannot be viewed in isolation. Nor can you expect only one complementor to be profitable.
The question you should ask yourself is whether or not you are maximizing the combined profitability of the two complementary businesses. For example, subsidizing ProShare makes sense for Intel because future increased sales of Intel computer chips will more than makeup for any losses associated with ProShare.
Starbucks set up shop in bookstores. The White Spot Triple ‘O’ franchise is now located on all major BC Ferries routes between Vancouver and the Island. Managing complements is part of the new innovative way of doing business, one with endless possibilities.
Note: This article was originally published in 2005.
