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 / Summer 2006 / Issue 43(originally published by Booz & Company)


Complementary Genius

3. Would our customers buy more if they had better information? As the Michelin brothers realized, information is itself a powerful complement to many products. To boost tire sales, they didn’t go out and spend a lot of money to build their own restaurants and hotels; they simply provided information about the hotels and restaurants that were already out there. Although their guidebook was itself a complement, its greatest value came in promoting a broader set of complements. Your company may have a similar opportunity to boost sales by distributing information about the use and availability of complements. The opportunity might be very simple: A book publisher might provide a list of local reading groups on its Web site. Or it might be more complex: A window manufacturer might partner with local building contractors to give away a book of architectural drawings of common home additions. In either case, the focus should be on easing customers’ access to information that is currently expensive or otherwise hard to come by.

4. Would we learn valuable lessons by innovating in complements? Remember that innovations in complements may help you operate more efficiently or design superior products and services as well as expand your sales. Hewlett-Packard’s expertise in formulating ink, for example, enables it to manufacture better printers, and vice versa. Don’t define complements in narrow terms. Follow the lead of the streetcar companies with their roller-coasters: Look for opportunities to enhance complements in ways that provide your employees with experience and know-how — whether in operations, marketing, or other functions — that they can use back in the core business.

5. Do we have competitors whose fortunes are tightly tied to the price of complements? The sales of complementary products usually move in tandem: Sell more of one, and you’ll sell more of the other. But the profits earned from those sales may move in opposite directions. By turning Wi-Fi chips into a cheap commodity, Intel increased the unit sales of the chips but sucked the profits out of the market, removing a potential beachhead for Intersil and other rivals. You may have a similar opportunity to use a complementary innovation as a competitive weapon. Analyze your competitors to see if any of them earns a lot of money by selling products that are complements to your own. If so, innovations that drive down the price of those complements will give you a double benefit: They’ll erode your competitor’s profits while boosting your own sales. What could be better than that?

Of course, such strategies can cut both ways. Your own core products are probably complements to some other company’s offerings. It would be wise, therefore, to think defensively as well as offensively. How vulnerable are you to innovations that would make your own products cheaper and more plentiful? If Microsoft had thought harder about the competitive dynamics of complements, it might have anticipated IBM’s big investment in Linux. Rather than dismissing the Linux threat, as it did for some time, it could have begun reconfiguring its Windows operating system and related products to counter that threat. It might even have tried to commoditize some of IBM’s core services by bundling free consulting services with big commercial purchases of Windows. After all, those services are complements to Microsoft’s core software business.

There are two kinds of innovation that pay off for companies: those that provide benefits to customers, and those that raise barriers to competitors. Thinking deeply about complements can lead to breakthroughs in both. Who knows? Innovating in complements could turn out to be your company’s next core competence.

Reprint No. 06202

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