« Home

Home » Business & Economics » Business » Henry: Understanding Strategic Management » Student resources » Key work » Chapter 03

Henry: Understanding Strategic Management

Chapter 03

Key Work feature: Complementors and their impact on competitive behaviour


The de facto position of Porters’ structural analysis of industry is one of competition. It is assumed that players within an industry are rivals that utilise generic strategies to mitigate the effects of Porter's five forces. Where an alliance exists this tends to be at the margin and usually a temporary aberration. In modern parlance business is often seen in terms of winners and losers, a zero-sum game. Yet in a price war, for example, there are no winners. If we see business as comprising strategic alliances with competitors, suppliers and customers this is equally misleading. Since competitors will contest market share, an objective for customers is a lower price and suppliers are concerned with cost. In contrast, Brandenburger and Nalebuff (1997) argue that strategy involves competition but also includes cooperation. To capture this binary element of strategy they coined the term co-opetition.

In the same way that visionary companies embrace what Collins and Porras (1994) refer to as the genius of the ‘AND’ rather than succumb to the tyranny of the ‘OR’so an organization must focus on two things. On the one hand, an organization needs to focus on creating value – what Brandenburger and Nalebuff refer to as ‘a bigger pie.’ The creation of value is a cooperative activity between an organization’s customers and its suppliers working together. On the other hand, how this bigger pie gets divided up is a competitive activity. This involves the organization trying to secure for itself more of the value that is created.

Porter's five forces framework recognises the contribution of substitute products and services in reducing the profit that incumbent firms can attain. However what Brandenburger and Nalebuff’s work does is to extend Porter’s five forces by introducing the concept of the value net. The value net is a framework for analysing an organisation’s competitive environment which is similar to Porter’s five forces framework. Where Brandenburger and Nalebuff make a contribution to Porter’s five forces is in introducing complementors. Complementors refer to organisations that produce products and services, which complement (or support) those of another organisation and therefore add value within the industry.  For example, an organisation producing DVD players requires the film industry to support this hardware by making films available in the DVD format.

Nalebuff and Brandenburger (1997) use game theory to help understand the complex nature of competitive behaviour between organizations. Unlike the early uses of game theory which involved finding answers to a particular game Brandenburger and Nalebuff adopt a meta-game approach of designing the right game. Unlike traditional games which have winners and losers, in business the game can be non-zero sum. For example, Intel and Microsoft have enjoyed mutually success. Also unlike most games that have set rules, Nalebuff and Brandenburger argue that in the game of business, the action derives from actually changing the game.

Business is often thought to include customers, suppliers, and competitors. Yet by analysing the nature of the relationship between the likes of Intel and Microsoft, Nalebuff and Brandenburger identified another player which they call a complementor. The importance of complementors is in creating industry value. The question then arises - how is the value (the bigger pie) that is created by complementors divided up? The key is to increase your organization's own complement’s added value while simultaneously trying to limit the added value of another player’s complement. This can be done by differentiating your complement and restricting its supply while trying to commoditise another player’s complement through greater competition and the creation of excess supply. By reducing the value of a complementary product this will ensure that greater profit can be appropriated by your product.