Executive Interviews: Interview with David B Yoffie on Collaboration
March 2008 - By Dr. Nagendra V Chowdary

David B Yoffie
Max and Doris Starr Professor of International Business Administration,
Senior Associate Dean, Chair, Executive Education at Harvard Business School.

Complements are any product or service that add value for a customer. The most obvious example come from high tech: A microprocessor, such as an intel processor, has little value for a customer with an operating system, such as Microsoft Windows. Or Microsofts operating system has little valuewithout complementary applications, such as Intuit's Quicken or Adobes Acrobat.However, all complements also compete for claiming value from customers. Therefore, managing complements requires the art of cooperating and competing at the same time. Whoever has themost power in the relationship ultimately gets to claimmore value.

• Do you think what the music industry is going through at the moment is an example of risks in not managing complementors strategically? What are the other industries (if any) where undermining complementors resulted in competitive pressures or wiping out the businesses?
  The music industry didnt understand, at least initially, the inevitable transition to a digital world. As a result, theymissed the important role of key complementary assets, such as MP3 players (and specifically iPods) as well as digital distribution channels, such as iTunes. By not appreciating the transition, the music industry put itself at a disadvantage. The video industry is going through a similar transition today.

• What do you think are the factors that are making knowledge of friends or the art of managing complementors become a competitive necessity?
  Most managers donot analyze their complementors as closely as they analyze their competitors. However, complementors are just as important in claiming value or profit from customers. In the old days, most firms internalized complements. When standard oil needed to get kerosene heaters and lamps into the hand of customers, they provided them themselves. As more industries become less vertically integrated and more global, firms dont have the excess resources to internalize complements and there are more global options for offering complementary products.

• How to identify a complementor in the increasingly borderless world? How to identify a distant friend, a complementor living in an unknown part of the world and who would yield competitive power in future? Howdangerous is it to ignore the distant friends?
  Ultimately, it is essential to understand customer behavior in any business. By analyzing how customers use your products, you can discover if the customer is combining your product with a complementary product in order to add value. Just like competitor analysis, customers are often the best source of information on complements.

• One option is towork closelywith complementors. Other is to guard against a complementor becoming a competitor. How should companies guard themselves against this potential danger?
  The key is not to become too dependent on any one complement. Similar to thinking about suppliers, if you become dependent on a monopoly complement, itwould have the potential to hold you up, and extract more value than what you get fromcustomers. In general, one should try to insure there are multiple complements available to your customer.

• Why do you think notmany companies invest heavily in understanding their complementors as they do in understanding competitors and suppliers?
  Companies transact directlywith suppliers, and they see their competitors in themarket everyday. The challenge with most complementors is there is no direct commercial relationship.

1. From Competition to Collaboration Case Study
2. ICMR Case Collection
3. Case Study Volumes