On business complementarity

Since the early 1990s, there is a renewed academic interest in the notion of business complementarity, i.e. the complementarity between two or more businesses or companies (e.g. Harrison et al, 1991). Managers are also increasingly using this term to justify decisions such as acquisitions and alliances. That said, in this recent literature, the concept of business complementarity has remained ill-defined, if not incorrectly defined. Many authors have merely associated it with synergy-creating non-overlap or differences between businesses, without specifying how the non-overlap or differences can be synergistic (e.g. Harrison et al, 1991; Chung et al, 2000; Wang & Zajac, 2007; Kim & Finkelstein, 2009).

In contrast, the founding scholars of strategy (Penrose, 1959; Ansoff, 1965; Porter, 1985) extensively discussed the notion of business complementarity. Actually, one can distinguish two broad types of business complementarities (Genç & Castañer, 2001):

1- horizontal or within-component complementarity: like the complementarity between two products which can be bundled (one-stop shop) and reinforce the demand (value) for each other (Penrose, 1959)

2- vertical or across-component complementarity: like the complementarity between a technology or innovation (product design) and manufacturing and marketing capabilities which has been used to justify alliances between biotech and pharma companies (Teece, 1986).

In Zaheer et al (2011) we define horizontal complementarities and explain in detail how two kinds of horizontal complementarities – in product and technology, respectively – can create value, i.e. be synergistic.

Zaheer, A., Castañer, X. and Souder, D. (forthcoming). “Synergy Sources, Target Autonomy and Integration”. Journal of Management. http://jom.sagepub.com/pap.dtl