On complementarity: definition and measurement

In business and corporate strategy, as the second dimension of relatedness – similarity being the other – complementarity has to do with the capability of two or more different elements to create value together, i.e. to be more valuable together than separate, thus being synergistic. 

More generally, complementarity refers to the verb to complement which is linked to the verb to complete or round out. We talk about complementary individuals when they have different skills which are required (i.e. useful) for a given task. Complementarity is thus related to the notion of compatibility but goes beyond it because complementarity also entails that the different (complementary) elements which could potentially be brought together are not only compatible (i.e. they can work together) but they create greater value than if kept separate.

To measure complementarity between businesses is not easy. Complementarities between different products could be objectively measured through their price or demand elasticity. Given that complementarity refers to mutual reinforcement among the complementary elements (Milgrom & Roberts, 1990), the demand of complementary products should be positively correlated. From a subjective point of view, measuring business complementarity (see the post relative to this concept) requires to ask managers whether they perceive two or more organizations (their products, technologies, distribution channels,…) to complete or round out each other (e.g. Zaheer et al, 2011).

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

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