Complementarity‐based hypercompetition in the software industry: Theory and empirical test, 1990–2002

This study examines the hypercompetition phenomenon within the prepackaged software industry. It theoretically develops and empirically validates the idea that dynamically changing complementarity relationships among software product markets increase industry hypercompetition. The study also explains how dynamic capabilities for the management of complementary product markets can enable an independent software vendor (ISV) to create and renew temporary advantages. Specifically, an ISV can maintain or increase its performance rank in its product markets in three ways: (1) by competing with a portfolio of strongly complementary products; (2) by forming a product market portfolio that has strong complementarity relationships with other product markets in the industry; and (3) by dynamically and purposefully responding to the changing product market complementarities: (a) reconfiguring resource allocations of its products to strengthen the complementarities of its product portfolio and (b) undertaking entry and exit moves that reposition the portfolio in a stronger complementarity position. These dynamic capabilities enable the ISV to coevolve with the changing complementarities, change and improve its performance rank, and trigger new competitive moves by rivals; and accordingly, contribute to the escalation of rivalry in the industry. The study finds support for these ideas in a study of 1,200 ISVs from 1990 to 2002. Copyright © 2010 John Wiley & Sons, Ltd.

[1]  Will Mitchell,et al.  Complementarity, capabilities, and the boundaries of the firm: the impact of within‐firm and interfirm expertise on concurrent sourcing of complementary components , 2009 .

[2]  S. Finkelstein,et al.  The effects of strategic and market complementarity on acquisition performance: evidence from the U.S. commercial banking industry, 1989–2001 , 2009 .

[3]  Constance E. Helfat,et al.  Understanding dynamic capabilities: progress along a developmental path , 2009 .

[4]  Philip Bromiley,et al.  Assessing the dynamic capabilities view: spare change, everyone? , 2009 .

[5]  L. Bollen,et al.  Investing in the IT That Makes a Competitive Difference , 2009 .

[6]  S. Paruchuri,et al.  Entry into Emergent and Uncertain Product-Markets: The Role of Associative Rhetoric , 2008 .

[7]  M. Porter,et al.  Contextuality Within Activity Systems and Sustainability of Competitive Advantage , 2008 .

[8]  Chi-Hyon Lee,et al.  Within-Industry Diversification and Firm Performance in the Presence of Network Externalities: Evidence From the Software Industry , 2008 .

[9]  Carliss Y. Baldwin,et al.  Where do transactions come from? Modularity, transactions, and the boundaries of firms , 2007 .

[10]  Constance E. Helfat,et al.  Dynamic capabilities : understanding strategic change in organizations , 2007 .

[11]  Geoffrey G. Parker,et al.  Two-Sided Network Effects: A Theory of Information Product Design , 2010, Manag. Sci..

[12]  Timothy W. Ruefli,et al.  Schumpeter's ghost: Is hypercompetition making the best of times shorter? , 2005 .

[13]  N. Venkatraman,et al.  Knowledge relatedness and the performance of multibusiness firms , 2005 .

[14]  Joseph F. Porac,et al.  On the sociocognitive dynamics between categories and product models in mature markets , 2005 .

[15]  Charles W. L. Hill,et al.  Technological Discontinuities and Complementary Assets: A Longitudinal Study of Industry and Firm Performance , 2005, Organ. Sci..

[16]  Royston Greenwood,et al.  The effect of within-industry diversification on firm performance: synergy creation, multi-market contact and market structuration , 2004 .

[17]  Thomas J. Cottrell,et al.  Product Variety and Firm Survival in the Microcomputer Software Industry , 2004 .

[18]  Michael A. Cusumano,et al.  The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad , 2004 .

[19]  Christopher L. Tucci,et al.  A model of the Internet as creative destroyer , 2003, IEEE Trans. Engineering Management.

[20]  Timothy F. Bresnahan,et al.  Technological Competition and the Structure of the Computer Industry , 2003 .

[21]  Paul M. Vaaler,et al.  Same as it Ever Was: The Search for Evidence of Increasing Hypercompetition , 2003 .

[22]  Nicolaj Siggelkow,et al.  Misperceiving Interactions Among Complements and Substitutes: Organizational Consequences , 2002, Manag. Sci..

[23]  Joseph F. Porac,et al.  Categorization bases and their influence on product category knowledge structures , 2002 .

[24]  Gary J. Castrogiovanni,et al.  Organization Task Environments: Have they Changed Fundamentally over Time? , 2002 .

[25]  Timothy W. Ruefli,et al.  Sustained Competitive Advantage: Temporal Dynamics and the Incidence and Persistence of Superior Economic Performance , 2002, Organ. Sci..

[26]  Suresh Kotha,et al.  Continuous “Morphing”: Competing Through Dynamic Capabilities, Form, and Function , 2001 .

[27]  F. Rothaermel.  Complementary Assets, Strategic Alliances, and the Incumbent's Advantage: An Empirical Study of Industry and Firm Effects in the Biopharmaceutical Industry , 2001 .

[28]  H. Korn,et al.  Beyond multimarket contact to mutual forbearance: pursuit of multimarket strategy , 2001 .

[29]  Henrich R. Greve,et al.  Introduction: A multiunit, multimarket world , 2001 .

[30]  F. Rothaermel.  Strategic Management Journal Research Note Incumbent's Advantage through Exploiting Complementary Assets via Interfirm Cooperation , 2022 .

[31]  Curtis M. Grimm,et al.  King of the hill: Dethroning the industry leader , 2001 .

[32]  Min-Woong Sohn,et al.  Distance and cosine measures of niche overlap , 2001, Soc. Networks.

[33]  Ken G. Smith,et al.  Multimarket Contact and Resource Dissimilarity: A Competitive Dynamics Perspective , 2000 .

[34]  Jan W. Rivkin.  Imitation of Complex Strategies , 2000 .

[35]  Richard Schmalensee,et al.  Antitrust Issues in Schumpeterian Industries , 2000 .

[36]  Kim B. Clark,et al.  Design Rules: The Power of Modularity , 2000 .

[37]  Daniel A. Levinthal,et al.  Looking Forward and Looking Backward: Cognitive and Experiential Search , 2000 .

[38]  M. Porter.  What is strategy , 2000 .

[39]  H. Rao,et al.  The Demography of Corporations and Industries , 1999 .

[40]  Walter J. Ferrier,et al.  The Role of Competitive Action in Market Share Erosion and Industry Dethronement: A Study of Industry Leaders and Challengers , 1999 .

[41]  Carolyn Y. Woo,et al.  Multimarket Contact, Economies of Scope, and Firm Performance , 1999 .

[42]  D. M. Topkis.  Supermodularity and Complementarity , 1998 .

[43]  Hal R. Varian,et al.  Information rules - a strategic guide to the network economy , 1999 .

[44]  Mary Tripsas.  Unraveling The Process Of Creative Destruction: Complementary Assets And Incumbent Survival In The Typesetter Industry , 1997 .

[45]  Daniel A. Levinthal.  Adaptation on rugged landscapes , 1997 .

[46]  K. Eisenhardt,et al.  The Art of Continuous Change : Linking Complexity Theory and Time-Paced Evolution in Relentlessly Shifting Organizations , 1997 .

[47]  J. S. Long,et al.  Regression Models for Categorical and Limited Dependent Variables , 1997 .

[48]  Henry Mintzberg.  Musings on management. Ten ideas designed to rile everyone who cares about management. , 1996, Harvard business review.

[49]  Ken G. Smith,et al.  “Austrian” and Industrial Organization Perspectives on Firm-level Competitive Activity and Performance , 1996 .

[50]  L. G. Thomas.  The Two Faces of Competition: Dynamic Resourcefulness and the Hypercompetitive Shift , 1996 .

[51]  Joel A. C. Baum,et al.  Competitive Dynamics Of Interfirm Rivalry , 1996 .

[52]  R. Garud,et al.  Technological and Organizational Designs for Realizing Economies of Substitution , 1997 .

[53]  Donald M. Topkis,et al.  Comparative Statics of the Firm , 1995 .

[54]  Paul Milgrom,et al.  Complementarities and fit strategy, structure, and organizational change in manufacturing , 1995 .

[55]  G. R. Brooks,et al.  Defining market boundaries , 1995 .

[56]  C. Shapiro,et al.  Systems Competition and Network Effects , 1994 .

[57]  Richard A. D'Aveni,et al.  Hypercompetition: Managing the Dynamics of Strategic Maneuvering , 1994 .

[58]  D. Teece.  Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy , 1993 .

[59]  J. Barney.  Firm Resources and Sustained Competitive Advantage , 1991 .

[60]  R. Brant.  Assessing proportionality in the proportional odds model for ordinal logistic regression. , 1990, Biometrics.

[61]  Paul R. Milgrom,et al.  The Economics of Modern Manufacturing: Technology, Strategy, and Organization , 1990 .

[62]  Ronald S. Burt,et al.  Another Look at the Network Boundaries of American Markets , 1989, American Journal of Sociology.

[63]  Joseph Farrell,et al.  Installed base and compatibility : innovation, product preannouncements and predation , 1986 .

[64]  K. Palepu.  Diversification strategy, profit performance and the entropy measure , 1985 .

[65]  M. Porter.  Competitive Advantage: Creating and Sustaining Superior Performance , 1985 .

[66]  A. Lemelin,et al.  Relatedness in the Patterns of Interindustry Diversification , 1982 .

[67]  H. White.  Maximum Likelihood Estimation of Misspecified Models , 1982 .

[68]  J. Schumpeter.  Capitalism, Socialism and Democracy , 1943 .

[69]  S. Wright.  Evolution in mendelian populations , 1931 .