Involvement of system firms in the development of complementary products: The influence of novelty

This paper focuses on the involvement of system firms in the development of complementary products to their systems. The central question is: to what extent do the novelty of the system and the novelty of the complementary product affect the appropriate degree of involvement of system firms in the development of complementary products? A system firm has several options: it may develop the complementary product completely by itself, it can leave the development completely to a specialized producer of complementary products, or it can apply different forms of collaboration with such specialized firms. This paper presents a model for the most appropriate degree of involvement of the system firm contingent upon the degrees of novelty of the system and the novelty of the complementary product. Basic to the model are two objectives of firms developing a new complementary product: the reduction of information and transaction costs in the development process, and the timely creation of installed base of the novel system and/or complementary product. We performed a pilot test of the model using data on new service development projects in mobile telecommunications. The results show that the novelty of the system and complementary product indeed affect the expected performance effects of system firm involvement. Particularly when the system is mature and the complementary product new, the system firm could better leave complementary product development to a specialized external firm. In other cases, the system firm can choose its degree of involvement from low to either medium or high, depending on novelty conditions.

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