Benefiting from Innovation: How Adoption of Complementary Technologies Affects the Innovation-Performance Relationship

A central concern for strategy research is to understand why many firms find it difficult to profit from their innovations. Research on this topic often emphasizes the importance of complementary technologies, which are defined as downstream products and services that work with an innovator’s product to provide value to users. Prior work argues that the positive effects of innovation on performance are reduced when technical challenges constrain the availability of complementary technologies. However, even if complementary technologies are available, users need not readily adopt them. Two aspects of user adoption are conceptually important - uncertainty faced by users and emergence of new applications. This paper argues that the positive effects of innovation on performance increase when uncertainty decreases and when more new applications emerge for complementary technologies. These arguments find empirical support in the context of the global mobile phone industry from 2000-2015. The paper advances our understanding of how innovating firms are affected by complementary technologies, showing that the benefits of innovation are shaped by changes in user adoption of complementary technologies. In contrast to most research that assumes stability in complementary assets, this paper demonstrates that innovating firms are affected by dynamism in complementary assets.