The Digital Transformation Playbook: Rethink Your Business for the Digital Age

Value Network Differential
Every disrupter also requires a difference in value network that creates a 
barrier to imitation by the incumbent. Recall that the network includes 
anything—people, partners, assets, processes—that enables a business to 
create, deliver, and earn value from its value proposition. The differences 
can be found by looking at many different elements—what I call value net-
work components.
Key components to consider in analyzing a challenger’s value network 
include the following:
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 Customers: The challenger may be pursuing different customer seg-
ments or types than the incumbent currently serves.
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 Channels: These may include retail or online distribution, direct deliv-
ery to the customer, or distribution through intermediaries. (Is the 
challenger using different channels to come to market?)
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 Partners: These may include sales, manufacturing, supply chain, or 
other key partners that are critical to the challenger’s offer.
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 Networks: If the challenger has a platform business model, then an 
established network of customers or partners may be essential to how 
it delivers its offer. (This may include networks of consumers, advertis-
ers, app developers, etc.)
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 Complementary products or services: The challenger may already pro-
vide the customer other products or services that are essential to the 
value created by its new offer. (Think of Apple’s iTunes music service, 
which predated the iPhone and added to its value.)
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 Brand: Reputation, brand image, and the prior relationship with the 
customer may be essential to the challenger’s ability to provide the 
value of its offer (and to charge the right price for it).
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 Revenue model: This includes the pricing and profit margin as well as 
the payment model. (Is the customer paying for the offer on a product 
basis, per use, monthly subscription, revenue share, etc.?)
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 Cost structure: This includes both the fixed and the variable costs incurred 
by the challenger in order to provide its offer to the customer.
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 Skills and processes: The challenger may have unique or differentiated 
processes and organizational skills that are essential to the value it 
delivers (from Apple’s design capability behind the iPhone to Zappo’s 
highly developed customer service).

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 Physical assets: These may include factories, equipment, stores, and so 
on owned by the challenger.
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 IP assets: Critical intellectual property may include patents, rights, licenses, 
and unique technologies.
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 Data assets: The challenger’s value proposition may rely on unique data 
assets and capabilities, such as Amazon’s and Google’s use of their cus-
tomer data to deliver all kinds of personalized offerings.
The Two Differentials in Christensen’s
New Market Disruption
As mentioned earlier, Christensen’s original model of business disruption, 
often called new market disruption, is actually a specific case of this more 
general theory of business model disruption.
Within this new theory, Christensen’s new market disruption is simply 
a description of all those cases of disruption where the value proposition 
differential is a difference in price or access and the value network differen-
tial includes a difference in customer segment (the challenger is pursuing a 
different customer segment).
By expanding our model to include other differentials of both value 
proposition and value network, we can account for and explain many addi-
tional examples of business disruption, particularly those involving some 
of the biggest disrupters of the digital age.
Digital Disrupters: iPhone, Netflix, Warby Parker
Let’s see how this model applies to three recent cases of business disruption. 
All three are in consumer businesses, and the disruption did not follow the 
traditional new market theory of disruption.
Two of the incumbents were completely disrupted and left the business 
where they had recently been the market leader; one disruption is newer 
and still ongoing. (As we shall see, a disruptive challenger does not always 
spell doom for the incumbent.)