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

Step 6: Value Network
The next question of the Business Model Disruption Map concerns the 
value network: What enables the challenger to create, deliver, and earn 
value from its offering to the customer?

---

222
M A S T E R I N G D I S R U P T I V E B U S I N E S S M O D E L S
You can refer back to the list of value network components earlier in this 
chapter as you map out the value network that makes the challenger’s offer-
ing possible. Your goal is to identify everything—people, partners, assets, 
and processes—that enables the challenger to offer its value proposition.
If the challenger is new and unproven, this step should help to identify 
unanswered questions about its business model and whether it will actually 
be able to deliver the value proposition it is promising to the market.
Step 7: Value Network Differential
After you have described the challenger’s value network, the next ques-
tion is, How does the challenger’s value network differ from that of the 
incumbent?
Again, there may be some points of overlap between the challenger and 
the incumbent. If so, you can leave these out. The point here is to identify 
those elements of the challenger’s value network that are unique and different.
Does the challenger’s offering rely on a unique data asset or on specific 
skills that the incumbent currently lacks? Does it come to market via dif-
ferent channels than the incumbent uses? Does the challenger have a differ-
ent pricing model or a different cost structure (e.g., less overhead costs for 
retail space or staff) than the incumbent? Is the challenger launching with 
a focus on a different market segment?
The set of all these differences between the challenger and the incum-
bent is the value network differential.
Step 8: Two-Part Test
You are now ready to answer the ultimate question of the Business Model 
Disruption Map: Does the challenger pose a disruptive threat to the 
incumbent?
As described by the business model disruption theory, this question is 
answered by a two-part test.
First, you need to assess how significant the differential in value is to the 
customer. Is the challenger’s value proposition only slightly better than the 
incumbent’s? Or does it radically displace the value of the incumbent? In some 
cases, this could be because the challenger offers a comparable product or ser-
vice but with much better terms (think of Craigslist’s free version of classified 

---

M A S T E R I N G D I S R U P T I V E B U S I N E S S M O D E L S

223
ads). In other cases, the challenger may solve the same customer problems as 
the incumbent but also meet other customer needs at the same time (think of 
the iPhone, which was both a great cell phone and much more). In still other 
cases, the challenger may provide an offering that simply makes the incum-
bent’s offer much less relevant to the customer (as mobile social networking 
apps have made college bar rituals less relevant to American students).
The first question of the disruption test, then, is this: Does the chal-
lenger’s value proposition dramatically displace the value proposition pro-
vided by the incumbent? If the answer is no, then the challenger does not 
pose a disruptive threat to the incumbent. The challenger may be a great 
innovator with a terrific new value proposition for customers. But if that 
offer grows to threaten too much of the incumbent’s business, the incum-
bent should be able to respond by matching, or remaining closely competi-
tive with, the challenger’s value to the customer. If the answer to the first 
test is yes, then you can move to the second test of disruption.
Here you need to assess the barriers that are posed by the differences 
in value networks between incumbent and challenger. Could the incum-
bent bridge these gaps, if it wished, so that it could deliver the same value 
to customers that the challenger does? For example, could the incumbent 
strike deals with channel partners similar to those employed by the chal-
lenger? Could the incumbent eliminate any difference in its fixed costs or 
compensate for them otherwise? Is it possible for the incumbent to over-
come the network effects that the challenger may have already built up to 
its own benefit? Any major difference in value network could be the hurdle 
that prevents the incumbent from responding effectively.
The second question of the disruption test is this: Do any of the differ-
ences in value networks create a barrier that will prevent the incumbent from 
imitating the challenger? If the answer is no, then the challenger does not 
pose a disruptive threat to the incumbent. It may be a dire asymmetric com-
petitor, but there is no fundamental obstacle to the incumbent responding by 
matching its strategy. The incumbent may have to sacrifice some of its current 
profit margins in the process, just as it would in a price war with a traditional 
competitor. But the challenger is not truly disruptive. On the other hand, if 
the answer is yes, then the challenger has passed both tests of business model 
disruption. The value it offers to the customer will dramatically outstrip or 
undermine the value delivered by the incumbent, and the incumbent will 
face intrinsic structural barriers that prevent it from responding directly. This 
matches perfectly the definition with which we started the chapter: business 
disruption happens when an existing industry faces a challenger that offers 

---

224
M A S T E R I N G D I S R U P T I V E B U S I N E S S M O D E L S
far greater value to the customer in a way that existing firms cannot compete 
with directly. The challenger is a disruptive threat.
8
But is all hope lost? In the face of a real disruptive threat, can the incum-
bent expect complete and rapid extinction (like the horse carriage indus-
try facing automobiles), or is there an opportunity for the incumbent to 
respond—or at least hold on to some of its glory?
That is where the next tool comes in.
Tool: The Disruptive Response Planner
If you have determined that you are, in fact, looking at a true disruptive chal-
lenger to an incumbent business, you are now ready to apply the second tool.
The Disruptive Response Planner is designed to help you map out how 
a disruptive challenge will likely play out and identify your best options for 
response.
The first three steps help you to assess the threat from the disrupter in 
terms of three dimensions: customer trajectory, disruptive scope, and other 
incumbents that may be affected. You can then use these insights in the 
last step to choose among six possible incumbent responses to a disruptive 
challenger. (See figure 7.2)