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

landslide, the disrupter quickly takes over the entire market, pushing the 
incumbent into obscurity.
Step 3: Other Incumbents
We saw earlier how a single new business model can disrupt multiple 
incumbent industries. When assessing a disrupter to your business, it is 
easy to focus on its impact on only one industry (your own). But to under-
stand the competitive dynamics at work, it is critical to expand your refer-
ence frame to consider other incumbent businesses and how they will be 
impacted and respond to the disrupter.
V
A LU E
T
R A I N
The first place to look for additional businesses that may be disrupted is in 
your own value train (as discussed in chapter 3).
Start by asking which product or service the disrupter most resembles. 
For example, the product most like e-books would be printed books. You 
can then look at a value train of everyone involved in delivering that prod-
uct or service—from the originator (authors), to producers (book publish-
ers), to distributors (book printers, distribution companies, and retail and 
e-tail booksellers)—until the value reaches the final consumer. Then ask 

---

230
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
which of these different types of companies may be disrupted if the new 
business model is successful? For e-books, the answer would likely be retail 
booksellers, printers, and distributors; authors and publishing houses are 
most likely able to adapt to the new business model.
S
U B ST I T U T I O N
Another way of identifying additional incumbents is to think of products 
or services for which the customer may substitute the disrupter’s offering. 
Ask yourself two questions: If a customer starts spending more money on 
the disrupter’s product or service, where else might they spend less money? 
If the customer starts spending more time on the disrupter, where might 
they spend less time?
Considering the early iPhone, you can easily see that if customers 
spend money on an iPhone, they are less likely to spend money on a phone 
by another handset maker like Nokia. (Digging deeper, you might deter-
mine that if they spend more money on iPhone apps, they are likely to 
spend less on other entertainment.) If you ask where avid iPhone users 
spend their time, you might realize that they spend less time conducting 
Web searches on their desktops (a hugely profitable business for Google) 
and more time on mobile Web searches (much less profitable).
One other question about substitutes is worth asking: If the disrupter’s 
current product continues to become much better in terms of performance 
and quality, for what other products or services might it start to become 
a substitute? Looking at the initial iPhone, it is possible to imagine that if 
it continues to get faster, more powerful, and a bit bigger, it does indeed 
pose a threat as a substitute for laptop computers, televisions, and other 
categories.
L
A D D E R I N G
The last way to identify more incumbents who may be impacted by a dis-
rupter is to look at both immediate and higher-order customer needs.
You start by asking these questions: What problem or need does the 
disrupter solve or meet for its customers? Who else tries to solve that prob-
lem? For example, looking at messaging apps like WhatsApp, you can see 
that customers use them to meet their need for expedient text messag-
ing with friends (especially friends in different countries). That need was 

---

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

231
previously met by telecommunications providers, which, as we saw, lost 
billions of dollars in texting fees due to this disruption.
Next you can attempt to unearth higher-order customer needs through 
a process known as laddering. In this market research technique, you ask 
a customer a series of “Why?” questions to get at the reasons behind their 
immediate motivations. For example, if you ask college students why they 
use WhatsApp, they might say “to message easily with my friends.” If you 
ask why they use it for that, they might say “to be able to make plans and 
swap photos.” If you ask why that matters, they might say “so we can meet 
up and find out wherever the cool get-togethers are happening.” This might 
lead you to realize that mobile messaging apps are meeting the need for 
convening social interactions, which was formerly met by visiting the col-
lege bar. This kind of laddering can reveal products or services that are 
made less necessary for customers by the disrupter, even though the dis-
rupter doesn’t appear to be competing directly.
I
M P L I C AT I O N S
By looking at value trains, different means of substitution, and different lev-
els of customer needs, you may have identified multiple incumbents—types 
of companies that will be disruptively challenged by the same new disrupter. 
As an incumbent, it is always valuable to know who else may be threat-
ened by the same disrupter that is threatening you. In planning your own 
response, it is important to see how these other incumbents are responding 
or consider how their responses might parallel yours. You may also find that 
these “enemies of my enemy” could serve as allies in response to the disrup-
tive threat. As described above, Google saw that it was threatened just as 
much by the rapid rise of the iPhone as were cell-phone handset makers. As 
we will see, this led to Google’s choice of response to the disruptive threat.
Step 4: Six Incumbent Responses to Disruption 
The final step of the Disruptive Response Planner is to plan your response 
as an incumbent. To do so, you will use what you have learned regarding 
the trajectory, scope, and other incumbents of the disrupter you are facing 
to help you choose which strategic responses are most promising for your 
circumstances.

---

232
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
As an incumbent, you have six possible responses when faced with a 
disruptive challenger:
THREE STRATEGIES TO BECOME THE DISRUPTER
r
 Acquire the disrupter
r
 Launch an independent disrupter
r
 Split the disrupter’s business model
THREE STRATEGIES TO MITIGATE LOSSES FROM THE DISRUPTER
r
 Refocus on your defensible customers
r
 Diversify your portfolio
r
 Plan for a fast exit
These six strategies are not exclusive; you can combine them (and, in fact, 
some of them work best together). The first three responses seek to occupy 
the same ground as the disrupter. The last three responses seek to reduce 
its impact on your core business. Depending on your own circumstances, 
only one or a few of these incumbent responses may be workable, so it is 
best to be familiar with each of them.
Let’s look at each response and see where and how you might best 
apply it.
A
CQ U I R E
T H E
D
I S R U P T E R
The most direct response for an incumbent faced with a disruptive chal-
lenger is to simply acquire the challenger. This is how Facebook dealt with 
the challenge of WhatsApp. When Google’s Maps product faced a potential 
disrupter in Waze, it bought the company. When the car rental giant Avis 
saw that Zipcar had invented a disruptive business model, Avis also bought 
its challenger. If you are considering buying your disrupter, knowing who 
the other incumbents are will help you predict who else might compete 
with you to drive up the price.
If you do acquire your disrupter, you should continue to run it as an 
independent division. That’s what Facebook, Google, and Avis did in all 
the above cases. That means the disrupter you own will continue to steal 
customers from your core business (and possibly at a lower profit margin). 

---

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

233
But if you don’t take measures to keep the acquired disrupter independent, 
you will inevitably put the interests of your core business above the goal 
of serving your customers. And that will create an opportunity for some-
one else to launch a similar business and steal away your disappointed 
customers.
Acquiring the disrupter is not always possible. A start-up with suf-
ficient venture capital may refuse to sell, as was the case with Facebook’s 
failed $3 billion bid for messaging app Snapchat. Or the disrupter may be