Value Networks

A value network describes the industry structure within which a particular business operates.

For example, the value network of a large enterprise in 1980 would have included suppliers of mainframe computers, industrial strength printers and copiers, punch card readers, raised floor computer rooms, accounting software.

This is reflected in the cost structures of businesses in a particular value network.

An appropriate value network for a disruptive innovation may be significantly different from the value network for the technology that it will replace.

The value network includes:

suppliers

competitors

customers

Here's an example of how the value network for an existing technology does not work for a disruptive technology:

In 1985, Company X sold mainframe software for $100,000/ unit, using a direct sales force, and compensating sales professionals with a percentage of sales. But when Company X decided to sell PC software, at $1000/unit, the sales professionals had little interest in bothering with such small numbers.

Need: Company X needed to separate its PC business into a separate business unit, with different cost structures, different compensation strategies, a different sales model. In order to succeed in a disruption, companies need to align their business strategies to the new industry.