Introducing the “Value Displacement Proposition™”

Innovation literature spends a great deal of time discussing value creation. That makes sense; innovation is fundamentally about creating new value: solving problems better, reducing friction, improving performance, lowering costs, enabling new capabilities, and creating entirely new markets.

But there is another side of innovation that receives far less attention, despite being one of the primary reasons innovations fail.

Innovation destroys value too. This reality underlies the Value Displacement Proposition™.

My research and practice for many years have focused on de-risking innovation. There are two major aspects to this work. The first is understanding the types and nature of the risks innovators face. The second is developing processes and practices that mitigate those risks and enable informed decision making under uncertainty.

One of the most important of those practices is formulating and testing value proposition hypotheses. Surprisingly, organizations often give this activity far less rigor than it deserves.

The ability to clearly articulate a compelling value proposition is critical. If you cannot explain who benefits, how they benefit, and why the benefit matters, the innovation is unlikely to succeed. This sounds obvious, yet many innovation efforts proceed with the conviction of the creator and only vague assumptions about customer value.

Importantly, a strong value proposition should not begin with the proposed solution; it must begin with the problem to be solved or the opportunity to be addressed. Starting with the problem opens the solution space and enables more robust and inclusive ideation.

Some value proposition components are broad:“We will reduce total energy consumption, lowering both operating cost and environmental impact.”

Others are stakeholder specific:“By simplifying the supply chain we will reduce administrative burden for purchasing managers and their teams.”

These hypotheses must be tested with real stakeholders. Without that testing, you never truly know whether you have a good solution or merely an idea you personally find compelling.

This entire process is foundational to successful innovation:

1.      Understand the need

2.      Generate ideas

3.      Formulate value proposition hypotheses

4.      Validate rigorously with stakeholders

But even when all of that is done well, technically successful innovations still frequently fail in the marketplace.

Why?

Because innovators often analyze the value being created while ignoring the value being destroyed.

That is where the concept of the Value Displacement Proposition™ becomes useful.

The Value Displacement Proposition™ focuses on the stakeholders, systems, processes, business models, and emotional commitments that are negatively impacted by an innovation. In many cases entire industries exist to accommodate inefficiencies, frictions, or legacy constraints. Solving the underlying problems may create enormous societal value while simultaneously threatening established economic structures.

Healthcare provides a useful example. Large portions of the healthcare ecosystem are built around the complexity of billing, reimbursement, claims management, compliance, and administrative coordination. A dramatically simplified healthcare transaction system might create enormous value for patients and providers while simultaneously threatening revenue streams, organizational structures, and employment across multiple sectors tied to the current system.

The same dynamic appears repeatedly across industries. We will examine these in more detail in subsequent articles.

Importantly, the value threatened by the innovation is not limited to financial considerations.

The impacts may be financial, but may also be:

·        Structural

·        Organizational

·        Political

·        Social

·        Emotional

People and organizations become highly optimized around the existing system. Careers, expertise, identities, incentives, and status structures develop around the status quo. Even when that status quo is objectively suboptimal, stakeholders often work to preserve it because it represents a local maximum for them personally or organizationally.

This is one reason innovators are often surprised by the intensity of resistance they encounter. They believe they are introducing a superior solution and assume that superiority alone will drive adoption.

Markets rarely work that cleanly.

Using the Value Displacement Proposition™ requires innovators to identify which stakeholders may be negatively impacted, estimate the magnitude of the disruption, and validate those assumptions through direct engagement.

Several questions become important:

·        Who loses economically if this innovation succeeds?

·        Which processes disappear?

·        Which organizations become less relevant?

·        Which business models are threatened?

·        Which skills become commoditized or even superfluous?

·        Which power structures are weakened?

·        Which identities are challenged?

The answers to these questions often reveal hidden barriers to adoption.

For example, innovations that simplify processes can encounter resistance from organizations whose value derives from managing complexity. Innovations that improve transparency may threaten intermediaries whose advantage depends on information asymmetry. Automation technologies may encounter resistance not because they fail technically, but because they destabilize organizational structures and workforce assumptions.

This does not mean innovators should avoid disruptive innovation. Quite the opposite. But they should understand the resistance landscape with the same rigor used to understand customer benefits.

At that point the innovator possesses two tested hypotheses:

1.      The value proposition — the value created.

2.      The Value Displacement Proposition™ — the value displaced or destroyed.

The strategic question then becomes straightforward: Does the value creation sufficiently exceed the value destruction?

Importantly, breakeven is not enough.

The new value must exceed the destroyed value by enough to overcome switching costs, organizational inertia, political resistance, emotional attachment, implementation friction, and active opposition from threatened stakeholders.

This helps explain why clearly superior technologies sometimes fail while inferior technologies occasionally succeed. Adoption is not determined solely by technical merit. It is determined by the interaction between value creation and value destruction across an entire ecosystem.

The Value Displacement Proposition™ may prevent adoption entirely; or it may instead slow adoption enough that substantial societal, organizational, or economic value is lost during the transition period. In industries such as healthcare, energy, transportation, and manufacturing, implementation delays can themselves become one of the largest hidden costs associated with innovation resistance.

The Value Displacement Proposition™ is therefore another important tool for de-risking innovation. It does not predict success perfectly. No framework can. But it helps innovators understand why resistance emerges, where it is likely to come from, and how significant it may become.