The Value Displacement Proposition™ Part 2:Who Has the Most to Lose?

In “Introducing the Value Displacement Proposition™,” I argued that innovations create winners and losers within an existing ecosystem and that ignoring the losers can lead to failure even when the value proposition appears compelling. The value displaced by an innovation has real consequences for real people.

Understanding and addressing value displacement is important because it is frequently the source of the strongest resistance to innovation. Customers may be uncertain, competitors skeptical, and technical challenges unresolved, but often the most determined opponents are stakeholders who fully understand the value proposition and recognize exactly what they stand to lose if the innovation succeeds.

The greater the value displacement, the more likely these stakeholders are to organize, influence, delay, and resist adoption.

Understanding who loses—and how much they lose—is therefore just as important as understanding who benefits.

Value Displacement Is Not the Same as Implementation Cost

It is important to distinguish value displacement from ordinary implementation challenges.

Every innovation imposes transition costs. A manufacturer installing a new production line incurs capital costs. Employees require training. Processes must be updated. Systems must be integrated. These are implementation costs.

Value displacement is different. It occurs when successful adoption reduces the value associated with a stakeholder’s existing assets, expertise, business model, authority, status, or economic position.

The question, “What will adoption cost?” remains important, but it is part of the net value proposition and ultimately part of the ROI calculation.

The key Value Displacement Proposition™ question is different: “Who becomes worse off if this innovation succeeds?”

This is fundamentally a question about people, their livelihoods, and their sense of place in the world. Stakeholders with something to lose are likeluy become active sources of resistance.

The economic incentives are not neutral. Many stakeholders have legitimate reasons to preserve the status quo, even when doing so sub-optimizes the broader system. When an innovation threatens an existing source of value, opposition should be expected.

Innovators who fail to prepare for this dynamic are often surprised by the persistence and intensity of the resistance they encounter.

Examples

Heat Treating

In the heat-treating industry, technologies and processing methods have been developed that substantially improve durability, fatigue resistance, wear resistance, and service life. The value proposition is straightforward: parts last longer, maintenance costs decline, equipment uptime improves, and replacement rates decrease.

But, these same improvements may reduce demand for higher-alloy materials, replacement components, repair services, and other products that benefit from shorter component life. Stakeholders whose products or services become less necessary have incentives to resist adoption. Those stakeholders may be external, such as alloy suppliers, or internal, such as maintenance organizations whose role becomes less critical.

Resistance is not always explicit. Instead, it may emerge through standards committees, technical working groups, qualification requirements, procurement specifications, industry publications, or customer “education” efforts.

Artificial Intelligence

Artificial intelligence is perhaps the most visible contemporary example of value displacement.

Public discussion focuses on the value being created:

·        Increased productivity

·        Faster analysis

·        Improved customer support

·        Accelerated software development

·        Enhanced decision making

These benefits are real. At the same time, AI threatens enormous amounts of existing value.

Content creators may find portions of their work automated. Consulting firms may see analytical tasks commoditized. Customer service organizations may require fewer employees. Certain forms of programming may become dramatically more efficient, a particularly significant issue given the recent emphasis on coding as a reliable path to career success.

AI is also creating value displacement at the community level. The rapid growth of data centers can increase electricity demand, strain water resources, and reduce nearby property values.

Societal impacts are real and may be irreversible. Will AI adoption destroy the ability for students, and then adults, to write unaided?  

Not surprisingly, reactions vary by stakeholder. Organizations positioned to benefit emphasize the value proposition. Organizations, individuals, and communities positioned to lose value emphasize risks, limitations, governance concerns, and implementation challenges.

This is precisely what the Value Displacement Proposition™ predicts.

Healthcare Administration

Large portions of the healthcare ecosystem exist to manage complexity. Billing systems, reimbursement organizations, claims processors, coding specialists, compliance professionals, administrative service providers, and software platforms all derive value from navigating that complexity.

Imagine an innovation that substantially simplified healthcare transactions. A nationalized healthcare system, while controversial, could represent such a change. Patients might benefit. Providers might benefit. Costs could decline and efficiency improve.

At the same time, large portions of the administrative ecosystem would likely see reduced demand for their services. Jobs would disappear. Established career paths could become less valuable. Entire organizations might become irrelevant.

Some of the displaced value would come directly from the profits and revenues of influential stakeholders. Some would come from the salaries, expertise, and professional identities of individuals.

Regardless of the source, the displaced value creates a powerful incentive to resist change.

The Internal Innovation Challenge

Value displacement is not limited to external stakeholders. It frequently appears inside organizations.

Imagine an innovation that automates a reporting process currently requiring ten employees. The value proposition appears attractive: lower cost, faster reporting, and improved accuracy.

The ten employees may view the innovation differently. Managers responsible for those employees may also perceive risk. Reduced headcount can mean reduced budget, influence, and organizational importance.

As a result, the innovation may encounter resistance from the very people responsible for implementing it.

This phenomenon is extraordinarily common.

Innovation leaders often assume resistance stems from a failure to understand the benefits. They respond with increasingly assertive communication campaigns designed to “sell” the change.

In reality, stakeholders may understand the value proposition perfectly well. They simply recognize that much of the value will accrue to others.