Be More Cautious in Approving Cost Reduction Tests

Most business people use the same level of skepticism about everything they consider. Some are always optimistic that things will work out. Some are always pessimistic. Most people are somewhere in the middle. When a problem selecting the right choice is difficult enough, you will probably find that being very skeptical is the right route. How can you learn to be skeptical if that is not your usual way of thinking?

Although legal concepts can often conjure up the unpleasant connotations of being sued, there is one idea that judges and lawyers use that will make you smile when you turn this principle to your advantage. This concept is one of shifting the burden of proof against the proposed test. Some would call it "being from Missouri" while others describe this as being a doubting Thomas.

The basic idea is simple. The proposed cost-reduction test does not get any benefit of assuming it will work. In fact, if some aspect of the test cannot be explained as to why it will certainly work, you assume that that element will actually fail in the test.

For example, we know that harmful cost-reducing business models can cause you to lose more organizational muscle than fat, just as harmful diets do. So, you should assume the proposed cost reduction tests will reduce the number of customers until proven otherwise. That way of thinking serves to shift the burden of proving that cost reductions are good ones onto the proponents of the test. Those who proposed the test can serve as its defenders.

What elements should you be thinking about this way? While no list can be complete enough to capture every potential area needing proof, here are some areas to consider as a starting point to help you. Please be sure to add your own ideas. In each case, the test proposal has to make the case that the new cost-reduction-based business model can overcome these assumptions:

• Profitable customers will be lost

• Unprofitable customers will be added

• Costs squeezed out in one area will reappear elsewhere in large amounts due to mistakes

• Top performing employees will be lost

• Weaker performing employees will be attracted

• Quality and performance of your offerings will drop

• Legal liability will be increased

• Cash flow will be harmed

• Regulators will investigate

• Partners will be lost

- Lenders will be conce
ed and alienated

• Stock price will drop for public companies

What you should assume is that every test proposal could well have flaws in one or more of these dimensions, or in other dimensions that you have added.

Keep track of what you learn. You'll be able to use it to improve your tests.