The 8020Info Water Cooler

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The 8020Info Water Cooler
Issue #80 - Vol. 5 No. 17
12 December, 2005

1. Spot 80/20 Operating in Your Organization

The 80/20 principle dates back to 1897 when Italian economist Vilfredo Pareto was studying wealth and income in Britain and found that 20 per cent of the people owned 80 per cent of the wealth, a pattern of concentration he later discovered in many other fields. When quality pioneer Joseph Juran applied that to business -- calling it "The Pareto Principle" or "The Law of The Vital Few" -- he found, for example, that only 20 per cent of repair parts normally account for 80 per cent of inventory.

IBM embraced the notion in the 1960s when it discovered that about 80 per cent of a computer's time is spent executing about 20 per cent of the operating code. By rewriting operating software to make the most-used 20 per cent more accessible and user friendly, IBM's computers became more efficient and faster than those of competitors.

Look around your office, and you'll see the 80/20 Rule in operation. Although the ratio may not be exactly 80 to 20, the skew can be significant and worth considering in decision-making. On his web site, consultant Alan Zell suggests the following:

Meetings: 80 per cent of the most important information/discussions will happen in 20 per cent of the meeting time.

Sales and Productivity: 80 per cent of revenues will come in 20 per cent of the time you are open for business; 80 per cent of revenues come from 20 per cent of the sales staff.

Major Clients: 80 per cent of revenue will come from 20 per cent of your customers.

Customer Base: 80 per cent of clients will come from 20 per cent of the area the organization reaches.

Complaints: 80 per cent of the complaints come from 20 per cent of the customers.

Inventory: 80 per cent of your business will come from 20 per cent of your products or services.

Advertising: 80 per cent of the business from advertising will come from 20 per cent of the advertising.

Employees: 80 per cent of the work will be done by 20 per cent of the employees.

Supplies/Suppliers: 80 per cent of your supplies will come from 20 per cent of your vendors.

Return: Above all, 80 per cent of your return comes from 20 per cent of your transactions or 20 per cent of the customers.

By concentrating on the areas that are most productive for your operation, and/or weeding out the least productive, you can use the 80/20 rule to boost your business.

2. Apply 80/20 To Your Time Management Top

Overwhelmed by your to-do list? Try looking at it through an 80/20 lens. "Of all the items on an average daily to-do list, there are 20 per cent that are critical. This 20 per cent produces 80 per cent of the results," consultant Lisa Haneberg writes in High Impact Middle Management. The key is to remove yourself from the fire drills of the day, and focus as intently as possible on that critical 20 per cent. Above all, if something has to be cut from what you tackle today, make sure that it's not from that vital segment.

More broadly, Pamela Vaccaro writes in Family Practice Management, ask yourself what you want to accomplish in life and what 20 per cent of your work you should be focusing on to accomplish your life goals. Remember, as well, that 20 per cent of the people around you give 80 per cent of the support and satisfaction you need; make sure you give those true advocates adequate time.

She says you'll know if you're operating in the 20 per cent zone if:

You're engaged in activities that advance your overall purpose in life.

You're doing things that you have always wanted to do or that make you feel good about yourself.

You're working on tasks you don't like, but you realize they contribute to the overall picture.

You're hiring people to do the tasks you are not good at or don't like doing.

You're smiling.

3. 80/20 Thinking Clears Up Loyalty Myths    Top

Loyalty advocates have been pushing organizations to improve their retention efforts, saying we should try to avoid losing any customers because of their value over many years. They argue your goal is to make every customer attitudinally and behaviourally loyal to your enterprise.

But in Loyalty Myths, Timothy Keiningham, Terry G. Vavra, Lerzan Aksoy, and Henri Wallard employ the 80/20 Rule to challenge that thinking. Since in most companies 20 per cent of customers are responsible for the vast proportion of revenue and net income, you need to question how much extra effort to put into the remaining customers. They argue "as dire as Pareto's prescription is, the everyday reality is probably more dire. It's likely (especially in services) that 60 per cent of a business's customers could actually be … costing the business money!"

Their message: Manage first for customer selectivity -- finding out who your best clients are -- before you manage for customer loyalty. Identify your costly customers and, unless they can be made profitable, let them go.

4. Applying 80/20 to Negotiations    Top

Up to 20 per cent of the points at issue in any negotiation will comprise more than 80 per cent of the value of the disputed territory, Richard Koch observes in The 80/20 Principle. "You may think this will be obvious to both sides," he says, but people like to gain points, even completely unimportant ones. "Similarly, they respond to concessions, even trivial ones."

He suggests a key tactic, therefore, is to build up a long list of minor concerns and requirements early in the negotiation, making them appear as important to your position as possible. Then near the end you can concede them in return for more than a fair share of the points you view as being of truly major significance.

5. Zingers    Top

Gallup research has found that only 20 per cent of people report that they are in a role where they have a chance every day to do what they do best. The rest of the working world -- 80 per cent -- feels like their strengths are not being called upon every day.
(Source: The One Thing You Need To Know)

People in public service or business keep only 20 percent of their information in formal databases, according to technology research firm 451 Group. The rest is unstructured, tucked away in e-mail messages, call logs, and memos.
(Source: The New York Times)

Poynter Institute writer Chip Scanlon notes that as long as 80 per cent of your job's duties are acceptable, you should be able to tolerate the 20 per cent that aren't. Next time you find yourself grousing, break down the things about your job that you love and hate to see what your ratio is.
(Source: www.poynter.org)

Don't spend an inordinate amount of time on your worst performers -- the ones who, if you did an honest ranking, would be rated B or C employees. Spend 80 per cent of your time on your A performers, turning them into A+ players.
(Source: ProActive Sales Management)

International businesses, like most businesses, follow the 80/20 Rule: 80 per cent of all their business activity is the same or very similar regardless of where it is done; the remaining 20 per cent of what must be done in foreign markets is very different. Companies that deal properly with the 20 per cent difference will be the winners, according to consultants Graeme Deans, Fritz Kroeger, and Stefan Zeisel.
(Source: Winning The Merger Endgame)

6. Q & A with 8020Info    Top

Does the 80/20 Rule always apply?

8020Info Consultant Harvey Schachter replies:

While the 80/20 Rule offers a valuable idea -- to focus on what matters most -- it's not a law of nature, like gravity or the earth revolving around the sun. And it's not always the best technique to use in any given situation. Other managerial tools can sometimes be more effective.

Personally, I'm careful about using this rule when identifying desirable clients, since it can lead to writing off customers who may not happen to be your strongest today but someday might be. Many other consultants suggest tallying up the profitability of your current clients, finding out if they conform to an 80/20 skew, and then "firing" the ones who are currently unprofitable so you can concentrate on the profitable ones. The idea is that profitable clients have the potential to be even more profitable, with closer attention.

It's a seductive pitch, but in my personal experience it's not always the perfect rule. A client's status can change dramatically, if you give him or her time to grow. That's why financial advisors seek graduating physicians as clients -- they may not be great investors today, but will be in future. Another example involves selling to a business: The person you are dealing with may move to some other company that has a greater need for your services and greater ability to pay.

It's also a one-dimensional view of the 80/20 Rule to just look at profitability. Some customers are more fun to work with than others, and help keep you sane. Others are connectors, spreading the word to other prospects, even if they may not buy a lot themselves. If you're doing an 80/20 tally, criteria other than profitability or revenue may be just as important.

There are also some things in life that you simply have to do, even if they don't fit the 80/20 formula. When you have to tackle one of those activities, forget the rule and just do it.

That being said, you can be a lot more effective by being aware of the many 80/20 opportunities around you -- and that's what they are: opportunities.

7. News From Our Water Cooler:     Top

We help managers, leaders and entrepreneurs find their way through the key barriers to success in marketing communications, research and management strategy. Not all problems are equal: 80 per cent of your success comes from 20 per cent of your effort. This year has been an extremely active period for 8020Info, as we offered counsel on the best ideas and practices, translating theory into action to address your key issues. We welcome your enquiries whenever 8020Info might be of assistance.

8. Closing Thought    Top

"The ability to concentrate and to use your time well is everything."
-- Lee Iacocca