Achievement Management:

Efficiency Improvement

80/20 Principle

How To Achieve More With Less

 

Executive summary by Vadim Kotelnikov personal logo Vadim Kotelnikov.

Main source of information: The 80/20 Principle and 80/20 Revolution, Richard Koch

 

80/20 PRINCIPLE - How To Achieve More with Less

"If we did realize the difference between the vital few and the trivial many in all aspects of our lives, and if we did something about it, we could multiply anything that we valued."

~ Richard Koch

   

 

 

Two Ways to Use the 80/20 Principle

  1. 80/20 Analysis: precise; quantitative; requires investigation; provides facts

  2. 80/20 Thinking: fuzzy; qualitative; requires thought; provides insight

How To Get More from Less

Main Lessons

 

10 Golden Rules for Successful Carriers

  • Identify where 20% of efforts gives 80% of returns... More

Top 10 Business Uses of the 80/20 Principle

  • Strategy: Unless you have used the 80/20 Principle to look carefully at the different chunks of your business and to redirect your strategy, it is almost inevitable that you are doing too many things for too many people. The principle is of enormous value in identifying the next leaps forward for your business.

  • Marketing: Marketing should focus on providing a stunning service in 20% of the existing products/services that generate 80% of fully costed profits. It should devote extraordinary endeavor towards retaining 20% of customers  who provide 80% of the firm's profits.

  • Selling: "The key to superior sales performance is to stop thinking averages and start thinking 80/20". Hang on to the high-performing salespersons, get everyone to adopt the methods that have the highest input-output ratio. Focus every salesperson's effort on the 20% of products that generate 80% of sales, and on the 20% or customers who generate 80% of sales and 80% of profits... More

SMART EXECUTIVE (Ten3 Mini-course)

What is 80/20 Principle?

The 80/20 Principle asserts that there is an inbuilt imbalance between inputs and outputs, causes and consequences, and effort and result. It states that a minority of causes, inputs or effort usually lead to a majority of the result, outputs or rewards. A few things are important; most are not.

A good benchmark for this imbalance is provided by the 80/20 relationship: a typical pattern shows that 80% of outputs result from  20% of inputs; that 80% of consequences flow from 20% of causes; or that 80% of results come from 20% of effort. It reflects relationships in nature, which are an intricate mixture or order and disorder, or regularity and irregularity.

The 80/20 Principle involves a static breakdown of causes at any one time, as opposite to change over time. "The art of using the 80/20 Principle is to identify which way the grain of reality is currently running and exploit that as much as possible".

The 80/20 numbers are only a metaphor and a useful benchmark. The real relationship may be more or less unbalanced than 80/20. The 80/20 Principle asserts, however, that in most cases the relationship is very likely to be unbalanced and close to 80/20.

The 80/20 Principle is extremely versatile. "It can be profitably applied to any industry and any organization, any function within an organization and any individual job". It helps you identify all the forces beneath the surface, so that you can give maximum power to the most productive forces and stop the negative influences.

80/20 Thinking

80/20 Thinking, applied to your daily life, can help you change behavior and to concentrate on the most important 20%. Action resulting from 80/20 Thinking should lead you to achieve much more with much less. To engage in 80/20 Thinking, you must constantly ask yourself: what is the 20% that is leading to 80%? Never assume that you automatically know what the answer is, but take some time to think creatively about it. "For every ounce of insight generated quantitatively, there must be many pounds of insight arrived at intuitively and impressionistically."

2 Creativity Catalysts

Entrepreneurial Creativity: 4 Keys

Achieving Progress by Applying 80/20 Principle

80/20 Principle is inherently optimistic because it reveals a state of affairs that is seriously below what it should be and shows the direction towards a better state. To achieve progress and multiply your output, you must give power to the 20% of resources that really matter in terms of achievement, and get the remaining 80% up to a reasonable level. "Progress takes you to a new and much higher level. But, even at this level, there will still typically be an 80/20 distribution of outputs/inputs. So you can progress again to a much higher level."

Simple is Beautiful

To succeed in managing change and transforming your business by applying the 80/20 Theory of the Firm, you need to demonstrate that simple is beautiful and why. Unless you understand this, you will never be willing to give up underperforming 80% of your current business and overheads.

"The truth is that the unprofitable business is so unprofitable because it requires the overheads and because having so many chunks of business makes the organization  horrendously complicated". And complexity means decay. Internal complexity has huge hidden costs and depresses returns more effectively than anything else.

"A complex business can be made more simple and returns can soar. All it takes is understanding of the costs of complexity (or the value of simplicity) and courage to remove at least four-fifths of lethal managerial overhead".

80/20 Analysis

80/20 Analysis examines the relationships between two sets of comparable data and can be used to change the relationships it describes. One its use is to discover the key causes of the relationship, the 20% of inputs that lead to 80% of outputs, and put your resources behind the best-performing efforts. The second main use of 80/20 Analysis is to improve the effectiveness of the underperfroming 80% of inputs that contribute only 20% of the output.

80/20 Analysis should be applied carefully, in a systemic way, as opposite to linear thinking that may lead to misunderstanding of the 80/20 Principle and its potential abuses. "Don't be seduced into thinking that the variable that everyone else is looking at... is what really matters. This is linear thinking. The most valuable insight from 80/20 Analysis will always come from examining non-linear relationships that others are neglecting."

80/20 Principle and Innovation

Innovation is absolutely critical to future competitive advantage. With creative use of the 80/20 Principle innovation can be both easier and more effective if you consider the following ideas... More

Warning!

Don't apply 80/20 analysis and strategies in a linear way. "Like any simple and effective tool, 80/20 Analysis can be misunderstood, misapplied and, instead of being the means to an unusual insight, serve as the justification for conventional thuggery. 80/20 Analysis, applied inappropriately and in linear way, can also lead to the innocent astray you need constantly to be vigilant against false logic".