Does your organization/department think 20/80?

By Patrick Mayoh

I don’t know if like me you felt disappointed about the last World Economic Forum in Davos, Switzerland. I waited for the whole event to conclude, hoping I would have something really interesting to write about. The theme in itself “turning risk into possibility” was very evocative of Davos’ organizers’ willingness to map the way out from a fragile to a steady recovery. Instead the summit ended on a very strange note. Really what is the use of a week of discussions and debates if all in all what we learn and already know is:

· The recovery will continue to be fragile throughout the West, uncertain in Spain, Portugal and Italy and steady and gaining even more momentum in emerging markets (China, India Singapour, Malaysia, Indonesia.....)

· That unemployment continues to grow and needs to be reduced in the West

· That we cannot speak of a G20 anymore but rather of a G0 where individual countries cater to national economic interests to the detriment of regional or global ones

· Finally that the rising food/commodity inflation will only continue to affect many nations in emerging countries possibly resulting in mass riots across many countries

So I will write about something different and hope you guys find it useful because this is a principle that I particularly enjoy using when faced with a complex situation and I guess this is one of those principles that make problems easier to solve and to understand. So let us speak about the 20/80 principle.

What is 20/80?

According to Rasiel and Friga authors of “The MC Kinsey Mind” this is one of the “greatest truths of business”. 20/80 simply means that 80 percent of an event under study will usually be generated by 20 percent of the examples analyzed. The Italian economist Vilfredo Pareto is traditionally considered the father of this rule. While undertaking a study of the economy of his country he realized that 20 percent of the population possessed 80 percent of the land. Subsequently he observed that 80 percent of his peas just came from 20 percent of his plants. Following from those observations he concluded that “for any series of elements under study, a small fraction of the number of elements usually accounts for a large fraction of the effect”. The same applies to life. 80 percent of the clothes you wear just account for 20 cent the total clothes contained in your wardrobe; and 80 percent of the information you get from TV, Radio, Internet or the papers just come from 20 percent of available information.

Actually when analysing a problem or a situation you will always find some cases of 20/80 that explain why your sales are up, why your team is under performing, why you are underutilizing your resources or why you cannot increase your market share just to name a few instances.

Besides the 20/80 does not necessarily always mean 20/80, it could be 40/60 or something else, what it does mean is that a large proportion of an event can usually be attributed to a smaller proportion of the elements accounting for it (the event).

Benefits of the 20/80 approach

There are many possibilities you could think about when reflecting on the possibility of applying the 20/80 approach to your organization, department or unit. Here we will just look at a few cases and see how the 20/80 rule can be applied and used to drive and increase performance.

For Marketing

When it comes to marketing 20/80 might just mean that 20 percent of your customers account for 80 percent of your revenues. Losing those critical customers might mean a disaster for your business. The one-size-fits-all approach in this sense becomes meaningless as your marketing department should devote its most critical resources on the customers that matter. In fact Curry J. And Curry A. Came up with a marketing model that perfectly exemplifies the rule of 20/80; the Curry Pyramid is a marketing model that recommends segmenting customers according to their profitability to the business.

It is built around the premise that companies that can attract and retain their most profitable customers are likely to be the winners. Traditionally marketing is all about attracting specific clients but the Curry Pyramid actually emphasizes on attracting the most profitable ones not just the most relevant. Therefore, supposing your marketing department thinks about adopting a 20/80 approach, a good point to start will be to investigate where your profits come from and who are the generators of those profits. Say you are a business selling consumer electronics.

Although you have panoply of customers ranging from teenagers to mums at home, you need to find out which of those categories of customers bring more revenues to your store and allocate marketing resources accordingly. In a nutshell 80 percent of your marketing budget should be ideally devoted to 20% of your customers, not literally though as I said before, what it signifies is a marketing department cannot devote the same attention to all customers, actually some customers actually make you lose rather than win money!

How you use your resources

Also what you really need comes into question when you think of the 20/80 rules. Have you considered the possibility of saving cost when you really look into the resources that are actually needed say to manufacture a product or provide a service to customers? Is it possible that you don’t need certain resources in your company at all? Are there elements you could simply get rid of to achieve cost saving? Do you actually need more computers? Have you considered the possibility of cloud computing or cloud networking? When you begin to critically look around your organization, department or unit it is possible that you will begin to see the big picture and possibly spot a few occurrences of 20/80 that need to be addressed to increase profits.

Getting more out of your staff

When you think of the 20/80 principle you can also think about the possibility that maybe 80% of your work gets done by only 20% of your workforce. In which case the first question that comes to mind is “why?” and following from that what could be done to increase the productivity of the underperforming workforce. Maybe you do not need all the people that work for you currently and the opportunity to adjust and retain those that really matter to your organizations while motivating and encouraging those who could bring more to your business will usually present itself.

Dealing with the information overload

I was bemused by the title of one of MC KINSEY’s article “recovering from the information overload”. The article suggests that multi-tasking is actually counter-productive rather than beneficial to an individual. Actually according to a study conducted by Bawden and Robinson (2010) two-third of managers under study have admitted that information overload have actually lessened their job satisfaction while damaging their personal relationships. Another study conducted by Asplund et al (2010) have discovered that when we switch from tasks especially those of a particular complexity we take 30% longer to complete them and make as twice many mistakes. In a world overloaded with information, analyses and report, applying the 20/80 principle definitely make sense. Your organization does not need to have access to all possible information, they are too many out there, and instead you should decide what you think is really relevant to your Business rather than trying to know everything. Do you really need to have a look at that report or figures? How do they even relate to your department or organization? Will they help your business at all? Those are some of the questions needed in the 21 st century overloaded with all sorts of information. MC KINSEY review suggests the 3Fs:

· Focus on what is relevant

· Filter out what you do not need to know

· Forget what is totally irrelevant to your business

That is proper 20/80 actually.

References

Curry, J. And Curry, A. (2000) The Customer Marketing Method: How to implement and profit from customer relationship management, New York: Free Press.

David Bawden and Lyn Robinson, “The dark side of information: Overload, anxiety, and other paradoxes and pathologies,” Journal of Information Science, Volume 20, Number 10, pp. 1–12.

Christopher L. Asplund, Paul E. Dux, Jason Ivanoff, and René Marois, “Isolation of a central bottleneck of information processing with time-resolved fMRI,” Neuron, 2006, Volume 52, Number 6, pp. 1109–20.

Ethan M. Rasiel and Paul N. Friga (2002) The MC KINSEY MIND Mc Graw Hill