10 out of 10 when you focus on 80/20


Date: 7 September 2010

Pareto principleVilfredo Pareto has a lot to answer for. Nearly a century ago, this Italian economist instigated the now infamous ‘Pareto’s Principle’, or ’80/20 rule’ when he calculated that 80% of Italy's wealth was owned by 20% of its population. ‘Ooh,’ thought the Italians of the day, ‘that’s a rather neatly observed, if somewhat damning, statistic’. Since then, there’s been something remarkably elastic about the 80/20 rule. It can be applied in a surprising number of ways, each highlighting the apparent disparity between available resource and consumption. For example, I can confidently predict that 80% of the fresh coffee in the BHP London office will be consumed by just 20% of the workforce (I'm looking at you, Simon). Closer to home, I’m pretty sure that 80% of my neighbour’s late night phone conversations could be conveyed in just 20% of the time he actually takes. (Outlawing the phrases “you know”, “yeah” and “I was like” would be a start). Shine light on what matters 80/20 comes into its own when applied to business, where it can shine much needed light on the things that really matter. "80% of your sales come from 20% of your clients" is a frequently cited mantra, and its one which often rings true. Deploying campaigns that treat the 80% in a different way to the 20% can be an extremely effective way of marketing. 80/20 also has plenty of value in an IT context. By fixing the top 20% of its most reported bugs, Microsoft claims it can eliminate 80% of the errors and crashes in its software. Then there’s the suggestion that 80% of business software licensees use just 20% of the product's functionality. Think about that — if you’ve spent £100 on software, it could be argued that you're getting back only £20 on that investment. Your software and 80/20 What's more, focusing on this problem doesn’t have to be too onerous; all you do is look at what programs you have and what you're using them for — then match the results against the software’s published feature set. Might you be losing out on contracts because your proposals aren't based on one of Microsoft Office’s templates, for example? Could you cut back on consultancy costs by using more of Excel’s formulas and analysis functions? How does your CRM system produce that report — and could you make a custom version to wow your clients? The list goes on. It could be very healthy for you to assume that the 80/20 rule applies to your office software. After all, conducting a review of what you've got and how much of it you use can only help when you need to conduct further ROI analyses in the future. A pity, then, that the typical small business owner is probably spending 80% of their time juggling just 20% of the things that need doing — with an 80/20 software review buried in that 80%. Damn you, Pareto…

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