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80/20 Principle
and
Your Business
The key theme of the 80/20
Principle applied to
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business is how to create the greatest
stakeholder value and generate
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most money with the least expenditure
of assets and efforts. Any individual business can gain immensely
through practical application of this Principle.
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Business Success:
Yin-Yang Strategies
The most important use
of the 80/20 Principle is "to isolate where you are really
making the
profits and, just as important, where you are loosing money. Every
business person thinks they know this already, and nearly all are wrong.
If they had the right picture, their whole business would be
transformed".
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The game is to spot the few
places in your
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business model where you are making great surpluses – be that a product, a
market, a customer type, a technology, a distribution channel, a
department, a country, a type of transaction, an employee, or a
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team –
and to maximize them; and to identify the places where you are loosing
and get out.
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80/20 Principle of Higher Profits
80/20 Principle for Customer Success |
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1 |
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
great business. |
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2 |
Quality |
A small percentage of
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quality characteristics contributes a highest percentage of
the quality loss. If you remedy the most critical 20% of your
quality gaps, you will realize 80% of benefits. 80% of
customer
complaints can be eliminated by correcting only 20% of the
causes...
More |
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3 |
Cost Reduction |
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"All effective techniques to reduce cost use three 80/20
insights:
simplification, through elimination of
unprofitable activity;
focus, on a few key drivers of
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improvement; and
comparison of performance."
Cost
reduction is an expensive business – concentrate 80% of your
effort at the areas (20% of the
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whole business) that have the
greatest cost-reduction potential.
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4 |
Marketing |
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Marketing should focus on providing a stunning service in
20% of the existing products/services that generate 80% of fully
costed
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profits. It should devote extraordinary endeavor towards
retaining 20% of
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customers
who provide 80% of the
firm's
profits. |
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5 |
Selling |
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"The key to superior
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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
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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.
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6 |
IT |
The return on investment usually follows the 80/20 rule: 80% of
the
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benefits will be found in the simplest 20% of
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the system.
Most software spends 80% of its time executing only 20% of the
available instructions. |
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7 |
Decision Taking
&
Analysis |
To make
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smart & fast decisions,
gather 80% of the data and perform 80% of the relevant analyses
in the first 20% of time available.
Make
quick cost-benefit analysis of new ideas.
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8 |
Inventory |
Around 80% of stock only accounts for 20% of volume or
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revenues.
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9 |
Project |
80% of the
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value
of any
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project will come from
20% of its activities
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10 |
Negotiation |
In
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negotiations,20% or fewer of the points at issue will comprise over 80% of
the
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value of the disputed territory; 80% of the concessions will
occur in the last 20% of time available. |
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