I want to share with you two powerful strategic planning, decision-making and performance-improvement rules. They’re so powerful that when used effectively they will revolutionize your work and personal life.
The rules are the 80/20/80 rule and the 20/80/20 rule. I will shortly elaborate on them for you but before doing so I want to explain the principle underlying them both. That underlying principle is Pareto’s 80/20 principle, which you’re probably already familiar with.
To refresh your memory, Pareto’s 80/20 Principle is so named after its discoverer, Vilfredo Pareto, an Italian economist (1848-1923). Here’s how it came about.
When studying patterns of wealth in 19th century England Pareto discovered that most of the wealth was held by a small minority of the people. In other words, the distribution of wealth was unevenly unbalanced.
Thinking he may be onto something, Pareto then expanded his study to include other countries and time periods. And guess what? He found exactly the same pattern – an uneven distribution of wealth with the majority of the wealth being held by a small minority of the people.
Several decades after Pareto’s discoveries, several other 80/20 pioneers, most notably Harvard Professor, George Zipf, and quality guru, Joseph Juran, validated his concepts with studies of their own.
These pioneering studies in 80/20 were a breakthrough in thinking because they led to a greater understanding that a small minority of inputs (20%) – be they people, tasks or events – will contribute the majority of the output or results (80%).
And on the flipside Pareto’s principle also helps us to understand that a large majority of inputs (80%) will contribute the minority of the output or results (20%).
An important point to keep in mind that is the ratio may not always be 80/20. It may be 75/25 or 90/10 or 60/40. The key point to understand is the nature of uneven distribution. Here are some examples to whet your appetite.
When applying 80/20 analysis to one client’s business we found that:
- The top 25% of its customers generated 75% of revenue
- The bottom 30% its customers generated only 5% of revenue
- The top 10% of its products generated 80% of its revenue
For another client, who hired me to help them improve their performance management program, 80/20 analysis revealed that from a performance perspective:
- 10% of employees were causing 90% of the headaches
- 20% of employees were contributing 80% of the productivity
And last year, for one of the sports teams I coach I found that:
- 80% of the team’s scores were coming from 20% of the tactics.
Having information like this at your disposal can be like finding the Holy Grail. The reason? It gets to the heart of what drives performance, which then allows you to develop the right strategies and tactics you need to improve the situation. And to do that you apply the two rules.
The 80/20/80 Rule. Place 80% of your focus on the 20% of activities or inputs that produce 80% of your results. Devote most of your time, energy and resources to the “vital few” activities and inputs that will give you the biggest payoff.
The 20/80/20 Rule. Place 20% of your focus on the 80% of activities or inputs that produce 20% of your results. Develop less time, energy and resources to the “trivial many” activities and inputs that give a poor payoff.
If you haven’t already done so, there’s a book I recommend you read. It’s called The 80/20 Principle and the author is Richard Koch. (Published by Nicholas Brearley). In my view Koch’s book gives a fantastic insight into 80/20.