Most managers and many students know about the 80-20 rule, but how many use it effectively? Here’s what it means: 80% of output comes from 20% of input. As a strategic decision making tool, the 80-20 rule can help you decide what’s important and how you should spend your time for the best return.
Most people are driven by what is urgent without stopping to think whether it’s really as important as something else they could be doing. No doubt everything you do has some importance. It’s a question of relative worth, relative return on your investment of time and effort.
The numbers 80 and 20 are not hard and fast, but they make concrete the point that a few of the things you do add much more value than everything else you do. Being strategic means identifying that small set of activities where you have the most to gain. Here are some practical uses of the 80-20 rule.
Ask yourself regularly what 20% of your activities add the most value? Ask your key customers what things you do add most value to what they are trying to achieve? You should then spend 80% of your time on those strategically most important matters. Wherever possible, use quantitative measures to determine which 20% of your inputs give you the most bang for your buck. It’s important to avoid making a subjective decision on what is most important. You don’t have to ignore the other 80% of your responsibilities, just allocate no more than 20% of your time to lower value items. Delegate them, train someone else to do them or leave them for later.
Which customers give you most of your business? How can you leverage those relationships to even greater mutual advantage? Which 20% of products have the highest actual or potential profit margin? Which markets have the most potential or currently provide you with your highest return? The key is to allocate 80% of your time and attention to those few areas where you have the most to gain. Business developers who spread themselves equally over every customer are not being strategic and will not get the best return on their investment of time.
Cost Reduction and Efficiency
While we naturally want to cut all costs that are not adding value, the 80-20 rule tells us that 80% of our excess costs come from 20% of our cost items. That might be salaries, inefficient processes or obsolete equipment, for example. When cutting staff, which 20% add the least value? Which 20% account for 80% of your salary costs. Of those most expensive employees, which 20% add the least value. Again, it is not a matter of ignoring other cost items. It’s a question of deciding what to attend to first.
Playing to Your Strengths
What are the 20% of things you do best? Think of what you find easiest to do and most enjoy doing at work. How can you leverage these strengths to add even more value for the business and your career advancement? Can you devote 80% of your time to using your top 20% of strengths?
Taking time to determine which 20% of your items are the most important is an investment but one that can pay off if you start placing more emphasis where you can get the best return.