8 April, 2018
Effectiveness and efficiency are so intertwined it can sometimes be tricky figuring out which you’re trying to improve. So in addition to our previous post on time management let’s take a closer look at the 80/20 Principle, aka the Pareto Principle.
Back in the 19th Century a italian economist and sociologist Vilfredo Pareto noticed the 80/20 principle in action in his home country of Italy, observing that only 20% of the adult population owned 80% of the land in his country. Today we can see that same divide in action today but skewed even more dramatically. In 2013 Credit-Suisse estimated that approximately half of the world’s wealth belonged to the top 1% of the world’s population.
As he was both a sociologist and economist, he noticed that this kind of portioning didn’t just apply to societal settings but it also showed up in business settings. And this is where it gets interesting for us, he noticed that on average 80% of product was produced by 20% of inputs. In his case he even noticed this in his garden, where 20% of his garden peapods produced 80% of his pea yield.
Take for a moment your business, if you analyse carefully where your revenue is coming from, is there a particular set or type of clients that are producing the majority of your revenue. And is there a minority of clients who are taking up the large proportion of your time, effort or resources. Would you consider letting them go, to regain 80% of your resources or personal energy?
What 20% of your clients produce 80% of your revenue? Would your business and life in general be better if you only served that 20% and stopped serving the remaining 80% of customers?
Now it’s easy to remember ‘80/20’ but think of this as a representation of a changeable distribution. Sometimes 70% of your revenue might come from 30% of your clients (or some other distribution) but what’s important to remember is that you may be putting the larger portion of your effort into an area that is only producing the smaller portion of your output.
So what outcome do you want? If you want or need 100% of the required output at all times then there is a need to put in 100% of required effort to get there. But what if you only needed 80% of the outcome, and the remaining 20% was just ‘nice to have’ or perhaps not even necessary at all on closer inspection? You could then design your actions and inputs based on only needing to reach 80% of your original goal and the upside is, you would only need to use 20% of the effort and resources that would have been required for your original goal or outcome.
A great example would be the difference between getting a London business address by buying a building or taking on a long lease, or getting that address by making use of our virtual office services to get a prestigious London business address but at a fraction of the cost. You could spend £100,000’s a year or you could spend less than the cost of your monthly beer tab!
Of course sometimes there’s no way round. Your outcome is your outcome and you need 100% of the outcome and therefore need to use 100% of the necessary effort/input. But this isn’t about producing ‘incomplete’ work or not finishing off jobs. So let’s look at this with another example for a moment.
Let’s imagine you’re a freelance web designer for a moment and a client asks you to build them an ecommerce website. Now after detailed conversation you scope out the project and come up with a plan to code a bespoke ecommerce site for your client. 100’s of hours later you have a site that’s ready. But what if there was something already in existence that meant you could remove the need to build the ecommerce platform yourself? Instead of hard coding you could use something like Spotify or Magento (to name a couple of ecommerce platforms) that would remove the need to spend 100’s of hours of work and instead you could spend the time on building the front end of the website and creating great UX, integrating Spotify with much less effort. With platforms like Spotify you might even reach 100% of the client’s needs whilst having reduced your necessary effort by as much as 90-95%. Not only this but you’ll be able to produce the finished product for the client at a much quicker rate!
So head back to your business now ready to consider there are a number of things you are doing that don’t need to be done. And one way to figure out what those things are is to look for areas of activity that are producing the lowest levels of output or product.
Let us know how you get on. Have you managed to regain valuable time and effort to focus it better elsewhere?