The Pareto principle (also known as the 80–20 rule) states that, for many events, roughly 80% of the effects come from 20% of the causes.
In case of a business, it implies that 20% of efforts are responsible for delivering 80% of results. The top 20% of customers represent 80% of sales.
If 20% of your effort, time and customers are responsible for 80% of your entire business, then why not identify those 20% activities that bring 80% results and do more of them. Doing this will help your business stand apart.
80/20 Rule and Business Agility
In today’s volatile business environment, when every business seems to be fighting for their survival, don’t you think focusing more on that 20% can help you become more agile, more flexible? Wondering how 80/20 principle contributes to business agility? How can it help you become more responsive? Let’s explore.
Before we extract a relationship between 80/20 rule and agility, let’s first recap what agility means. Business agility means responding to or driving a change with absolute willingness within the time limits. This means speed, time, willingness and mindset form the important elements of business agility.
80/20 rule, on the other hand, suggests we focus on 20% that matters. When applied carefully and rightly, the 80/20 rule, helps people manage time, focus on critical things, identify actions that bring more of the desired outcomes and focus on issues that need to be immediately resolved.
Following 80/20 rule can help you transform the way you have been working. It can help you,
- Become more alert and responsive to circumstances
- Stay focused on what brings more results
- Outsource work that eats up more time but brings less results
- Reduce time to market
- Simplify complex processes
- Reduce the risk of getting stuck with irrelevant or less relevant work
Now that you understand the relationship between 80/20 rule and business agility, the question arises how it can be applied to acquire or move towards agility?
Here are few steps showing how you can apply this principle to achieve your agility goals:
Identify which 20% of your work results in 80% of outcomes
The 80/20 rule is definitely useful to your business, but only when you know when and where to apply it. What you can do is figure out your most important business activities that are responsible for 80% of the outcomes. If you think all the activities are equally important, you are wrong. There is always a set of activities that generate more results and others that you can outsource. This could be your starting step for applying 80/20 rule in moving towards agility.
Don’t be tempted to do everything on your own
Sure, you’re jack of all trades and you know how to do most of the things that are required for daily functioning of your business. But you need to let go of this habit. If you focus on doing trivial jobs, chances are that you’ll miss out on activities that could generate more results or bring more sales. Rather than fixing an IT problem, if you spend time in hunting for customers and sending proposals to them,you can not only grow sales, but also recognize market trends and changing customer expectations. The idea is to let go of unimportant or less important work and focus on top 20%.
It’s funny how we want to do everything ourselves. Remember Pareto’s principle and stop feeling guilty about ignoring trivial stuff. Time is limited and to be agile, you need to act and respond quickly. Therefore, concentrate on top 20%.
Early issue detection
Once you identify your 20% that brings 80% results – issue detection becomes easy. Whenever an issue crops up, you can first check 20% activities because they are responsible for majority of results. In majority of the cases, you’ll find the issue. So 80/20 rule helps you to to quickly respond to a problem situation. This is key requirement for business agility.
Segment your customer list for more profits
By using 80/20 rule, you can find those who purchase frequently and give you big orders and are responsible for more revenue. Then there are those who recently started doing business with you and have potential for bigger orders. Also, there will be those who bring in very less revenue but eat up most of your time. When you identify these low RoI customers you can intentionally spend less time and energy with them. Freeing up time this way, can be used to nurture relationship and increase value to big customers as well as fashion new offers that meet the changing needs of those clients.
Introducing these simple steps can really help you figure out the most important business activities. You will be able to focus on what’s more important, manage your time, direct efforts towards customers who spend big and steer clear of less relevant things.
Remember agility is about working smarter and doing the right things at the right time within the time limits. By following Pareto’s 80/20 principle, you’ll be able to dedicate your time, energy and money on what really matters. When you cut on trivial things, you achieve simplicity in your business processes which adds to your nimbleness, adaptability and flexibility.
Here is to a more agile business for you.