Constantly driven by what is urgent, people don't take time to think about what is most important. The 80-20 rule helps you get more bang for your buck.
Most managers 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.
Time Management
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.
Business Development
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.
Performance Management
Again, you don't want to let any poor performers carry on missing their targets for long. But, you have the most to gain if you spend 80% of your time tackling the 20% of employees whose performance is causing the most problems. What you do about those employees is another matter, but their performance deserves the most immediate attention. If these employees can be developed or better motivated, you will gain more by turning them around than you will by spreading your efforts equally over all your poor performers.
Talent Management
The notion of organizational talent generally refers to that subset of employees that have the most to offer the business. This can mean those employees who are most promotable. But you could also regard talent as those employees who are most important, those who are hardest to replace and those who add the most value, regardless of what they do. Your most innovative employees or best sales people might fall into this category. Regardless of how you define talent, the key is to invest 80% of your time and money in your top 20%, nurturing them, developing them and ensuring they achieve the job satisfaction they need to remain interested.
Process Improvement
Perhaps all your processes could use some enhancement. The 80-20 rule here says that there will be 20% of your processes that are causing 80% of your process problems. This means that some processes can wait for attention while you invest most of your time addressing the most problematic 20%. Clearly, your most problematic process could be inconsequential so you also need to categorize your processes in terms of importance. You want to focus on those 20% of processes that are both most important and most problematic. You could also add most costly or most urgent 20% as well. Many such criteria can be added to the equation, but the 80-20 rule still applies, forcing you to focus 80% of your attention on the top 20%.
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.
