Pareto is your friend

Pareto was a wonderful guy.  He left us with that wonderful 80/20 rule that seems to apply to just about everything.  A few examples:

  • 20% of your customers provide 80% of your income.
  • 80% of your profit comes from 20% of your products.
  • 20% of your people add 80% of the value.
  • 80% of your reward comes from 20% of your effort.

Going back to that FMCG that I mentioned before:-  We kept hitting situations where the accountants were telling us that a task would take a long time.  For example it might take four hours.  What the accountant was communicating was that it would take four hours to get the task 100% complete.  However, the application of Pareto also meant that the task could be 80% complete in 48 minutes.  Our world, at that time, was both time-poor and information-poor.  We  needed to understand if the answer was 100 or 1,000 or 10,000.  Getting a full picture of the size and a close measure of the shape in under an hour would have been a great help in allocating resources and making decisions.  The detail could come later.

The application of Positive Laziness would have led to an initial analysis of the task to ascertain which 20% of the data should be processed first.  An initial report of the partial answer could then have been made in one hour.

Try this test:  Give an accountant a spreadsheet list.  For example, a list consisting of around a thousand invoices, detailing invoice number; customer; value; age and product etc.  Ask the accountant to verify the total value of invoices that have been paid and keep you updated as to progress.

The methodical approach is to start at the top and work down, one by one.

The smart approach is to sort the list by value and verify the top 20% that make up 80% of the value.  At this point an update would consist of the result of the analysis of the 80% plus an extrapolation of what the same pattern applied to the remaining invoices.

This doesn’t just apply to accountants.  It applies in all walks of life.  I recently witnessed a test whereby 24 managers were given 20 questions to answer in 4 minutes.  The vast majority of the group did not spot that question 19 instructed them to only answer questions 1, 2 and 3.  The examiner had made such a point of the existence of a time constraint that an instinct to work methodically through the list overrode any ability to take the helicopter viewpoint.

We are taught the value of hard work, perseverance and working late.  We are taught that effort is more important than the result.  That it isn’t the winning but the taking part.  Are these the right values?

Recently I had the great pleasure of meeting Gill Fielding.  Gill is a Secret Millionaire and a mentor with the EBA, run by Bev James and James Caan.  As part of our conversation Gill shared with me her ‘White Rooming’ idea.  To quote from one of her articles:

This is how it works:

– You imagine that your business is a blank, empty white room..

– You then review your business and only allow items into the room that really, really fit the business, and that you can wholly justify. So for instance you can do this with products or services, staff, processes and so on.

Many people make the mistake of trying to provide too many different products or service options – particularly in the beginning, and yet my experience is that a business truly focused on one, or a very small range of products well provided, is far more likely to succeed.

Gill and I share a belief that Pareto needs to be applied rigorously to all aspects of business in order provide focus, save waste and drive efficiency.  This is what is meant by work smarter not harder.

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