Here is a theory that I have. It’s not based on research but rather on 25 years of personal observation across many businesses. It is that the average person spends approximately 20-30% of their work time engaged in non-productive activities. This equates to around 1-2 days every week and includes dealing with personal matters and other activities that don’t contribute value to an organisation. In a typical eight-hour day this means that 5-6 hours are productive and 2-3 aren’t. Mostly it’s not their fault – they’re just doing what they’ve always done.
But what if you could reduce this non-productive time to 10%, or 1 hour per day? Would this have a significant impact on your organisation? Understanding the power of the 80/20 rule can help to unlock this time.
The 80/20 rule, also known as Pareto’s Principle, means that in anything a few (20%) are critical and many (80%) are not. The actual percentages are not really that important – they could be 90/10 or 50/50. What is important to understand is that a few things will have a much greater impact than many others.
In the business world this could mean that 20% of any time and effort expended will produce 80% of a company’s results. Conversely, 80% of company time produces only 20% of the results achieved. These are sobering numbers. Imagine what would happen if you focussed on removing as much of the “bad” 80% as possible. The extra time created to pursue the 20% that does matter would be significant.
Here are some examples of the 80/20 rule:
- Sales Staff – 80% of your sales will come from 20% of your sales staff; conversely 80% of your sales staff will produce only 20% of your sales
- Staff Problems – 20% of your staff will cause 80% of your staff problems; conversely 80% of your staff will produce only 20% of your staff problems
- Top Customers – 80% of your sales will come from your top 20% of customers
- Sales Pipeline – 80% of your future new incremental sales will come from 20% of your sales pipeline
- Distribution Channels – 80% of your sales will come from 20% of your distribution channels
Time management is a key part of applying the 80/20 rule effectively. At the top level, management should determine the small number of matters that will have the greatest performance impact. This is the hard part. If you can’t identify what they are, you won’t be able to focus on them and you won’t be able to discard or delegate the less important matters.
This reminds me of a company that I coached a few years ago. It had a solid ten year history wholesaling products to a growing sector and was well respected with a good market position. Eighteen months prior to my involvement they decided to diversify their offering and grow their business by acquisition. They acquired a business that operated in an entirely different industry and once the transaction was completed they quickly merged the businesses together.
It was a disaster from day one. The acquired business had rudimentary systems and processes and a poor culture. It was heavily people-reliant and the immediate loss of several key staff nearly forced its closure. Senior management spent many months trying to mesh the two businesses together but the differences made it impossible. The company started to bleed cash and nearly went under.
It was at this point that I entered the picture. What was immediately apparent to me was that the acquisition was a poor one. It didn’t fit the company’s profile or its future plans. The management team had diverted more than 60% of their time to manage this business despite it representing less than 10% of sales and none of their profits. Even with a successful turnaround plan the business would only ever be small in the scheme of things. Worst still, the core business, which had always been profitable, was now losing money and needed a capital injection to survive.
Left with no other viable option, I recommended that the acquired business either be closed down immediately or sold quickly. Eighteen months before this business had been acquired for $2.5m; now it was close to worthless and had no prospects for recovery. Worst still it was forcing the overall company to the edge. This was a bitter (and expensive) pill for the company directors to swallow but they agreed and the business was sold for a nominal amount. Following the sale the company refocused on what it was good at – wholesaling – and bit by bit rebuilt the business. Four years later it is in good shape and growing steadily.
The 80/20 rule is a useful daily reminder to focus most of your time on the small number of matters that will create the most value. It is not a rigid rule but more of a guiding principle to keep you focused and on track. At the end of the day the key is not just to work smart but to work on the right things…