The 80/20 principle which made me a power worker, I did not know it before for quite a long time . The following was the way I ultimately came to know about it. Also read the article bellow of how it can be applied and make yourself stand out among the crowd with astounding productivity.
I was working hard in my business but was achieving very little results. I was getting overwhelmed by the amount of work that needs to be done. I was wondering what could I do to get more results but yet not overwhelm and almost drown myself with work. Almost by providence, someone recommended to me this book the “80/20 Principle by Richard Koch”. It was almost a godsend. Before using this book I was just frantically moving my arms and legs and just barely keeping myself afloat and sometimes even, going under.
However, now after the investment of 10 to 12 focused hours in reading and understanding the book, I have become a swimmer navigating this pool of Business with ease and confidence. You can also bring in this transformation as I have by reading the Book. However please do read the summary of the book in the following paragraphs which gives the gist of the contents which I do believe will help you relate to the book in a better way when you read it or have read it.
I suggest this Book ” The 80/20 principle” by Richard koch. The tag line is the secret of Achieving more with less. This book is similar to my earlier suggestion ” Focus” by Brian tracy. (Yellow Book). By the use of this book one can know which 20% activities to prioritize,focus, and act upon it to give 80% of effort.
A ballad ( Poem ) on 80/20 principle.
Richard koch is a businessman,
He discovered a truth, yes a master plan.
Write a book about it, became a hit,
It,s not only cool, it,s also legit.
The 80/20 principle is the title,
The lessons it teaches you are vital,
Sit back and listen to this soundbite,
By the time that you,re finished you’ll see the light.
The 80/20 principle, the key to success,
The 80/20 principle, achieve more or less,
The 80/20 principle, the key to success.
The 80/20 principle, achieve more.
Part one: overture.
1.)What is the 80/20 principle?
It means that a minority of causes, inputs of effort usually lead to a majority of the results, outputs or rewards. Because of this we often find 80% of what you achieve in job, comes from 20% of time spent. Thus for all practical purposes four- fifths of the effort , a dominant part of it, is largely irrelevant. This is contrary to what people generally expect.
How to think 80/20.
Let,s take the example of a company. Now the company want,s to increase profits. So first you need to identify/ segregate your products in 2 categories. 20% of products which give 80% profits, (and the remaining 80% which give only 20% profits.) Now focus on only those 20% and ignore the 80% , to achieve maximum profitability, in least amount of time and less effort. Without this segregation as per 80/20 principle , your efforts will be severely diluted and the increase in profits only marginal.
( in fact your analysis of products in terms of profitability, may reveal that just 1% of your products, may be giving 20% profitability. Something like applying 80:20 again to your 20% ).
1. The underground cult: According to Author, though the principle is used often, it remains in the underground and not openly acknowledged.( Best kept business secret).
2. Why your strategy is wrong.
unless your firm is very small and simple, it is almost certainly true that you make at least 80 per cent of your profits and cash in 20 per cent of your activity, and in 20 per cent of your revenues. The trick is to work out which 20 per cent. According to me, strategy which does not take this reality into consideration as wrong, because if you believe that all activities are equally profitable, then you won’t try to identify the 20% which are significant.
3). Simple is beautiful.
Keep your business simple, otherwise you will have many lines, which will take up lot of effort, but no commensurate returns for it. For designing business models using 80/20 principle see our post Five step procedure to Identify your right Business Model pattern for your organization.
4. )Hooking the Right customers.
Not all customers are equally important. Focus on those 20%, and improve their customer experience, rather than trying to improve the service standards for everybody.
5. )The top 10 business uses of the 80/20 principle.
Strategy, quality, cost reduction and service improvements, marketing, selling, information technology, decision taking and analysis, inventory managment, project management, negotiation. ( most areas of business).
6. )The vital few give success to you.
Keep the ‘ vital few’ in the forefront of your brain. Keep reviewing whether you are spending more time and effort on the vital few rather than trivial many.
2. ) when 80/20 becomes , 90/10. ( chapter)
Main points in the chapter.
The trend towards a higher proportion of activity- especially highly remunerative activity to concentrate with few.
The 80/ 20 distribution gravitates to 90/10 distribution.
Within any particular network there will be a trend over time for the terms of trade to slide in favour of the network monopolist or near monopolist.
Practical advice for thriving in the new world.
Identify network businesses before they get big, and join them.
Once you have a joined a new network business , think like an owner. You may be even able to become a fractional owner, through stock options. It can make you very rich in long term.
If you are an investor, consider focusing on incipient network business. Get in early before the value of the platform is obvious, before people realise how valuable it can become.
3.) your place in the 80/ 20 future. ( chapter).
The new world is one where effort is rewarded and increasingly sundered. Fewer successful command and control Goliaths. Education qualification do not guarantee good jobs. The only route to security is to relish the flux of insecurity.
The five tips given by the Author.
Only work in networks, small size and very high growth, only work for an 80/20 boss, Find your 80/20 idea, Become joyfully usefully unique.
4.) Intelligent and lazy. You have to make people in your team stars, as per the The Von Manstein matrix, those who are both intelligent and lazy. See photo. Imbalance is rampant in professional success and returns, so play the right game. Winner takes all is a modern phenomenon, specifically in media industry, because the celebrity reaches large no of persons, so the cost per person reached comes down significantly, even though the time of the celebrity come,s at a much higher price than average.
One tip the Author gives. Obtain the four forms of labour leverage. 1. First leverage your own time.
2. Capture 100 percent of it,s value by becoming self employed.
3. Employ as many net value creators as possible.
4. Contract out everything that you and your colleagues are not several times better at doing.
5.) Money, money, money.
Money begets money. But some methods of breeding have much more prolific results. However the process of making money can take away your time with friends and relationships, even though your circle of contacts expand. So sometimes it is wise to stand back from careers and money making and consider the most important subject of all, happiness.
6.) The seven habits of happiness.
Daily. 1. Exercise 2. Mental stimulation 3. Spiritual/ artistic stimulation/ meditation 4. Doing a good turn 5. Taking a pleasure break with a friend 6. Giving yourself a treat 7. Congratulating yourself.
Medium term strategies.
1. Maximize your control.
2. Set attainable goals.
3. Be flexible.
4. Have a close relationship with your partner.
5. Have a few happy friends.
6. Have a few close professional alliances.
7. Evolve your ideal lifestyle.
Happiness is a duty. We should choose to be happy, and work at it. We should also share our happiness and help others to do so.
Summary.
I. Networks also behave in an 80/ 20 way, so the principle is becoming pervasive, because networks are becoming pervasive.
2. Networks also operate in line with the principle. In any given market or category, a very small proportion of networks will hold sway over a large proportion or activity of business.
3. Networks and their members like market share concentration and monopoly , because this provides the greatest depth and reach of the network.
4. Having two or three networks with roughly equal size in the same category is unstable, because it is not in the interests of network members.
5. The influence of Networks has soared , and making the 80/20 principle ubiquitous. They are also increasing the extremity of the principle to 90/10, 95/5 and more.
1. )Does the 80/20 principle really apply to our personal lives. ?
2.) isn’t, the 80 percent essential too. ?
These two questions, which lot of readers raised regarding the principle of the book, which were critical of the 80/20 thinking was addressed by the Author in the following way.
Two Different Dimensions of the principle.
There are two distinct aspects of the principle, and in some ways quite opposite.
On the one hand , there is efficiency dimensions. This is what we want to achieve things in the fastest possible way, with least possible effort.
For example , if we look on our work as mainly a means to earn money, because we want to do other things with other people outside of work – and it is these latter things that really matter to us- then work falls square into the box marked “ efficiency. “ we use the 80/20 principle to get most efficiency.
On the other hand, there is a life-enhancing dimension of 80/20 principle. The Effectiveness domain. What belongs in this box is anything that is truly important to our lives, whether it is work, our personal relationship, what we wish to achieve, the hobby that gives us immense pleasure and so on. So we try to double the time we give to these things, which he calls 200% approach.
So , it is difficult to explain in a few words, but the photo is enclosed which may make the process clear.
Take responsibility for progress.
( The Authors own closing words)
The greatest thing about the 80/20 principle is that you do not need to wait for everyone else. You can start to practice it in your professional and personal life. You can take your own small fragments of greatest achievement, happiness and service to others and make them a much larger part of your life. You can multiply your highs and cut out most of your lows. You can identify the mass of irrelevant and low- value activity and begin to shed this worthless skin. You can isolate the parts of your character, work style, lifestyle and relationships that, measured against the time or energy involved, give you value many times greater than the daily grind: and having isolated them, you can , with courage and determination, multiply them. You can become a better, more useful and happier human being. And you can help others do the same.
This post I am publishing just to share a thought of the author which I liked it very much.
In the chapter on corporate success need not be a mystery , he states that Internal complexity has huge hidden costs.
When a new business is different to existing business, even if it is only slightly different, costs tend to go up, not just pro rata , with the volume increase but well ahead of it.
Now many reasons for it but the main thing is the complexity increases the cost, because of increasing difficulty in communication between departments, changes required in protocols, and various other factors.
Many of us are aware of economies of scale principle. Where the larger the scale of operations, the per unit cost for production reduces. The main reason cited is that the overhead cost, which is fixed, get,s divided over larger no of units. However what happens in reality is competitor B, which has larger scale of operations, compared to competitor A, has not less, but instead higher unit cost. This is primarily because complexity costs have increased at a greater rate, than the benefit of the lower costs achieved through economies of scale. ( see photo for the graphical representation of the phenomenon).
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