Corporate Success a Mystery?
By: Hubert Crowell
Now we see in a mirror dimly, but then we shall see face to face. Now I know in part; then I shall understand fully.
1 Corinthians 13:12
The 80/20 Principle is not largely celebrated, but is well known among successful business and individuals. There are many articles on the subject and only one book that I am aware of, The 80/20 Principle by Richard Koch. It is almost like the successful have realized the importance of the 80/20 Principle and want to keep it a secret to protect their good fortune.
The Quality Revolution
Between 1950 and 1990, the quality revolution transformed the quality and value of many of the products we use today. The objective was to obtain a zero defect rate in the products, while at the same time lowering the cost. Joseph Juran and W. Edwards Deming separately developed quality control procedures based on the 80/20 Principle but could find companies in the U.S. who were interested. Japan took an interest and they both moved to Japan in the 1950's, the rest of the story is history and now Toyota is believed to be the best auto manufacture in the world.
Juran commented that "losses," do not arise from a large number of causes:
Rather, the losses are always mal distributed in such a way that a small percentage of the quality characteristics always contributes a high percentage of the quality loss.
His approach was to identify the problems causing the lack of quality control and to rank them from the most important to the least important. They then focused their efforts on the least 20% instead of trying to tackle all the problems at once.
The Information Revolution
The information revolution began in the 1960's and has transformed the work habits of many businesses. The 80/20 Principle played a large role with its concepts of selectivity and simplicity.
Think small. Don't plan to the nth degree on the first day. The return on investment usually follows the 80/20 rule: 80 percent of the benefits will be found in the simplest 20 percent of the system, and the final 20 percent of the benefits will come from the most complex 80 percent of the system. Chris Vandersluis (May 25,1994 Computing Canada)
The 80/20 Principle is still the best-kept business secret
The 80/20 Principle remains under exploited, even by those who recognize the idea. It is extremely versatile. It can be profitably applied to any industry or organization, any function or any job. Firms that use the 80/20 Principle will be successful in markets where it is possible for that firm to generate the highest revenues with the least effort. Companies must direct their resources into the most profitable segments.
Companies must also identify the parts of the firm that generate the highest profit and give them more power and resources. At the same time identify the parts of the firm that generate the lowest on negative income and take away their resources.
Jesus taught in the parable of the talents:
For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him.
Although the teaching here goes much deeper and is about our spiritual lives, it also applies literally to how we should conduct our business. This parable is a great example of the 80/20 Principle, in this case 30% of the workers produces 70% of the profit. One servant doubled his five talents, another servant doubled his two talents and one servant made no return at all on his talent. His single talent was taken and given to the servant who had ten talents.
Assignment: Read Chapter 3 of The 80/20 Principle, by Richard Koch, ISBN 0-385-49174-3
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Optional Exam: Give the four possible results of higher surpluses or profits of the 20% who will normally be more profitable.
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