Book of the Week: The 80/20 Principle by Richard Koch

The 80/20 Principle (The Secret to Achieving More with Less) by Richard Koch

This is a book after my own heart. What I am upto in the world is to support leaders to have it all - deeply fulfilling successful career, loving harmonious relationships, happy responsible kids with their genius joyfully expressed, lots of nourishing nurturing me-time while making a huge difference in the world. I love busting the myth that you cannot have it all with every coaching engagement. This myth is a cause of so much misery and sadness on this planet because it makes people cynical and resigned about the possibility of living their greatest lives and fulfilling their impossible unimaginable dreams. Nothing spreads the disease of 'living small' as much as forgotten dreams, pushed away under the carpet of imaginary 'reality'.

One of the key levers to have it all is to become an 80/20 Thinker. Richard Koch has done a phenomenal job of explaining step by step how to become one. The 80/20 Principle has been my secret magical wand in supporting my clients. That's how we coaches dramatically increase the effectiveness of our clients, professionally and personally, by getting them to realize what 20% of what they do gives them 80% of their outcomes and then systematically get them to expand the 20%. Of course, in that whole journey of expanding 20% to become 60% so that results are now 240% from the original 80%, unacknowledged hidden fears show up and then the work is about getting off that to take powerful effective precise actions. 

The 80/20 Principle asserts that a minority of causes, inputs, or effort usually lead to majority of results, outputs, or rewards. That means, 20% of what you do at work is actually what is creating your success and 80% of what you do is largely irrelevant. Amazing, isn't it.

Based on my own experience, I connect to the truth of what Koch says -
The 80/20 Principle can raise personal effectiveness and happiness. It can multiply the profitability of corporations and the effectiveness of any organization.

Here are few gems from the book:

1. Strive for excellence in few things, rather than good performance in many.

2. In every important sphere, work out where 20% of effort can lead to 80% of returns.

3. Calm down, work less and target a limited number of very valuable goals.

4. Three implications for organizations:
a. Successful firms operate in markets where it is possible for that firm to generate the highest revenues with the least effort. A firm cannot be judged successful unless it has a high absolute surplus (in traditional terms, a high return on investment) and also a higher surplus than its competitors (higher margins).

b. It is always possible to raise the economic surplus, usually by a large degree, by focusing only on those market and customer segments where the largest surpluses (profits) are currently being generated. This will always imply redeployment of resources into the most surplus-generating (profitable) segments and will normally also imply a reduction in the total level of resource and expenditure (in plain words, fewer employees and other costs).

Firms rarely reach the highest level of surplus that they could attain, or anywhere near it, both because managers are often not aware of the potential for surplus and because they often prefer to run large firms than exceptionally profitable ones.

c. It is possible for every corporation to raise the level of surplus by reducing the inequality of output and reward within the firm.

5. 80% of value perceived by customers relates to 20% of what an organization does. What is that 20% in your case? What is stopping you from doing more of it? What is preventing you from "making" an even more extreme version of that 20%?

6. 80% of any industry's profit come from 20% of its customers. Do you have a disproportionate share of these? If not, what would you need to do to get it?

7. One-fifth (20%) of a typical company's revenues account for four-fifths (80%) of its profit and cash. Conversely, four-fifths (80%) of the average company's revenues account for only one-fifth (20%) of profits and cash. ... You could have a business solely composed of the most profitable chunks and it could make the same absolute returns, provided you organised things differently. And, why is this so? ... It is because simple is beautiful. Business people seem to love complexity. No sooner is a simple business successful than its managers pour vast amounts of energy into making it very much more complicated. But business returns abhor complexity. ... The act of making a business more complex depresses returns more effectively than any other means known to humanity. 

8. A recent careful study of 39 middle-sized German companies, led by Gunter Rommel, found that only one characteristic differentiated the winners from the less successful firms: simplicity. The winners sold a narrower range of products to fewer customers and also had fewer suppliers. The study concludes that a simple organization was best at selling complicated products.

9. Where a business is dominant in its narrowly defined niche, it is likely to make several times the returns earned in niches where one faces a dominant competitor.

10. What is most simple and standardized is hugely more productive and cost effective than what is complex. The simplest messages are the most appealing and universal: to colleagues, consumers and suppliers. The simplest structures and process flows are at once the most attractive and the lowest cost.

11. Waste thrives on complexity; effectiveness requires simplicity.

12. The large and simple business is the best. The way to create something great is to create something simple. ... Progress requires simplicity, and simplicity requires ruthlessness. This helps to explain why simple is as rare as it is beautiful.

13. Important as focus on the few best products is, it is much less important than focusing on the few best customers.

14. The key to superior sales performance is to stop thinking averages and start thinking 80/20. ... Most studies find that the top 20% salespeople generate between 70 and 80% of sales. 

15. Focus every salesperson's efforts on the 20% of products that generate 80% of sales. ... The salesforce should be rewarded for selling the most profitable products, not the least profitable. ... Focus salespeople on the 20% of customers who generate 80% of sales and 80% of profits.

16. The Top 10 business applications of the 80/20 principle:
i. Strategy
ii. Quality
iii. Cost reduction and service improvement
iv. Marketing
v. Selling 
vi. Information technology
vii. Decision making and analysis
viii. Inventory management
ix. Project management
x. Negotiation

17. A few things are always much more important than most things. 

18. Progress means moving resources from low-value to high-value uses.

19. The 80/20 Principle, like the truth, can make you free. You can work less. At the same time, you can earn and enjoy more. ... The beauty of 80/20 Thinking is that it is pragmatic and internally generated, centered around the individual. There is a slight catch. You must do the thinking.

20. Most of what any of us achieve in life, of any serious degree of value to ourselves and others, occurs in a very small proportion of our working lives. 80/20 Thinking and observation makes this perfectly clear. WE HAVE MORE THAN ENOUGH TIME. We demean ourselves, both by lack of ambition and by assuming that ambition is served by bustle and busyness. Achievement is driven by insight and selective action. The still, small voice of calm has a bigger place in our lives than we acknowledge. Insight comes when we are feeling relaxed and good about ourselves. Insight requires time - and time, despite conventional wisdom, is there in abundance.

21. Work out what you want from life. ... aim to "have it all". Everything you want should be yours: the type of work you want; the relationships you need; the social, mental and aesthetic stimulation that will make you happy and fulfilled; the money you require for the lifestyle that is appropriate to you; and any requirement that you may have for achievement or service to others. If you don't aim for it all, you'll never get it all. ... We are wasting 80% of our effort on low-value outcomes. 20% of our time leads to 80% of happiness; but 80% of our time yields very little happiness. ... Remember the promise of the 80/20 Principle: if we take note of what it tells us, we can work less, earn more, enjoy more, and achieve more.

From Richard Koch back to me :-)

What actions will you take as an outcome of reading the above insights in different areas of your wheel of life? 

Love, Jyoti.