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80/20 RULE OF GREATEST BENEFITS Management Focus

Place your efforts where you can achieve the most effective results.  In business, as in life, time is the enemy.  When evaluating your next business decision, keep in mind the 80/20 Rule.  In essence, a firm's primary success is dominated by two factors—(1) the firm's structure/organization, and (2) the people within the firm.  Many of us are inclined to focus attention on ensuring that our employees are highly productive.  We send them to seminars, we give them autonomy, and we even make sure that they are given assistance in their dry cleaning efforts.  In an environment where businesses aggressively compete more than ever before to acquire and retain quality employees, companies cannot afford to ignore the 80/20 Rule:  focus 80% of energy and time on systems and structure and 20% on managing human resources.

Companies that have, for one reason or another, come under new management, have immediately started to enjoy superior results in terms of productivity and profitability when the new management employed the 80/20 Rule.  Takeover or M & A specialists immediately look at how a company is structured--does it have the right tools to do the job, are the communications systems in place, is the organizational hierarchy defined?  We may assume that superior management of people is the key to such success.  However, imagine a firm that's in a state of disorder—packaging systems don't function, computers don't connect, and customer-service counters are not stocked or organized properly.  The overall operations would be far less productive than if the problem was restricted to employee shortcomings.  Superior management recognizes structural points and leads its firm to a strategically advantageous position.

The following are two examples to illustrate the importance of "80."  One is positive and the other is negative.  In the 1990's, a manufacturing firm made the jump from "glorified typewriters" to a work-in-progress computer system.  For years, the staff had tried to streamline order processes, starting with order entry and ending with shipping and the collection of receivables.  Staff meetings were motivational and informative, yet changes were slow, if they ever came to fruition at all.  With the introduction of a new computer system (one that was coherent, easy to follow, and organized), the firm was able to change rapidly and meet desired goals:  eliminate the 25% of non-productive staff, boost sales, increase output with fewer errors and frustration, and watch profits soar.  ROI was less than 8 months.  The additional financial benefits that came from the 80 were passed on to the 20 in terms of improved working conditions, better compensation, and higher morale.  The structure of the 80 empowered the 20.

A few years later, the exact opposite occurred.  Leasing $190,000 worth of new equipment for a batch process, a manufacturer improperly installed the equipment and, from the outset, it did not function as expected.  The staff became frustrated and customers suffered.  As a result of a system not functioning properly, the company was forced into a "putting-out-fires" crisis mode as staff turnover grew like a disease, and customers flocked to competing firms in droves.  No matter how much time and attention management tried to give to employees, the dysfunctionality of the firm was the key barrier preventing staff from achieving desired results.

Employees are valuable assets.  They are vital to success.  The utilization of the 80/20 Rule enables a firm to realize the benefits of strategic organization, technological planning, and functional ease.  Place 80% of your efforts on the proper procedures, organization, and systems, and the 20% (human factor) will have the needed tools to achieve greater levels of success.

© MM David & Lorrie Goldsmith

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01.08.2019 (546 days ago)
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