The 80/20 Principle: The Secret of Achieving More With Less by Richard Koch Read Free Book Online

profits come from 20 percent of its customers should use this information to concentrate on keeping that 20 percent happy and increasing the business carried out with them. This is much easier, as well as more rewarding, than paying equal attention to the whole customer group. Or, if the firm finds that 80 percent of its profits come from 20 percent of its products, it should put most of its efforts behind selling more of those products.
    The same idea applies to nonbusiness applications of 80/20 Analysis. If you analyzed the enjoyment you derived from all your leisure activities and found that 80 percent of the enjoyment derived from 20 percent of the activities, which currently took only 20 percent of your leisure time, it would make sense to increase the time allocation from 20 to at least 80 percent.
    Take transport as another example. 80 percent of traffic jams occur on 20 percent of roads. If you drive on the same route to work each day, you will know that roughly 80 percent of delays usually occur at 20 percent of the intersections. A sensible reaction would be for traffic authorities to pay particular attention to traffic phasing on those 20 percent of jam-creating intersections. While the expense of such phasing might be too much for 100 percent of junctions 100 percent of the time, it would be money well spent in the key 20 percent of locations for 20 percent of the day.
    The second main use of 80/20 Analysis is to do something about the “underperforming” 80 percent of inputs that contribute only 20 percent of the output. Perhaps the occasional beer drinkers can be persuaded to drink more, for example by providing a blander product. Perhaps you could work out ways to get greater enjoyment out of the “underperforming” leisure activities. In education, interactive teaching systems now replicate the technique used by college professors where questions are addressed randomly to any student, in order to combat the 80/20 rule, where 80 percent of classroom participation comes from 20 percent of the trainees. In U.S. shopping malls it has been found that women (some 50 percent of the population) account for 70 percent of the dollar value of all purchases. 4 One way to increase the 30 percent of sales to men might be to build stores specifically designed for them. Although this second application of 80/20 Analysis is sometimes very useful and has been put to great effect in industry in improving the productivity of underperforming factories, it is generally harder work and less rewarding than the first use.
    Don’t apply 80/20 Analysis in a linear way
     
    In discussing the uses of 80/20 Analysis, we must also briefly address its potential abuses. Like any simple and effective tool, 80/20 Analysis can also be misunderstood, misapplied, and, instead of being the means to an unusual insight, serve as the justification for conventional thuggery. 80/20 Analysis, applied inappropriately and in a linear way, can also lead the innocent astray—you need constantly to be vigilant against false logic.
    Let me illustrate this with an example from my own new profession, the book trade. It is easy to demonstrate that, in most times and places, about 20 percent of book titles comprise about 80 percent of books sold. For those who are steeped in the 80/20 Principle, this is not surprising. It might seem a short hop to the conclusion that bookshops should cut the range of books they stock or, indeed, that they should concentrate largely or exclusively on “bestsellers.” Yet what is interesting is that in most cases, instead of sending profits up, restricting range has sent profits down.
    This does not invalidate the 80/20 Principle, for two reasons. The key consideration is not the distribution of books sold, but what customers want. If customers go to the trouble of visiting a bookstore, they want to find a reasonable range of books (as opposed to a kiosk or supermarket, where they don’t expect range). Bookstores should