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

concentrate on the 20 percent of customers who account for 80 percent of their profits and find out what those 20 percent of customers want.
    The other reason is that what matters even when considering books (as opposed to customers) is not the distribution of sales—the 20 percent of books that represent 80 percent of sales—but the distribution of profits—the 20 percent of titles that generate 80 percent of profits. Very often, these are not the so-called bestsellers, books written by well-known authors. In fact, a study in the United States revealed that “best sellers represent about 5% of total sales.” 5 The true bestsellers are often those books that never make it into the charts but sell a reliable quantity year in and year out, often at high margins. As the same U.S. research comments, “Core inventory represents those books that sell season-in and season-out. They are the ‘80’ in the 80/20 rule, often accounting for the lion’s share of sales in a particular subject.”
    This illustration is salutary. It does not invalidate 80/20 Analysis at all, since the key questions should always be which customers and products generate 80 percent of profits. But it does show the danger of not thinking clearly enough about how the analysis is applied. When using the 80/20 Principle, be selective and be contrarian. Don’t be seduced into thinking that the variable that everyone else is looking at—in this case, the books on the latest bestseller list—is what really matters. This is linear thinking. The most valuable insight from 80/20 Analysis will always come from examining nonlinear relationships that others are neglecting. In addition, because 80/20 Analysis is based on a freezeframe of the situation at a particular point rather than incorporating changes over time, you must be aware that if you inadvertently freeze the wrong or an incomplete picture, you will get an inaccurate view.
    80/20 THINKING AND WHY IT IS NECESSARY
     
    80/20 Analysis is extremely useful. But most people are not natural analysts, and even analysts cannot stop to investigate the data every time they have to make a decision—it would bring life to a shuddering halt. Most important decisions have never been made by analysis and never will be, however clever our computers become. Therefore, if we want the 80/20 Principle to be a guide in our daily lives, we need something less analytical and more instantly available than 80/20 Analysis. We need 80/20 Thinking.
    80/20 Thinking is my phrase for the application of the 80/20 Principle to daily life, for nonquantitative applications of the principle. As with 80/20 Analysis, we start with a hypothesis about a possible imbalance between inputs and outputs, but, instead of collecting data and analyzing them, we estimate them. 80/20 Thinking requires, and with practice enables, us to spot the few really important things that are happening and ignore the mass of unimportant things. It teaches us to see the wood for the trees.
    80/20 Thinking is too valuable to be confined to causes where data and analysis are perfect. For every ounce of insight generated quantitatively, there must be many pounds of insight arrived at intuitively and impressionistically. This is why 80/20 Thinking, although helped by data, must not be constrained by it.
    To engage in 80/20 Thinking, we must constantly ask ourselves: what is the 20 percent that is leading to 80 percent? We must never assume that we automatically know what the answer is but take some time to think creatively about it. What are the vital few inputs or causes, as opposed to the trivial many? Where is the haunting melody being drowned out by the background noise?
    80/20 Thinking is then used in the same way as the results from 80/20 Analysis: to change behavior and, normally, to concentrate on the most important 20 percent. You know that 80/20 Thinking is working when it multiplies effectiveness. Action resulting from 80/20 Thinking should lead us to get