An Introduction to
80/20
February 27, 2014
As presented by Joe Hahn
What is 8020?
 Also called “Pareto Analysis”
 Discovered by Vilfredo Pareto in 1897
 80% of the output comes from 20% of the
input
 Consider it a rule of nature
 Put simply … a few things are critically
important, while the vast majority of things are
worthless
The Premise of the 80/20 Principle
 Transaction activity, product variation, customer
multiplicity, and complexity are the root cause
of all overhead cost
 20% of the items in any uniform group will
drive 80% of it
 Success comes from eliminating the complexity
and focusing on the core products and markets
 Treat them differently
Use 80/20 to study every
aspect of your business
Products
Customers
Suppliers
Inventory
Product Cost
Sales Force
Geographic
Distribution
Anything you want
to study
So…
80/20 is the art of doing a few things
spectacularly well…at the chosen
expense of the rest!!!
You are better off than 98% of all
Americans IF…
 You finish high school
 You have a job, any job
 You get married and stay married
 You have no credit card debt
Want your children to be in the top
10% of all students?
 Make sure they get enough sleep
 Make sure they eat properly
 Make sure they show up for school
 Make sure they pay attention
 Make sure they do their homework
Rule of 72
 72/interest rate = number of years for your
money to double
 $1,000 invested today at 2% is $2,000 in 2044
 $1,000 invested today at 12% is $64,000 in
2044
Quartile Analysis
Quartile Report
Customers
% of
Business
% of Effort
1 - 25
89%
25%
26 - 50
7%
25%
51 - 75
3%
25%
76 - 100
1%
25%
Approximately half of our effort supports 96% of our
Business. The other half supports 4%.
Absolute Rules vs Classic
Arguments
Absolute Rules:
Classic Arguments:
Not every customer
is a good customer!
“The small customers
of today are the big
customers of tomorrow.”
We make much
more money on our
biggest customers
than we think we
do…and lose much
more on our smallest
ones than we think
we do.
“If we get rid of the
little customers, we
have nothing to fall back
on if we lose a big one.”
“Some big customers
buy small products and
vice versa.”
QUAD REVIEW
A PRODUCTS
A CUSTOMERS
Q1
Q2
“THE FORT”
Q3
B CUSTOMERS
B PRODUCTS
“Transactional”
“NECESSARY …
But not desirable”
Q4
“Eliminate”
11
Four Steps to 80/20
1. Weed the Garden
Simplify products, customers and processes
2. Separate Tomatoes from Pumpkins
Separate unlike businesses
3. Give the Plants Only the Water They Need
Apply the minimum number of resources needed to support the critical
few (the 80’s)
4. Harvest Efficiently
Simplify and streamline methods and transactions for the 80’s
The Classic
Prescriptions
YES, BUT
MINIMUMS
VISA
RESPONSE TIME
DIFFERENTATION
YOUR IMAGINATION
YOUR BEST
CUSTOMERS OUGHT
TO BE
“RAVING FANS!!!”
Mirror, mirror on the wall …
which is the greatest tool of all?
Product Line
Simplification,
by far, and its close friend,
CUSTOMER
SIMPLIFICATION
REPORT CARD
1.
2.
3.
4.
5.
Is your service line “boxed?”
Are policies implemented to drive boxed services?
Has a specials policy been defined and implemented?
Are the customers “boxed?”
Are policies implemented to drive the sales of “boxed”
customers?
6. Have key account and raving fans programs been
established?
7. Have our processes been set up to maximize the efficiency
on key core services?
8. Is the business fully segmented?
9. Are business processes simplified?
10. Are key leaders / “winning” people in place?
11. Do we understand the 80/20 market drivers?
12. Do we clearly know our three year objective?
BENEFITS OF 80/20
 Your best customers are much happier
 Your quality is better
 Your delivery performance is better
 Your costs are lower
 You have fewer, better, happier
employees
 You have better growth
 You make more money
 You don’t work as hard