The Pareto distribution, also called the 80/20 Principle, is iterative–the 20% breaks down into its own 80/20 view, and so on. After just two iterations you see this distribution:
More than half of the total payoff comes from less than 1% of the effort!
In this age of digitization, the world often looks more 95/5 than 80/20, so everything I’m about to tell you is even more significant. A 95/5 distribution shows that less than 0.5% of the effort is producing more than 85% of the value:
Many leaders fail to appreciate the enormous leverage that comes from taking away resources from the bottom and feeding them into the top. It’s entirely possible to get 16-64X improvements by eliminating the low-payoff activities or products. Starve them. Phase them out. Scratch them off the to-do list. Intentionally reallocate that time and effort into your 1% list.
Let me address one objection that some smart people will surface. Yes, there is business leverage in the “long tail” of inventory and services that some companies can provide, most famously, Amazon.com. But the profitability payoff distribution is unchanged. Those organizations which successfully do “all things for all people” still have a design strategy to maximize their profitability in highly-focused areas. Amazon.com, for example, generates an enormous margin from AWS cloud computing services.
Suggested areas to explore:
Unprofitable products and services–A full and honest appraisal shows these cost more to produce, deliver, and service than the revenue they generate.
No-longer relevant reports–Courageously kill “monthly” reports which aren’t useful. Calculate the 80/20 of the data that decision-makers are truly using, then focus your efforts there.
Inefficient processes–Just as no project is on autopilot, no process should continue without periodic review. Some aren’t needed. Some have become counterproductive. Many can be simplified to reduce the effort for the same or better result.
The leadership angle here is to provide the vision for the leverage that comes by eliminating the bottom to feed the top, then making this process organizationally safe. The management angle is to courageously execute in the face of the criticism that will come. Some of the biggest resistance will come from people who are perfectly comfortable performing the low-value work. It’s easy, known, low-risk, and predictable.
Everything you can do to reallocate effort to the highest payoff work yields disproportionately large benefits to your organization.