Monday, March 8, 2010

The 80/20 Rule

If you've been in Tech Support or Help Desks for any length of time - especially from a management perspective you'll be extremely familiar with something called the 80/20 rule.  

Put simply it implies that 80% of your calls/contacts are generated from 20% of your issues.  If you are able to focus efforts on clearing up some of those 20%'ers you would have a significant impact on the overall volume that is coming in to your center (note, once you've fixed the 1st 20% - then you can do a similar analysis on the next batch and so on!).  

Now, while this is true from an "on the floor" perspective there has actually been a study done on this and this "rule" is actually known as the Pareto principle (sometimes also called the "law of the vital few" or the "principle of factor sparsity ).  While these names all sound really fancy - I think the 80/20 Rule is most descriptive of what it is.

The principle was actually suggested by Italian economist Vilfredo Pareto.  Vilfredo observed that in 1906 80% of the land in Italy was owned by 20% of the population.  Surprisingly for Vilfredo Pareto he observed a similar distribution among other countries and as such developed this guideline.
  • More recently, this was seen in a 1992 UN Report that showed that 20% of the world's population actually controlled 82.7% of the world's income!
  • Microsoft also noted that by fixing the top 20% of the most reported bugs, 80% of the errors and crashes would be eliminated.
  • The Pareto principle was a prominent part of the 2007 bestseller The 4 Hour Workweek by Tim Ferriss which I have mentioned in a previous post As Tim Ferriss recommended, by focusing your attention on those (20%) factors that have the greatest impact to your income (80%) you will obtain and receive a greater "bang for your buck!"

So as you can see, some significant analysis has gone into determining whether or not this "rule of thumb" actually applies and while its not always 80% on the dot, it is close enough for you to use in determining what you should be looking at from a management perspective.

You can really think about the 80/20 rule from two different directions. 
  1. What are the negative impacts that you need to address.  As I've mentioned earlier, 20% of your issues are probably causing close to 80% of your interactions with your customers.
  2. 20% of your customers are also probably spending the most (80%) with you!  
  3. 20% of your employees are also probably the most (80%) productive! etc...
Dealing with the first option is reasonably easy - hopefully you can categorize your interactions with your clients utilizing any half way decent CRM system.  Once you know why you are being contacted, sort it out to see how many of each type (you should be doing this anyways!) and start with the top 20 types of problems.  
  • Are there any of them that you can address by providing better documentation to your customer so that they do not need to contact you in the first place?  
  • Is there something that you can and should do to fix your product so that they do not need to contact you?  
  • How about updating your FAQs and other setup information?  These are all simple and easy fixes and by doing them you'll make an immense impact on your bottom line.
Measuring & Dealing with the second should be even easier ... if you do not know who you top 20 biggest customers are ... SHAME ON YOU! ... they are your bread and butter and you should ensure that you are on extremely good terms with them.  

The same applies for your #3 of course - your staff themselves.  Reward your high performers with raises/bonuses and other perks.  These are the people that keep the ball rolling and I've mentioned previously the impact of losing highly trained staff have on a business.

Best of luck using the 80/20 rule in your business ... its a good one - keep it close to heart!
Post a Comment

Cancellation - the final step in a long and drawn out process

Dealing with customers that want to cancel is hard. I know - I'm personally in the midst of trying to cancel my Television/Internet serv...