Wednesday, May 18, 2011

The 80/20 Principle:

From author Richard Koch

CEO Checklist: The Seven Secrets of the 80/20 Leader

  1. It’s almost certainly true that 80% of your profits are made in chunks of your business that comprise less than 20% of your revenues. The ‘chunks’ may be particular products, customers, channels of distribution, geographies, stages of value added, or combinations of these. Do you know where your critical 20% lies?
  2. Once you know your critical 20%, you can try to multiply this type of business. It’s worth it --- because adding another 20% of critical revenues could add another 80% of profits. Do you have a plan to double the critical 20%? Is it working?
  3. Probably 50% of your customers, products, components, suppliers, and stages of value added add less than 5% to your revenues and profits. I call this the ‘weedy 50%’, because they are weeds that just get in the way. Do you know what your weedy 50% is? Are you acting to get rid of it?
  4. Review all your growth initiatives and new projects. Almost certainly 20% or fewer of them will add 80% of the extra future value. Prune the bottom 50% of initiatives and give the resources to the top 20%. 
  5. Who are the 20% of super-stars in your organization who will add 80% of the future human value? Do these few people get 80% of your time and attention spent leading, monitoring, mentoring, training and developing people?
  6. What is the 20% or less of your time that adds 80% or more of your value? Could you double the time on this? What is the bottom 50% of your time in terms of value? Stop doing these things yourself delegate them, or just quit them altogether.
  7. Organizations are successful when they are different from all competitors, provided that customers like what the corporation does when it’s different! Make a list of all the customer-pleasing things that are different about your company. What are the top 20% of these differences, the few really important differences that make a world of difference? How can you accentuate these differences, and multiply their impact?
 Does this apply to our business?  According to Koch, if my skill set and customers run toward printing, it would be beneficial to try to grow that printing business instead of struggling with the weaker profit centers.

The book is an excellent read.

=>  The 80/20 Principle: The Secret to Achieving More with Less

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