Vilfredo Pareto, was an Italian economist who established the theory that wealth was distributed unevenly with nearly 80% residing in the hands of 20% of the population. This 80:20 rule can be applied to almost every walk of life, whether it is used to describe the number of your Scottish customers that provide the most profit, the deaths occurring from particular diseases or the number of cars on Edinburgh roads that cause the most pollution. Whenever you need to calculate which areas require focus and attention, the 80:20 rule provides a very good starting point.
Take staffing for example. No matter what the industry or the number of staff your firm employs. 80% of the HR issues will arise from 20% of your staff and 80% of profit will derive from 20% of your staffs’ activities. And Resultantly as an Executive 80% of your attention will be directed to just 20% of your business.
Once you recognise this, you can refocus your efforts on the most important things by measuring what gives the greatest return for your effort. Say for instance you have a company with around 50 employees. That means that you will have around 1 major HR issue per month (be that contract negotiation, discipline, recruitment and so on). For that reason, you don’t need a full time HR Director. But you do need to spend as little time on these issues each month, while getting the best results. In this instance using Pareto Analysis, the recommendation would be to retain the services of an HR consultant to farm out these issue to as and when they occur.
How about the issue of productivity and profitability within your sales team. Perhaps you are not getting the best value out of your team of 10 sales representatives. By benchmarking the worst 20% against the rest (that’s right you can do a Pareto Analysis for negatives also), you will probably find that you could do without the 2 worst performers while not losing any sales, and as a result making substantial staff cost savings that you can redirect into other areas of your Edinburgh based business such as Product development.
Needless to say products can be analysed using Pareto too. After all we all know that whatever the business we make most of our profit from relatively few products in our range. By developing a greater foothold in a market, you will create more opportunities for your sales team.
By utilising this “Pareto In the Round” technique to all areas you can very quickly streamline your business, improve profitability and make substantial savings with very little effort. At the same time, your work life balance should improve as you work more effectively on the things matter to your business.