Sunday, November 18, 2012

Were you asked to "be more 80/20" by a McKinsey person? Here are 3 things that could mean...

If you spend enough time working with McKinsey consultants, you'll eventually hear someone being told to "be more 80/20".  In this post I will go over three reasons you might be asked to "be more 80/20" and...
  1. Explain what the 80/20 rule is
  2. Offer some examples of the 80/20 rule
  3. Provide an Excel tool I built to help you illustrate your own 80/20 examples

 

WHAT IS THE 80/20 RULE?

The concept of 80 / 20 comes from the law of the vital few.  Typically, a small number of causes (the "vital" or "critical" few) drives the vast majority of the results, with roughly 20% of the causes driving 80% of the results.  The remaining 80% of the causes constitute the long tail - you can see what this looks like if you plot the data in the form of a Pareto diagram with the causes sequenced in descending order:

 

EXAMPLES OF THE 80/20 RULE


It is a ubiquitous phenomenon and I've seen examples across multiple industries:
  • Manufacturer where ~20% of the product lines generated ~80% of scrap
  • Sales organization where ~20% of the product categories accounted for ~80% of sales
  • Service facility where ~20% of tickets took up ~80% of time

 

WHAT IT MEANS IF YOU'RE TOLD TO "BE MORE 80/20"


One of the primary implications of this concept is that you can realize a lot of impact by investing your effort in addressing a relatively small number of issues.  When someone from McKinsey encourages  you to "be more 80 / 20", they are probably suggesting one of the following:

 

Invest your time and effort more wisely

If you haven't taken the time to figure out the vital few issues to tackle, you might be working sub-optimally by addressing the less critical topics.  Be more strategic before you get tactical.

Know when to stop

If you've already solved the 20% of the issue to deliver 80% of the impact, you will begin realizing diminishing returns from further effort.  If 80% of the answer is enough, you can move on to something else, or you can focus on pushing the answer further at some other time.

Approach problems from a higher level

McKinsey folks will often use 80 / 20 as a euphemism for thinking in terms of the big picture rather than getting bogged down in the details.  Other phrases for this include thinking more "top-down" or at a "higher altitude".

80/20 PARETO TOOL

If you have a data set and want to perform a Pareto analysis to see if it fits the 80/20 rule, the following link will take you to an Excel tool I've set up to help you with the analysis and graphing:
80/20 Pareto Tool


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  3. Great information, the link to the Pareto tool seems to be broken.

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  4. Could you share the Pareto Tool again? The link that you have provided has expired. Thank you.

    ReplyDelete