The 80/20 Principle

We have been trained to think in terms of cause and effect, of regular relationships, of average levels of return, of perfect competition and of predictable outcomes. This is not the real world. The real world comprises a mass of influences, where cause and effect are blurred, and where complex feedback loops distort inputs; where equilibrium is fleeting and often illusory; where there are patterns of repeated but irregular performance; where firms never compete head to head and prosper by differentiation; and where a few favoured souls are able to corner the market for high returns.

A study of 39 middle-sized German companies, led by Gunter Rommel,2 found that only one characteristic differentiated the winners from the less successful firms: simplicity. The winners sold a narrower range of products to fewer customers and also had fewer suppliers. The study concludes that a simple organization was best at selling complicated products.

Cultivate the simplest 20 per cent. Refine it until it is as simple as you can make it. Standardize delivery of a simple product or service on as universal and global a basis as possible. Pass up thrills, bells and whistles. Make the simplest 20 per cent as high quality and consistent as imaginable. Whenever something has become complex, simplify it; if you cannot, eliminate it.

The road to hell is paved with the pursuit of volume. Volume leads to marginal products, marginal customers and greatly increased managerial complexity. Since complexity is both interesting and rewarding to managers, it is often tolerated or encouraged until it can no longer be afforded.

Complexity is stimulating and intellectually challenging; it leavens boring routine; and it creates interesting jobs

There is no real conflict between production and marketing. You will only be successful in marketing if what you are marketing is different and, for your target customers, either unobtainable elsewhere, or provided by you in a product/service/price package that is much better value than is obtainable elsewhere. These conditions are unlikely to apply in more than 20 per cent of your current product line; and you are likely to obtain more than 80 per cent of your true profits from this 20 per cent. And if these conditions apply in almost none of your product lines, your only hope is to innovate. At this stage, the creative marketeer must become product led. All innovation is necessarily product led. You cannot innovate without a new product or service.

Personal, corporate and national success resides not in invention, or even in creating the marketable innovation, but in spotting the point at which the innovation is about to become irresistible and then riding it for all it is worth.

There is no fun in work unless you can achieve a lot with a little. If you have to work 60 or 70 hours a week in order to cope, if you feel that you are always behind, if you are struggling to keep up with work’s requirements: then you are in the wrong job, or doing it completely the wrong way! You are certainly not benefiting from the 80/20 Principle, or from the Von Manstein matrix.

Daniel Goleman and other writers have contrasted academic intelligence or IQ with emotional intelligence: ‘abilities such as being able to motivate oneself and delay gratification; to regulate one’s moods and to keep distress from swamping the ability to think; to empathize and to hope’.5 Emotional intelligence is more crucial for happiness than intellectual intelligence, yet our society places little emphasis on the development of emotional intelligence.

We have all experienced the trap of self-reinforced depression, when we think in a gloomy and negative way and simply make things worse, so that we can imagine no way out of the box. When we come out of the depression, we see that the way out was always there. We can train ourselves to break the self-reinforcing pattern of depression by simple steps, such as seeking out company, changing our physical setting or forcing ourselves to exercise.

Make the choice that you want to be happy. You owe it to yourself and you owe it to other people too. Unless you are happy, you will make your partner and anyone else with prolonged exposure to you less happy. Therefore you have a positive duty to be happy.

You may feel that you are deceiving yourself. But in fact, by having a negative perception of yourself you are at least as guilty of self-deception. All the time we tell ourselves stories about ourselves. We have to: there is no objective truth. You might as well choose positive rather than negative stories.

There are only four types of officer. First, there are the lazy, stupid ones. Leave them alone, they do no harm … Second, there are the hard-working intelligent ones. They make excellent staff officers, ensuring that every detail is properly considered. Third, there are the hard-working, stupid ones. These people are a menace and must be fired at once. They create irrelevant work for everybody. Finally, there are the intelligent lazy ones. They are suited for the highest office. General Von Manstein on the German Officer Corps