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The Sales Cycle: The Critical 20

Editor's Note: This column originally appeared in the July 2012 issue of SMT Magazine.

The Pareto Principle, otherwise known as the 80/20 Rule, is something most in the industry have heard of, but rarely utilize. Just to clarify, the principle says that 80% of effect comes from 20% of cause. The principle was named after Vilfredo Pareto by the well-known consultant Joseph Juran back in 1906. According to some, the idea arose from an observation by Pareto in his vegetable garden. Since then, the principle expanded into all areas of business, economics, and, as it turns out, in all aspects of everyday life.Is it really true? See for yourself: A simple audit begins with data collection from your own business or life. Many areas can be examined and you will most likely find that 80% of the results come from 20% of the inputs:

• Sales: 80% are created from 20% of your products.
• Sales: 80% of sales are produced by 20% of your sales team.
• Manufacturing defects: 80% occur from the same 20% of reasons.
• Profits: 80% are derived from 20% of your customers.
• Problem employees: 80% of the problems come from 20% of the people.

So, if you start seeing the trend and realizing the 80/20 Rule is in effect throughout your business, then improving your business really becomes more a question of how well you can identify the critical 20% in each area and focus on that as it applies to your current mission. Such analysis will give you the greatest result and, with focus, give your entire team clarity on what they should be working on to get the greatest overall result for the organization. This process is really one of the quickest and easiest ways to improve your business. For example, by focusing, your sales team will know exactly what to sell--they can have a strong emphasis on the products that bring in the 80% of your sales. They can then also focus on the customers that fit in the critical 20% that produces 80% of results. Meanwhile, your manufacturing team can work on the critical 20% of your manufacturing processes that will increase yields and reduce cycle time. With this tune-up alone, you can really change your profit margins.The Pareto Principle does not say or imply that we should not perform 100% of the job or function. It merely suggests that the best use of time for the greatest result, 80%, will be found in the first critical 20% of inputs. And, in some areas, like employee problems, that may be sufficient to reduce the noise, if you will. Take process improvement--it’s never done. But let's say you want to reduce your cycle time by X. You will achieve the first 80% of X by focusing on the inputs that represent the critical 20%. In this 20% you will quickly find your largest bottlenecks that, if removed, would substantially reduce your cycle time. The next time you perform cycle-time process improvement your overall cycle time will be less, but you will still look for the critical 20% and find the next set of bottlenecks. Finally, at some point, you will find that cycle-time reduction itself is no longer part of the critical 20% needed to achieve your current mission. This is where good business leadership comes in. Someone or some leadership team in your company has to be clear on what the objectives are for your business. Next, they have to really be able to focus the energy of the entire company around those objectives. Of course, some companies have more resources to focus on multiple areas simultaneously, while others may only be able to focus on one or two areas. In either case, use the Pareto Principle to guide you--80% of your goals can be achieved by focusing on the critical 20%. By the way, I think Steve Jobs was a master of focus. When he returned to Apple he reduced the huge product mix they had to the critical 20%, realizing the rest was noise and a huge distraction to becoming a great company.