The Vital Few

Back in the th century, an Italian economist quantified the general relationship between a minority of producers and a majority of output. Sound familiar? The simplified version of Vilfredo Pareto's ratio, known as the / rule or the Pareto Principle, says that in most cases, % of production comes from % of producers. Quality guru J.M. Juran referred to Pareto's principle as "The Vital Few and the Trivial Many". If you are running a company the / rule has powerful implications for every area of your business. Pareto's postulate says % of your effort will generate % of your results. There is also a corollary: % of your results absorb % or your resources or efforts. The game is knowing which is the right % - distinguishing the Vital Few from The Trivial Many. % of your customers yield % or your revenues, and % of your customers yield % of your profit. But not necessarily the same %. Your sales force (even if it's just you) will intuitively spend more time with the top % customers, but will it be the right %? There is also likely to be a top % of customer types, a top % of territories, and a top % of distributors. Which customers get the most service? Your service team spends % of its time on % of the customers - although they may not be the most profitable %. Focus your attention on the Vital Few customers. Rank your customers in order - find out who are the top % - in profits, not sales - and focus your sales and service attention on them. Determine which % are using % of your resources. Are they your top profit generators? If not, charge them for the resources you shower on them, or discontinue services to that tier. Salesperson productivity also fits the / rule. % of your sales force produces % of your sales. Should you lavish equal resources on all your salespeople? Invent Ways to take your % and make them even more effective. An assistant or a dedicated account team could be concentrated around your top performers to increase their productivity even more. All prospects are not created equal. % of your prospects have the potential for % of your future profits. Are your salespeople spending their time proportionately? Have them do an opportunity analysis to highlight the Vital Few. Market segmentation: If you have multiple products, services, geographies, customer tiers, etc., % of your profits will be come from % of the segments. Fully allocate your costs and rank your segments in profit order. Consider dropping, selling or trading less profitable ones. Production: You may find that % of your products or services are created by % of your people, % of your problems are fixed by % of your people, team, and, % of your problems probably come from % of people. All a different %! Wouldn't it be helpful to know which % is doing what? Quality: % of your defects are found in % of your product units. Also, % of the defects come from % of the defect types. Spend lots of energy figuring out how to prevent those % and you've made huge gains in quality. Employee retention: Have you identified your Vital Few? Most of us have, so why are we treating all employees the same way. Besides better bonuses, keep the top % on board with non-monetary rewards like offices, training bonuses, better tools, assistants, vacations. These are just some of the rewards (consider them investments) justified by greater productivity - which leverage that productivity even further. / works wonders for time management. Odds are, % of your time is spent on Trivial Many activities. Do the / analysis and discover which executive activities produce the most value for your company. Refocus your time and place your attention on the Vital Few. Delegate the Trivial Many, or drop them altogether. Are you getting the hang of this? / analysis can be applied to every aspect of your company. Look for things with multiple inputs and multiple outputs. We've touched on sales, marketing, quality, compensation, and executive effectiveness. How else could / help you produce extraordinary results? To get a copy of our / Sorting Worksheet visit www.paullemberg.com/toolsandtips.html. The worksheet is useful for analyzing sales, markets, personnel, strategies, etc.