1. An Introduction to 80/20
February 27, 2014
As presented by Joe Hahn

2. What is 8020? Also called “Pareto Analysis”
Discovered by Vilfredo Pareto in 1897
80% of the output comes from 20% of the input
Consider it a rule of nature
Put simply … a few things are critically important, while the vast majority of things are worthless

3. The Premise of the 80/20 Principle
Transaction activity, product variation, customer multiplicity, and complexity are the root cause of all overhead cost
20% of the items in any uniform group will drive 80% of it
Success comes from eliminating the complexity and focusing on the core products and markets
Treat them differently

4. Use 80/20 to study every aspect of your business
Products
Customers
Suppliers
Inventory
Product Cost
Sales Force
Geographic Distribution
Anything you want to study

5. So…
80/20 is the art of doing a few things spectacularly well…at the chosen expense of the rest!!!

6. You are better off than 98% of all Americans IF…
You finish high school
You have a job, any job
You get married and stay married
You have no credit card debt

7. Want your children to be in the top 10% of all students?
Make sure they get enough sleep
Make sure they eat properly
Make sure they show up for school
Make sure they pay attention
Make sure they do their homework

8. Rule of 72 72/interest rate = number of years for your money to double
$1,000 invested today at 2% is $2,000 in 2044
$1,000 invested today at 12% is $64,000 in 2044

9. Quartile Report Quartile Analysis Customers % of Business % of Effort
1 - 25
89%
25% 7% 3% 1%
Approximately half of our effort supports 96% of our
Business. The other half supports 4%.

10. Absolute Rules vs Classic Arguments
Not every customer is a good customer!
We make much more money on our biggest customers than we think we do…and lose much more on our smallest ones than we think we do.
Classic Arguments:
“The small customers of today are the big customers of tomorrow.”
“If we get rid of the little customers, we have nothing to fall back on if we lose a big one.”
“Some big customers buy small products and vice versa.”

11. QUAD REVIEW Q1 “THE FORT” Q2 “NECESSARY … But not desirable” Q3
A PRODUCTS
B PRODUCTS Q1
“THE FORT” Q2
“NECESSARY …
But not desirable” Q3
“Transactional” Q4
“Eliminate”
A CUSTOMERS
B CUSTOMERS
Problems with quartile – oftentimes brought up in objections section
Quad is strategic
Go through each quad, giving florist example

12. Four Steps to 80/20 Weed the Garden Separate Tomatoes from Pumpkins
Simplify products, customers and processes
Separate Tomatoes from Pumpkins
Separate unlike businesses
Give the Plants Only the Water They Need
Apply the minimum number of resources needed to support the critical few (the 80’s)
4. Harvest Efficiently
Simplify and streamline methods and transactions for the 80’s

13. The Classic Prescriptions
YES, BUT
MINIMUMS
VISA
RESPONSE TIME DIFFERENTATION
YOUR IMAGINATION

14. YOUR BEST CUSTOMERS OUGHT TO BE “RAVING FANS!!!”

15. Mirror, mirror on the wall … which is the greatest tool of all
Mirror, mirror on the wall … which is the greatest tool of all? Product Line Simplification, by far, and its close friend, CUSTOMER SIMPLIFICATION

16. REPORT CARD Is your service line “boxed?”
Are policies implemented to drive boxed services?
Has a specials policy been defined and implemented?
Are the customers “boxed?”
Are policies implemented to drive the sales of “boxed” customers?
Have key account and raving fans programs been established?
Have our processes been set up to maximize the efficiency on key core services?
Is the business fully segmented?
Are business processes simplified?
Are key leaders / “winning” people in place?
Do we understand the 80/20 market drivers?
Do we clearly know our three year objective?

17. BENEFITS OF 80/20 Your best customers are much happier
Your quality is better
Your delivery performance is better
Your costs are lower
You have fewer, better, happier employees
You have better growth
You make more money
You don’t work as hard