Saturday, September 12, 2009

80/20 can the ratio change now

Pareto's principle or the 80/20 thumb rule has undoubtedly been the driving factor for most of the business and personal decisions of one's life, and there's no doubt that adopting this principle people and corporates have achieved a lot.

I have learnt, seen, read and experienced this myself and feel that the rule has somehow gained such a lot of substance over years that businesses today without any confrontations have adopted this for their growth. But what sometimes bothers me is that why is this globally recognized model not being challenged, not because it has to be challenged but because I feel that there is a lot of business sense to really find means of increasing the 20% component of this principle. Look at it like this - it's said that 20% of the customers get 80% of your business that means these 20 % of the people have enough purchasing capital and need to being able to consume 80% of your business, but does that mean that it's only these 20% who have the capacity to give you that business? Similarly it's said that 20% of the workforce does 80% of the work and do organizations blindly believe this fact and let only these 20% people be the real productive ones of the lot.

Although the later example here is more of a phenomena which I see companies tackling through some or the other means, as it might very well be so that these 20% of the people turn into leaders and with their leadership and charisma they aid others to achieve the 80% of the tasks. I would just stick to these two examples so that the blog remains a blog and not a story, and build my viewpoint! So considering the first example of 20% customers getting 80% business - imagine with each and every percent of the 20% that increases how much more business potential increases, with even a 10% increase in the 20% one can really increase the sales itself by close to 20% automatically shooting the revenue figures higher. I doubt if this hasn't been tried or discussed before, but when I went to doing some research on this I could see that there's not a single soul who contradicts this or is really trying to get a shift on this movement. I would say that this shift can really be a paradigm shift; and though it would need an economist to prove it as to how it can be achieved, I would say some basic considerations are important and a company need to constantly strive to take this ration higher. It can be either by means of appropriate profiling, or perhaps doing a lot of analytics around their current customers so as to gauge as to where is the potential to harness more. In a B2C environment it would be making sure that marketers and strategist of the company understand the Segmentation, Targeting and Positioning (STP) even better. Whereas from a B2B standpoint while it's as important to gauge the macroeconomic factors because that impacts the decision making of your customers (this is where PESTEL plays a role) and understanding each and every component of the PESTEL framework are important, but it's equally important to do a very strong research on understanding your customer. While I have seen a lot of companies spending a lot of time and money for doing research and carrying out Analytics around areas like employee satisfaction, competition, technological road map and puts in detailed plans to grow the business or expand the geographies or new logos. But not too many companies really do a research to understand the existing customer!

This might not be the only approach to increase that % percent share and certainly there arequestionable components in the framework I am proposing, but I would want to know and understand these areas better in the near future and would want to discuss these areas with others who might or might not be in favor of this incremental increase in the framework!

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