Sunday, November 18, 2012

Were you asked to "be more 80/20" by a McKinsey person? Here are 3 things that could mean...

If you spend enough time working with McKinsey consultants, you'll eventually hear someone being told to "be more 80/20".  In this post I will go over three reasons you might be asked to "be more 80/20" and...
  1. Explain what the 80/20 rule is
  2. Offer some examples of the 80/20 rule
  3. Provide an Excel tool I built to help you illustrate your own 80/20 examples



The concept of 80 / 20 comes from the law of the vital few.  Typically, a small number of causes (the "vital" or "critical" few) drives the vast majority of the results, with roughly 20% of the causes driving 80% of the results.  The remaining 80% of the causes constitute the long tail - you can see what this looks like if you plot the data in the form of a Pareto diagram with the causes sequenced in descending order:



It is a ubiquitous phenomenon and I've seen examples across multiple industries:
  • Manufacturer where ~20% of the product lines generated ~80% of scrap
  • Sales organization where ~20% of the product categories accounted for ~80% of sales
  • Service facility where ~20% of tickets took up ~80% of time



One of the primary implications of this concept is that you can realize a lot of impact by investing your effort in addressing a relatively small number of issues.  When someone from McKinsey encourages  you to "be more 80 / 20", they are probably suggesting one of the following:


Invest your time and effort more wisely

If you haven't taken the time to figure out the vital few issues to tackle, you might be working sub-optimally by addressing the less critical topics.  Be more strategic before you get tactical.

Know when to stop

If you've already solved the 20% of the issue to deliver 80% of the impact, you will begin realizing diminishing returns from further effort.  If 80% of the answer is enough, you can move on to something else, or you can focus on pushing the answer further at some other time.

Approach problems from a higher level

McKinsey folks will often use 80 / 20 as a euphemism for thinking in terms of the big picture rather than getting bogged down in the details.  Other phrases for this include thinking more "top-down" or at a "higher altitude".


If you have a data set and want to perform a Pareto analysis to see if it fits the 80/20 rule, the following link will take you to an Excel tool I've set up to help you with the analysis and graphing:
80/20 Pareto Tool





  3. Great information, the link to the Pareto tool seems to be broken.

  4. Could you share the Pareto Tool again? The link that you have provided has expired. Thank you.

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  6. This post is very good I especially like the line ..Be more strategic before you get tactical.
    I also really admire how you have structured each post, MECE and rule of three are very evident. Kudos sir.

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