“Assume your industry is screwed”: Richard Koch 80/20 Principle


After another inspiring Castaway networking event last night (and meeting some very bright, energetic digital innovators from companies as diverse as Zopa, Kizoom and Fortune Cookie), I was reminded of a great quote from Richard Koch, author of the 80/20 Principle.

We tend to assume our organisations and our industries are doing pretty much the best they can. We tend to think that our business world is highly competitive and has reached some sort of equilibrium or end-game. Nothing could be further from the truth! It would be far better to start from the proposition that your industry is all screwed up and could be structured much more effectively to provide what customers want. And as far as your organisation is concerned, your ambition should be to transform it within the next decade, so that in 10 years time your people will look back, shake their heads ruefully and say to each other “I can’t believe we used to do things that way, We must have been crazy!”

There were certainly plenty of great ideas bouncing around last night about how PR and marketing can (and is) being transformed. Bring it on.

How the 80/20 principle dominates PR, social media and life


Richard Koch’s book The 80/20 Principle was first published in 1997 and went on to become a cult business classic (500,000+ copies sold. He later wrote the 80/20 Way which extended the approach to life generally).

I only properly read both books recently as a result of the suggested reading list in Tim Ferris’ Four Hour Work Week (it made me realise what a big debt Ferris owes to these earlier works – in many ways, the 4HWW philosophy is a practical application of Koch’s 80/20 approach).

So what is the 80/20 Principle? In short, it is an extended application of Pareto’s Principle (Vilfredo Pareto, an Italian economist, 1848 – 1923, was looking at patterns of wealth and income in 19th century England. He found that 20pc of the population enjoyed 80pc of the wealth – he also found that you could reliably predict that 10pc would have 65pc and 5pc would have 50pc. The key point is not the percentages, but the fact that the distribution of wealth across a population was predictably unbalanced).

Koch’s insight was to apply this predictable imbalance across a whole host of business and life phenomena. However, reading his books made me realise that although the 80/20 concept gets bandied around a lot, people often miss the subtlety of what Koch was getting act. For example:

80/20 is simply shorthand – the ratio could be anything 90/10, 70/30, etc. In fact, it doesn’t need to add up to 100 eg 70/20. The key point is that a 50/50 relationship between two sets of related phenomena is the exception rather than the rule. And yet, we naturally act as though the norm is a direct correlation between input and output or effort and reward.

The principle is thus counterintuitive. As Koch points out: “High performers are not 10 or 20 times more intelligent than other people – it is the methods and resources they use that are unusually powerful.”

Take some of his examples: Less than 20pc of all recorded music is played more than 80pc of the time; Fewer than 20pc of clouds will produce 80pc of rain, etc.

Let’s look at the world of PR and social media (I have no scientific evidence for these examples – I suggest them as possible ratios – why not analyse these in your own business and see what results you get:

20pc of agency employees do 80pc of the work clients value

5pc of companies gain more than 80pc of press coverage

Less than 1pc of press releases generate 99pc of press interest

Less than 10pc of your press contacts generate 100pc of the press coverage

Less than 10pc of your blog posts generate more than 90pc of the blog hits

I’m sure you can come up with many more. The point Koch would no doubt make is that in many cases, people will carry on behaving as though there is a 50:50 relationship in the above examples.

As Koch says, the world is resolutely non-linear. By focussing on and analysing the 20pc of inputs that generate the 80pc benefit in all cases, you should be able to obtain significant gains. Less is more.

Follow

Get every new post delivered to your Inbox.

Join 3,501 other followers