Pareto's Law : The 80/20 Principle - Does It Work? 

Pareto's Law

The famous principle, which is sometimes called Pareto’s Law, originated from the famous Italian Economist, Vilfredo Pareto in 1906. 

The principle has been analysed extensively by all manner of businesses and economists over the years and has been found to be very effective. The percentages may vary but the principle remains the same.

The 80/20 Principle

Pareto stated:-

• 20% of the public own 80% of the wealth.
• 80% of the land is owned by 20% of the public.

 And so on – hundreds of examples……………..

In Business the rule states:-

• 80% of your income comes from 20% of your customer accounts.
• 80% of your orders come from 20% of your customers.
• 80% of your productivity from 20% of your staff.
• 80% of your problems come from 20% of your staff.
• 80% of your queries come from 20% of your customers.

80/20 Customer Service and Sales

• Why not have your key 20% of staff supported by outsourced staff?
• Have your key 20% Customer Sales and Customer Service staff members document and outsource their entire "non-key” repetitive tasks.
• Then they can give their full attention to the “critical key tasks” and therefore make themselves more effective to your organisation.
• Sales 80/20 Outsource In the Business Process.
• The 20% of your turnover will be from the 80% of customer’s.
• Automate some of the Processing and Customer Service this with :- (1) Answers to standard answers (2) System Quotes from the system (3) Order Processing (4) Order Tracking (5) Artwork

Concentrate on Your Top Customers

Outsource the above leaves your key staff with time to pay full attention to the 20% of your Top Customers yielding the 80% of your profits.

Measurable

Having removed the repetitive tasks from their remit, their performance will become more measurable.

80/20 Accounting Example

Supplier Invoice Input: Many companies are paying a qualified accountant or book keeper £25-£30,000 per year to input suppler invoices against PO’s, I used to do this myself. 

Outsource this as it is a repetitive task, but be sure to have a query procedure in place to flag non-conforming suppler invoices. Let your key 20% of accounting staff concentrate on the critical key areas of your accounting needs.

Accounting 30 and 60 Day Chasers: Have outsourced staff run one simple report to see accounts 30 days and 60 days past due and send them a pre-scripted email with a statement chasing for payment the first day of each month.

Conclusion

Define the 20% Key Crucial Tasks in each department and put in place a plan to outsource the other 80% of tasks to outsourced offshore workers.

Click here for more information on outsourcing: 

http://www.allveronservices.com/outsourcingexamples.aspx

Outsourcing Thoughts in a Scalable Business

Outsourcing some of your business tasks is essential when creating a "Scalable Business"

Scalable Business Defined 
Scalability is the ability of a system, network, or process, to handle a growing amount of work in a capable manner or its ability to be enlarged to accommodate that growth. Also to be able to scale down operations when the economy or market conditions dictate.

Cleanse Your Operation

• Process Map Your Business
• What can be automated: Automate
• What cannot then: Delegate

Automation
Whatever tasks can be automated by our computer systems and software then do so.

Do Not Delegate Chaos
If your business processes are not mapped accurately then you cannot delegate and outsource the task successfully.

If you are running around like a headless chicken and not getting "your stuff" done, then handing all your "stuff" over to an outsource worker without good instructions / procedures documented will only mean that then they will also not get "your stuff" done!

If your desk or business life is in chaos then outsourcing chaos to someone else will not be effective but it will be expensive.

Effectiveness
Being efficient doesn't necessarily mean that you are being effective - don't get the two confused.

Being effective is about doing the right things to achieve your goal.

Being efficient is about doing the things without wasted time or effort.

Automating Inefficiencies will cause chaos whilst automating efficiencies will be hugely effective.

Elimination
Analyse your business tasks and any tasks that we do by habit but are now not essential to the business then eliminate them altogether.

Delegate and Outsource

• Delegating time consuming non-core repetitive tasks will save you time and money.
• Tasks can then be documented and instructed can be outsourced.
• Outsource well defined but time consuming tasks.
• Outsource the answering of common questions in customer Service.

Future Proofing Your Business
Outsourcing means that you have to document, step by step in fine detail, all of your company's key information, knowledge and procedures. Which is saved in a central online location so procedures can be amended or updated to suit as your business develops.

Did You Know
A number of the very largest Gift House Distributors in the USA outsource many tasks on a daily basis.

Definition of Outsourcing?

We often hear the word "Outsourced" but sometimes it is difficult to define.
Quite simply Outsourcing is having any task completed for you by a person / company / entity that is not on your payroll. 

Emma Jones, the eminent founder of Enterprise Nation, the home business network, said: 
"My advice to any small business is 'focus on what you do best and outsource the rest' and it's becoming increasingly straightforward to do this. Outsourcing helps you stay nimble and keeps overheads low."
"The benefits of outsourcing are threefold: you only pay for services as you need them; you get access to expertise that may not otherwise be available to you; and it frees up your time to focus on the things you do well, while offloading the tasks you perform badly."
What is Acceptable to Outsource?

Different people have differing feelings and views as to what is acceptable and what is not acceptable to outsource.
Some outsourced solutions are very accepted like for example "IT Support" has been accepted  for many years but other outsourced services such as maybe "Overseas Voice Call Centres" are not accepted by the majority of people.
Whatever your view is, one thing is for sure, that the scale of outsourcing is not understood by the majority of people. 
There are many examples of this but one interesting one is : Did you know that the person that you talk to at the "Fast Food Drive-Thru" is not always the physical person at the kiosk where you pick up your order from! Some chains have outsourced this process, as if you consider, all that the person is doing is taking your order and keying the details in to the Supplier's Order System. This could be and is done from anywhere on the planet...
Click Here
All large companies outsource : Manufacture, IT, Voice, Back Office, Data Input, Pay Roll, Accounting, Sales Calls, Shipping, Procurement, Drop Shipping – everything!
Whatever tasks that you decide to outsource please use the general guidelines below :

• Outsource Non-Core Repetitive Tasks
• Outsource Tasks that are well defined
• Outsource Tasks that are Time Consuming
• Delegate Repetitive Questions

Lastly below is another interesting outsourcing model that I recently cam across :
Small Accountants Business
 I have a friend who is a chartered accountant, he is very successful yet only works one day a week.
He has a full time PA who works for him, she received each customer's accounts and sends them electronically to their Offshore Back Office Team who then processes the end of year accounts very quickly and two days later they arrive back with her finished.

They are processed by fully qualified accountants in the Far East and because of the number of staff available they can cope with hikes in business volume very easily.

Note: Accountants in the UK very often have a receptionist or a very junior, unqualified, low paid person do the repetitive book keeping input on accounts for small and medium sized businesses. This negates the need for £120 per hour accountants processing repetitive mundane accounts and you the client receiving a massive invoice.

Benefit: The books are prepared by a more qualified person in a quicker time.

The PA then liaises with the client to make the appointment for the one day of the week when the business head is available and then updates his diary on line and e-mails him the finished set of accounts along with any notes that he may need. Meetings are scheduled every one and a half hours from 8.30am, half hour for additional reading the the figures and notes before a one hour meeting with the client.

A Great Business! 

Regards

Mark Tomlinson