“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us”
Charles Dickens in ‘A Tale of Two Cities’
Just as in a novel, in business, context is everything. Dickens’ 1859 tale set in London and Paris, before and during the French Revolution is a study in contrasts.
In management, perspective — how we look at things — and what we look at is everything. Just as you are what you do, not what you say you do. Managers’ fortunes rise and fall on their choices and what they focus on.
With media bombarding us, it’s probably the case that a small trickle of information influences us in an 80/20 way. But even this ratio is not what is seems in our world, where straight line relationships rarely exist, and certainly don’t appear in nature.
A fact even Socrates likely would agree with.
In these times of Covid-19 microbe, The Economist calculates that “62percent of countries (accounting for about 40% of world GDP) are experiencing tightening lockdown conditions, versus 27 percent in early June”.
Based on their analysis, taking the pre-pandemic average as 100, and tracking indicators like “flights, traffic and retailing across dozens of countries comprising 76 percent of the Earth’s population. Today it stands at 66 —double the level in April 2020, but still well below the pre-pandemic benchmark,” states the influential newspaper.
It’s probably the case that a small amount of information, like news and snippets of conversation, determine our outlook in some variant of the 80/20 rule. “The information we consume matters just as much as the food we put in our body. It affects our thinking, our behaviour, how we understand our place in the world. And how we understand others,” said Evan Williams, co-founder of Twitter.
Sometimes known as the Pareto Principle, the 80/20 idea was first introduced in 1906 by the Italian economist Vilfredo Pareto. Genesis of the idea was when Pareto noticed that 20 percent of the pea pods in his garden were responsible for 80 percent of the peas. From this spark of inspiration, he went on to apply this in macro-economics, showing that 80 percent of the wealth in Italy was owned by 20 percent of the population.
More than a century later, managers use the 80-20 rule to help narrow their focus and identify issues that are either catalysts for success or problems to be dealt with.
Joseph Juran, one of the founders of the total quality movement, in the 1940s applied Pareto’s 80-20 rule to quality control in manufacturing. His work that was hugely influential in Japan showed that by reducing the 20 percent of production problems, a business could increase its overall quality significantly.
What Juran referred to as “the vital few and the trivial many.”
Perhaps we should thank Juran for the observation that it often appears that 80 percent of the cars on Kenyan roads are Japanese. However, even the 80/20 rule is as straight forward as it seems.
Interestingly, there are a number of misconceptions about the application of the 80/20 ratio, that managers can turn on their head, and use them to an advantage.
The 80-20 rule is a precept, not a hard-and-fast mathematical law. It is a coincidence that 80 percent and 20 percent equal 100 percent.
Given that the inputs and outputs represent different units, for instance, customers, income, products, the percentages don’t need to equal 100 percent. In fact, when you do the arithmetic — on the problem at hand — the ratio will rarely come out to exactly 80/20. It could be say 0.5/10.
Take the case of a retailer who analyses data covering roughly 20,000 customers over the past 12 months and discovers that the top 0.5 percent generate 15 percent of all sales. And, that the first 50 percent generate 85 percent of all sales, and the last 50 percent are responsible for just 15 percent of revenues.
In this case, what is the best course of action? Focus has to be on the ‘big spenders’, the tiny half-a-percent of customers who are bringing in 15 percent of all sales. It makes sense to reach out to them to ask how the retailer can serve them better.
What about the 50 percent responsible for just 15 percent of sales? Again, using social media, it would be easy to survey them to ask what their preferences are, and how to win them over.
Just like in the waves of Covid-19 Kenya has experienced, business rarely moves in a straight line; their capitalist and social democracy variant economies have up and down cycles of growth and recession.
While a spider’s web and rock strata may come close, there are no straight lines in nature. Linear thinking is a man-made creation that does not occur in the universe. Strange that we would not take into account the real world of ambiguity and uncertainty. Guess it’s just easier to draw a straight line, cause and effect sometimes.
“Everything you’ve learned in school as ‘obvious’ becomes less and less obvious as you begin to study the universe. For example, there are no solids in the universe. There’s not even a suggestion of a solid. There are no absolute continuums. There are no straight lines,” said the inventor Buckminster Fuller.
Thanks to Socrates and the application of linear thinking, we know that if a = b, and b = c, then a = c.
Yet Socrates did not have a straight line perspective. So, unlike the traditional school-master who instructs, Socrates’ focus was on discussion. Perhaps, we should recognise the wisest is she who knows she does not know.
Socrates said:“One thing only I know, and that is I know nothing.”