Saturday, October 3, 2009

Personal MBA Update - The 80/20 Principle


I haven't posted a Personal MBA update in a while so I am catching up on a few books at once with this one. I must admit that with the move, a few vacations and trips, and settling into a new life/job I haven't done as much reading lately as I should be doing. Hopefully now I am back on track.

The 80/20 Principle by Richard Koch - I recently read The 80/20 Principle by Richard Koch and I thought it was OK. Don't get me wrong there are some great points and lessons in the book. I just found myself thinking throughout the entire book that the author could have taken some of his own advice. The whole premise of 80/20 is that all things in nature fall into the pattern of the minority of inputs accounting for the majority of the results. Well I felt like the book was filled with a ton of information that was just reiterating what the principle is all about. He could have eliminated 80% of the book and I would have taken the same amount of notes. I literally didn't take a not from page 50 something until like page 167. Other than that, there was some great stuff I gathered out of the book and lately I have found myself question my actions more. "Does this really matter?" and "What can I do to cut through the BS and get this done?" Maybe its laziness or maybe that is the essence of the 80/20. I know what General Von Manstein's view on the 80/20 principle and laziness. Read below to see what he says as well as bunch of other treasures I picked out of the book. If you aren't familiar with the 80/20 principle read up on it. It will help you make efficient use of your time and efforts and provide better results. Here are my notes:

- "For a very long time, the Pareto Law [the 80/20 Principle] has lumbered the economic scene like an erratic block on the landscape; an empirical law which nobody can explain." Josef Steindl
- The 80/20 principle asserts that a minority of causes, inputs, or effort usually lead to a majority of the results, outputs, or rewards.
- The reason the 80/20 principle is so important is that it is counter intuitive. We expect all causes will have roughly the same significance.
- Understanding the principle gives you great insight into what is happening in the world around you.
- Probability theory tells us that it is virtually impossible for all applications of the 80/20 principle to occur randomly as a freak of chance. We can only explain the principle by positing some deeper meaning or cause behind it.
- The problem with linear thinking is it doesn't always work its an oversimplification of reality.
- Chaos theory says there is a self organizing logic behind the disorder, a predictable non linearity.
- Chaos and the 80/20 principle similarities: The principle of imbalance, the universe is not a straight line, feedback loops distort and disturb balance, the tipping point, first come first served.
- "The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man." - George Bernard Shaw
- "God plays dice with the universe. But they are loaded dice. And the main objective is to find out by what rules they are loaded and how we can use them for our own ends." - Joseph Ford
- The two applications of the 80/20 principle: 1. 80/20 analysis 2. 80/20 thinking
- The 80/20 principle states that there is an inbuilt imbalance between causes and results, inputs and outputs, and effort and rewards. Causes and inputs and effort divide into categories:
1. The majority that have little impact
2. The minority that have major or dominant impact
- Must have 2 sets of data both adding up to 100%
- Can use it to focus on the 20% providing 80% of result or can use it to take the 80% who have 20% result and increase the result %
- the 80/20 principle vs conventional wisdom on page 39
- "A database no matter how copious is not information. It is information's ore... The information business depends on is available, if at all, only in a primitive and disorganized form. For what a business needs the most for its decisions- especially its strategic ones - are data about what goes on outside of it. It is only outside the business where there are results, opportunities, and threats." Peter Drucker
- One key theme - generate the most money with the least expenditure of assets and effort
- Conduct the 80/20 analysis for your profits by: product type, customer type, and split relevant to your business with data, competitive segment.
- Simple is beautiful
- Why do companies become complex when it plainly destroys value? Because Managers love complexity!
- Because business is wasteful and because complexity and waste feed on each other a simple biz will always be better that a complex one
- As important as the few best products are it is much less important than focusing on the few best customers
- Top 10 biz uses of the 80/20 principle: Strategy, quality, inventory, management, project management, negotiations, cost reductions and service improvement, marketing, selling, IT, decision making and analysis
- Impose an impossible timeline scale so only high value tasks get done
- Our current use of time is not rational, there is no shortage of time, time is a friend not an enemy. the 80/20 principle says we should act less.
- It is not the shortage of time we should be worried about but the tendency for the majority of time to be spent in low quality ways.
- Top 10 low value uses of time: things others want you to do, things that have always been done this way, things you aren't good at, things you don't enjoy, things always interrupted, things few are interested in, things that take longer than expected, things where collaborators are unreliable or low quality, predictable cycles, answering the phone
- Top 10 high value uses of time: things that advance your purpose, things you've wanted to do, things in 20/80 time to results, thins that slash your time or multiply results, things that cant be done, things done successfully in other areas, creativity, things others can do for you with little of your own effort, high quality collaborators, now or never things.
- Potential uses of time: 1. Is it unconventional? 2. Does it promise to multiply effectiveness?
- "Things that matter most must never be at the mercy of things that matter least." Johann Wolfgang von Goethe
- Questions page 167
- "Relationships help us to define who we are and what we can become. Most of us can trace our successes to pivotal relationships." Donald O. Clifton and Paula Nelson
- Best contacts share: mutual enjoyment, respect, shared experience, reciprocity, trust
- "There are only four types of officer. First there are the lazy stupid ones. Leave them alone they do no harm...Second there are the hard working intelligent ones. They can make excellent staff officers, ensuring that every detail is properly considered. Third, there are the hard working stupid ones. These people area a menace and must be fired at once. They create irrelevant work for everybody. Finally there are the intelligent lazy ones. They are suited for the highest office." - General Von Manstein on the German Officer Corp
- 10 golden rules for career success:
1. Specialize in a very small niche; develop a core skill
2. Choose a niche that you enjoy, where you can excel and stand a chance of becoming an acknowledged leader
3. Realize that knowledge is power
4. Identify your market and your core customers and serve them best
5. Identify where 20% of the effort gives you 80% of the returns
6. Learn from the best
7. Become self employed early in your career
8. Employ as many net value creators as possible
9. Use outside contractors for everything but your core skill
10. Exploit capital leverage
- "To everyone who has will more be given, and he will have abundance; but from him who has not, what he has will be taken away." Matthew 25:29
- Greatest wealth comes from investment not income. Means there is a premium on accumulating money early on to fund investment. Requires hard work and low spending net income must be higher than spending
- Match your investment philosophy with your personality
- Its a perfectly rational response to say at any stop of success I want to get off. With careers and money the most important subject is happiness.
- Aristotle said the goal of all human activity should be happiness.
- Happiness: expand peak moments of happiness and reduce unhappy peaks
- 7 daily happiness habits: Exercise, mental stimulation, spiritual artistic meditation, do a good deed, pleasure break with a friend, give yourself a treat, congratulate yourself
- If there is a trade of between achievement and happiness choose happiness
- Happiness is a duty. We should choose to be happy. We should work at happiness. And in doing so we should help those closest to us and even those who just stumble across us, to share in our happiness

1 comment:

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