Almost everyone’s heard of the 80/20 rule. Unfortunately, few really understand what it can do to improve the focus of their businesses – even in the area of new product innovation. You only have to look to all of the project multi-tasking that goes on to know how true this is.
Boiling 80/20 down to the basics,* a relatively small percentage of your effort (20%) accounts for a majority of your results (80%). Further, a large portion of your effort (40%) will deliver no result. This so called 40/0 distribution is nothing magical – it’s just an outcome of the same power law or longtail distribution of outcomes that creates the 80/20 effect and is seen throughout business and nature.**
Are the distributions exactly 80/20 and 40/0? No, not exactly. Unless you are aggressively managing the results, they will be pretty close and they can actually be much worse – as bad as 80/10 and 50/0 (ie – 50% of your new product launches deliver no real sales thoughput). But the exact numbers are not what’s important. What is important is that you can refocus a significant amount of your resources elsewhere for much better results.
The result of all of this is that the top 20% of your actions are 16 times more effective than the rest [(80/20)/(20/80)]. But as powerful as the 80/20 principle can be in improving your new product development results – or for that matter the results of any process – it doesn’t necessarily tell you where you should focus your improvement efforts. That’s where the Five Focusing Steps of TOC come in. TOC is like putting the 80/20 theory on steroids because it shows you where 100% of your improvements will come from. ***
All too often, continuous improvement efforts work by spreading the improvement, like peanut butter, across the entire process. But the 5 focusing steps of TOC (Identify, Exploit, Subordinate, Elevate, Repeat) help you cut out the wasteful activity and focus your efforts. Since even the most complex process is usually limited by one step, all of your improvements will come from efforts at your system’s constraint. That means that if you are having a hard time finding attractive new product opportunities, investing in developing better solutions is more likely to be a 40/0 activity for you. That is not where you should invest at this time. Instead you should be focusing your improvement efforts on better front end marketing and ideation projects.
Skeptical? That’s only natural. But a study done at Sanmina SCI, a $12B electronics component manufacturer, showed that a TOC focusing approach increased the effect of lean and six-sigma programs by a factor of 20 with 89% of the improvement in their 21 plants coming from their 6 TOC focused plants [(89/11)*(6/15)].
Focus on the right areas if you want to see real improvement, and the Five Focusing Steps can guide you to the highest leverage areas where you’ll get the most result for your effort.
* If you want to get into depth on 80/20, I’d suggest Richard Koch’s excellent book The 80/20 Principle: The Secret to Achieving More with Less.
** 80/20 is based on independence so it does not apply to the dependent tasks within most projects. While 20 % of your projects deliver 80% of your value, you can’t get 80% of the value by only finishing 20% of any project.
*** Even within the efforts focused on your constraint, you are still likely to see an 80/20 effect. If you have ten possible efforts you can undertake, the top six will deliver most of the benefit. So keeping the number of efforts to a manageable number based on their potential impact will deliver even better results.