The 80/20 Principle - Richard Koch

The 80/20 Principle - Richard Koch

Understand that the relationship between effort and reward will support you in using your time at work more efficiently. Strive for excellence in a few things, rather than a satisfactory performance in many others.

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There is a very effective way to improve your professional performance: focusing your efforts on 20% of the factors that generate 80% of your results. This is the premise of "The 80/20 Principle", written by author Richard Koch.

In today's turbulent world, the vast majority of people have to deal daily with an incredibly long demand for tasks. When you finish the first activity on the list, a few more pop up in the place.

In the same way, companies are immersed in complexity, serving several markets with large quantities of different products, trying to deal with all of them in an effective way.

Faced with this is essential to understand, the not so simple but intensely powerful "80/20 Principle", or "Pareto Principle". This relationship between effort and reward will give you support by using your time at work more efficiently.

The principle is applicable even in your personal life, increasing your happiness and satisfaction in relationships with other people. You can be more effective in your life by simply adopting the right mentality of 80/20.

Want to know more? So continue reading this PocketBook and be surprised by this principle driven by cause and effect relationships!

About the book "The 80/20 Principle"

"The 80/20 Principle" was written by Richard Koch, and it was released in 2017. It shows how the secrets of "Science of Success" can solve all the dilemmas of your life.

This book is composed of 336 pages and 12 chapters that are divided into 4 parts: "The laws of biology", "The laws of physics", "The non-linear laws" and "So?". Each chapter addresses one of the major powerful laws or a small set of laws.

About the author Richard Koch

Richard Koch, born in 1950 in England, is an author, speaker, consultant, entrepreneur, and investor. He graduated from Oxford and has MBA from the Wharton School of the University of Pennsylvania.

Koch worked as a consultant at The Boston Consulting Group and was a partner at Bain & Company. He was one of the founders of LEK Consulting, an international strategic consulting firm.

To whom is this book indicated?

"The 80/20 Principle" says that 20% of the effort yields 80% of the reward. In other words, 80% of the efforts are used inefficiently, so you need to focus on the top 20% of the results.

This concept can be applied in many areas, in order to increase your efficiency, from your company to your personal relationships.

Main ideas of the book "The 80/20 Principle"

  • Not all work produces the same reward. The ratio is not 1: 1;
  • The balance is not the natural state of the world, on the opposite, it is the imbalance;
  • The 80/20 principle can help you improve your work process, for best results;
  • The 80/20 principle has the power to increase the company's profits;
  • Simplify and reduce the complexity of your business to succeed.

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[Book Summary] The 80/20 Principle - Richard Koch

Overview: Most Results Are Generated by Only a Small Part of the Work

You may have already realized that the relationship between work and result is not balanced, meaning most work does not necessarily generate most of the results.

In fact, only 20% of drivers cause 80% of accidents. Most of the world's wealth, about 80 percent, is concentrated in only 20 percent of the population. Or, 20% of a company's product range represents 80% of its profits.

This phenomenon is known as the 80/20 principle: about 80% of the results are produced by 20% of the efforts. This event happens because not every cause influences equally the results.

The causes can be divided into two categories, which generate the 80/20 division:

  • A minority that has a great impact on results;
  • A majority that has only a small impact.

However, note that the 80/20 principle is an approximation, and indeed the ratio does not always add up to 100%. One example is that, out of 300 films, only four (1.3%) generated almost 80% of ticket sales.

According to author Richard Koch, through this data, we can see that the 80/20 principle can be used in a wide range of applications, and this is the most valuable knowledge.

Overview: Increasing Profits in Business

How to apply the 80/20 principle in a business? Well, there are many ways to do this, but to get started the best way might be to optimize the company's suite of products.

First, look at which of your products are generating more profits. Sort them by sales numbers and profit. By doing this you will find that while top products take up 20% of sales, they generate 80% of the profit.

Let's illustrate the idea by an example: Richard Koch conducted a study on an electronics company. He found that the three main products accounted for 19.9% of sales, however, they generated 52.6% of total profits.

After identifying the 80/20 principle, the next step is to increase the profit potential of these 20%. The tip from the book "The 80/20 Principle" is: prioritize these products and focus your capital on selling more of them.

Koch advised, at this company, the administration to double sales of those 3 products, ignoring everything else in order to increase profits from it.

Overview: Reduce Complexity to Succeed

Well, generally, large companies are very complex. This fact makes it clear that managers need to be able to manage effectively in difficult situations, even though they often appreciate the intellectual challenge it provides.

However, flirting with complexity is not the best way to lead a business to success.

Contrary to common sense, that the larger the company's product range, the more profit it should generate, the truth is that complexity carries with it high costs, which are more complicated logistics, more training for salespeople, and more administrative work.

Author Richard Koch emphasizes in his book, "The 80/20 Principle", that this increase in cost is not offset by the added products.

In contrast, making your business simpler reduces costs. Shrinking and emphasizing your product line will lead employees to focus on the few products they sell, that is, they can focus on being excellent in a few processes, rather than good in many.

What do other authors say about it?

John Maxwell, in "Developing the Leader Within You 2.0", discusses the importance of the leader demonstrating that he cares for his team and further developing others leaders within it. In addition, he works with the idea that 80% of his efforts should be channeled into 20% of his most important priorities to achieve his goals.

In the book "The 4-Hour Workweek", written by Tim Ferris, we are told to eliminate the distractions, which only take time. Learn how to be effective. Focus on the top 20% and ignore the 80% that do not help.

Finally, Cristiane Correa, in the book "Dream Big", complements the idea of personal strategic planning and stresses the importance of maintaining a process of continuous improvement to reach your objectives.

Okay, but how can I apply this to my life?

Let's look at your work-life first, because the way you currently work probably can be more efficient. Think about it: if you reach 80% of the results with only 20% of the effort, it means that 80% of your work is notoriously inefficient.

Just imagine: if you could eliminate this wasted time and replace it with the things you do during the 20% efficiency, you would be multiplying your work results.

In fact, the creative use of the 80/20 principle can help you increase your efficiency because you have redirected your efforts away from tasks that have only a small impact on results.

As explained by author Richard Koch in his book "The 80/20 Principle", you can start examining and analyzing your work processes, to find out which parts of them are inefficient.

You may find that, for example, in the early stages of a project, you waste time thinking over and reflecting on every possible mistake you might make. Realize this and you can consciously try to stop thinking about possible failures.

Whatever the reasons, by identifying them and reorganizing your process to avoid them, you can greatly increase your efficiency.

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