In Richard Koch’s 1998 book, The 80/20 Principle, he makes a rather stark statement reflecting on the events of today. “The tipping point is ‘the point at which an ordinary and stable phenomenon – such as a low-level flu outbreak – can turn into a public-health crisis’, because of the number of people who are infected and can therefore infect others. Since the behavior of epidemics is non-linear and they don’t behave in the way we expect, ‘small changes – like bringing the number of new infections down – can have huge effects… It all depends when and how the changes are made.”
In this example, Koch is referring to the tipping point as an invisible line separating the 80% from the 20%. He implies that a great deal of effort (the 80%) can be put into a new product, a program, or a new social platform, without making significant progress. Many give up before reaching the tipping point. Those that persist and push through to the tipping point reap the benefits of huge success. This reflects on the core concept of 80/20, in that 80% of your business results come from 20% of your activity. Inversely, 80% of your activity, only influences 20% of your results. This is the great news behind 80/20. The method identifies significant waste in the value stream and provides clear opportunities to remove the waste, and make tremendous leaps forward in productivity, value, and success! Which may be exactly what is needed in your crisis rebound strategy.
Reassess and Solidify Relationships with Your Top Customers
Customers will also be emerging from the crisis. Some may have been thriving during this time, while others may have been surviving. Are the top customers pre-crisis, still the top customers post-crisis? Start with evaluating customer order forecasts and ensure the customers previously perceived as ‘A’ customers still are!
'A' customers generate the lion’s share of revenue and profits. Make sure to focus on this group. This is where to apply 80% of your effort! To identify top customers, start by listing customers by annual sales, sorting by highest to lowest. Next, divide the total number of customers by four. The top fourth are 'A' customers, and the next fourth are 'B' customers, the next group are 'C's and the final are 'D' customers. The numbers will likely reflect those in Figure 1.
Make certain prior annual sales are still generally in line with your forecasts. Be aware markets may significantly change during rebound, and customer previous perceived as a low value ‘D’ may suddenly become a higher value, while an ‘A’ customer may have dropped lower, or even out of the market.
Realign Strategy for the Rebound
Once the reassessment of top customers is completed, realigning strategy is of paramount importance for a successful 80/20 process. Alter your strategy to better serve the core ‘A’ customers, as well as moving away from low value customers and products. It helps the company to focus on primary markets and rebound with the strongest value proposition and a competitive advantage. A simple tool broadly applied to set priority is a high-low grid that uses “Easy to Do/Hard to Do” on one axis and “High Impact/Low Impact” on the other. The highest priority strategies would be “Easy to Do/High Impact” and the ones that should be shelved would be “Hard to Do/Low Impact”.
Management of Rebound Strategy
Once the strategic plan and supporting sales and operations plan have been reassessed for the rebound, it is critical to implement or update the business operating system to ensure execution of the plan. Business operating systems help establish goals, timelines, and accountability. A typical system will include daily, weekly, monthly, and quarterly progress reviews. Some examples include:
- Daily: Safety, Quality, Delivery, and Productivity
- Weekly: Cash Flow and Inventory Levels
- Monthly: Change in Cash, A/R Aging, Comparisons & Analysis Ratios
- Quarterly: Risk Management, 80/20 Analysis (Update), Supply Chain Costs and Pricing Strategy Review
Use the business operating system as a day to day playbook and a litmus test to evaluate new projects or activity. If it doesn’t fit within the system, it likely doesn’t align with rebound strategy and may not be a high pay off 80/20 activity.
Focus on Employees
When rebounding from a crisis, it is easy to get caught up in the metrics and the drive to get back to normal. The most important part of the rebound strategy, and certainly the most critical 20% of a business’s assets, is the workforce that makes it all possible. Look after the team, from the shop to the top. Provide clear and open communication and let everyone know there is a rebound strategy. Visually share metrics, including progress and setbacks and ask for feed back from the front line. Keep an open mind for improvements and gather suggestions. Use 80/20 principles to assess incoming ideas and select those with the highest payback that are easiest to implement. Reserve other ideas for continuous improvement.
Part of the rebound strategy may include bringing employees back furloughs or work from home. Understand there will be an adjustment period and support the team during this time. Finding and retaining skilled workers is difficult, so be prepared to adjust your policy to the “new normal” after a crisis. That does not mean becoming lax in discipline. Do not overlook issues; make sure you are documenting them and coaching along the way. This is also a good time to check the pulse of employee satisfaction through engagement surveys or focus groups and be prepared to respond to concerns.
Much of the advice outlined above is just good business practice but can be easy to set aside when facing the challenges of the rebound. 80/20 can help narrow the focus to what is most important during this challenging time and ensure a successful emergence from crisis. One of Koch’s observations was. “I have observed thousands of examples of the 80/20 Principle, I have had my faith reinforced: faith in progress, in great leaps forward, and in mankind’s ability, individually and collectively, to improve the hand that nature has dealt.”
How to get started?
Engaging IMEC's business experts to assist on deploying the 80/20 business process approach is a great way to reassess your strategic plan and prepare for the rebound. Start with a half-day overview to educate your team on the principles of 80/20 or conduct a 2-day 80/20 implementation strategy session that includes a variety of tools that support implementation. The 2-day strategy session can also include 30, 90, 180, and 270-day follow-on implementation coaching sessions that will help your team stay on track as it deploys 80/20 strategies and monitors results.
In addition to 80/20, IMEC offers a suite of tools that can enhance your efforts and help ensure you and your business are in good shape as you rebound and prepare for the new normal! Get in touch today to start a conversation that can lead to new insights.