CHAPTER  |  THIRTEEN

You Can Accomplish More with Less

Everyone knows that despite what leaders sometimes demand, you can't do more with less—or can you? I've heard it expressed as “you can't get blood out of a turnip.” But many leaders of organizations have announced that “we must learn to do more with less.” And in a surprisingly large number of cases, they went on to do exactly that.

I saw an economist on television discussing the difficulty in getting back the jobs lost during the recession. “In many cases,” he explained, “companies have found that they didn't actually need the employees who were laid off. In other cases, they simply used the money they formerly paid the laid-off employees to accomplish the same jobs more efficiently and less expensively.”

Long before the Great Recession, Drucker said you could do more with less and went on to prove it. This is done by reallocation of resources based on a discovery by and with a little help from a nineteenth-century Italian economist.

The Man Who Showed Drucker How to Do More with Less

Vilfredo Pareto was an Italian economist who, in the late 1890s and early part of the twentieth century, investigated the distribution of wealth in Italy. He found that roughly 20 percent of the population owned about 80 percent of the land. Strangely, this same breakdown held in a number of other populations that he investigated. Moreover, this breakdown was oddly consistent and predictable. Although Pareto's findings were published, not much was heard about this for many years. However, others began to notice the same, rather unusual pattern in many other areas of human endeavor. Most notably, these people included Harvard professor George K. Zipf, who discussed it in his Principle of Least Effort, and quality expert Joseph Juran, who proposed the Rule of The Vital Few.¹ Eventually it came to be thought of as a quirk of nature that holds true in regard to just about everything. Amazingly, roughly 20 percent of input causes roughly 80 percent of output or, stated another way, 80 percent of the results of anything comes from only 20 percent of the causative factor.

That is the secret of accomplishing more with less. Later, I'll show you how Drucker applied this idea directly to management. However, note now that this unusual breakdown is approximate—but close enough to catch the eye of a number of geniuses, including Peter Drucker.

Pareto in Your Daily Life

Pareto's phenomenon can easily be seen in your daily life. For example, you probably wear about 20 percent of the clothes in your closet about 80 percent of the time. This means that the money you spend for the 80 percent you rarely wear is largely wasted. Maybe you just like to see them hanging there, or you have a certain pride of ownership, or you feel more comfortable knowing that you have them to wear, if needed. However, the fact is, you could do more with less, a lot less if you had to. And the impression you'd make with your clothes will not change one iota, since you'd be wearing the same clothes as previously. Pareto's discovery began to be known as the 80/20 rule or the 80/20 principle, in which a majority of output results from a minority of input.

This has a significant effect in both your business and personal life. For example:

• 80 percent of your revenue comes from 20 percent of your clients.
• 80 percent of your HR problems are caused by just 20 percent of your employees.
• 80 percent of your company's customer complaints come from 20 percent of your products.
• 80 percent of your profits come from 20 percent of your products. Of course, 80 percent of your sales also are associated with 20 percent of your products, which may not be the same products. Both of these figures are important.

It is a basic principle of competitive strategy to concentrate your superior resources at the decisive point in the competition. The problem over the millennia has been to identify that decisive point. The 80/20 rule can help you do this. Drucker was clearly aware of this rule when he advised Jack Welch in his early decisions, which CEO Welch used to build General Electric into a $450 billion success story.

We'll see in Chapter 30 how Drucker operationalized Pareto's 80/20 rule with his concept of abandonment.² For now, if you want to do more with less, here's what you need to do.

1. Regardless of what you are analyzing, find out where your results, good or bad, are coming from. Let's say that you are using several different ways to sell your product or service. Some methods are so blatantly good or bad that the results are obvious. But in many cases, you need to look closer. In one business, I was surprised to learn that most contacts that led to sales were not coming from massive, varied, and costly methods of advertising but, rather, 80 percent of them were coming as referrals from personal contacts. Now you probably already know that referrals are extremely effective—but 80 percent? Who would have thought?
2. Remember, people are always important. If there's to be a pruning, most companies just eliminate the troublemakers or those thought to be least effective at their jobs. But this type of thinking is no longer reliable or always true. For example, a sales engineer who was not the world's greatest dresser was thought to have poor interpersonal skills; it didn't help that he was almost always late to appointments. So he was scheduled to be first in line for layoff. There were no direct-sales metrics; it was an organization that didn't measure sales in direct numbers or dollars, as all the contracts were multimillion-dollar arrangements and involved several sales engineers assigned to the project. Fortunately for the sales engineer and his company, though, somebody noticed that this particular individual was associated with most of the winning contracts—about 80 percent of the wins. Closer analysis showed that he was going to extraordinary lengths in his interactions with customers, ensuring that their voices were heard on every project. This was unknown in the company and never considered before.
3. Look closely at product for problems, complaints, and successes. You'll be surprised at what you may find.

In summary, what you want to do is to model Drucker. He used Pareto and came up with the concept of abandonment. When adopted, this concept made a lot of money for a lot of companies. You can do the same.