Sometimes, problems within a business are glaring. Sometimes they’re more insidious. Sometimes, issues are even misdiagnosed and then left to linger and continue wreaking havoc. While it is certainly helpful to implement a process of pointing metaphorical red arrows at any potential PROBLEM and then taking the necessary steps to eliminate said problem, this simplicity leaves potentially dangerous space for error.
AI powered business tools are surprisingly humancentric in the sense that, although they offer unforeseen levels of precision and speed and depth of understanding through data analytics (which is the equivalent of acting as a red problem arrow), this is only step one in the process of “solving” these potentially devastating business issues.
There is, however, an extremely valuable step that can be taken, which can be illuminated through an understanding of the Pareto Principle, often referred to as the 80/20 Rule. This principle posits that for many outcomes, roughly 80% of consequences come from 20% of causes. This principle has been analysed and applied not only to business development, but also to self-improvement, sales, healthcare, politics, even online dating apps. The bottom line is that when it comes to quality control, the Pareto Principle shows that 80% of the “problems” are caused by 20% of the defects in a process. Through successful implementation of this concept, identifying weak spots becomes not only a blinking red arrow, it becomes an opportunity for exponential productivity growth.
The effects of the Pareto Principle can be seen across all levels of business management, for example:
20% of system defects typically cause 80% of problems with usage
20% of the sales force typically provides 80% of the revenue
20% of products typically generate 80% of complaints
20% of the product portfolio typically makes 80% of the profit
20% of employees typically come up with 80% of innovations
And in the field of Accounts Receivable, 20% of a customer base typically carries 80% of delinquent debts.
Some of these applications are long term challenges, some are par for the course, some are game changers if the right solution can be implemented. The trick to harnessing the power of the Pareto Principle is learning to prioritise and categorise issues based on the extent of negative impact on the company. Then these issues can be organised into groups and solved in more strategic, priority based ways.
The Pareto Principle itself is a simple concept, but the implications are boundless, and the exact numbers are primed to be personalised and tailored. As the MIT Initiative on the Digital Economy affirms, “the smarter your algorithms, the more they—and your organisation—need to be learning from and with Pareto.” Armed with AI powered data analytics and specific targets, a company can then focus confidently on implementing solutions and monitoring results.