Thursday, May 31, 2012

Richard Koch, The 80/20 Principle


I occasionally read a self-help book such as Richard Koch's The 80/20 Principle. Usually, I am disappointed. These sorts of books always seem to be a classic example of the 80/20 principle in that 90% of the useful contents can be found in 5% of the pages (the principle doesn't have to be 80/20 and doesn't have to add to 100, it is just that these sorts of nonlinearities are a counterintuitive but natural part of our world). The rest is just filler.

The basic idea is good. As he notes, 80% of what you achieve during your work time comes from 20% of the time spent. The other 80% of the time you spend at work provides only 20% of the output.  The idea is to increasingly emphasize the useful 20% and step away from some of the time-wasting 80%.

Certainly this is a useful and obvious lesson. And it is one which can be used at the margins to eliminate some useless activities from the work day. It also can be applied to real life activities. Such as with this blog. 20% of the readers are surely providing at least 80% of comments and sharing links to here with other sites. It certainly is wise to express appreciation and pay special attention to that 20%. Thanks.

Also, I can see this with my published research articles. 20% of my articles (namely, those in the Journal of Financial Planning: 7 / 37 = 19%), probably account for 95% of the cases in which someone has actually read an article I wrote. Most of the other articles I've written are destined to collect dust on a library bookshelf. I should clearly focus on writing articles only for outlets that will have an impact. 

Another cute point from the book: 20% of the workers in any large corporation surely account for 80% of the work effort. But employers are rarely able to provide 80% of the wage bill to those 20% of workers. So it can pay for such productive workers to set out on their own with self employment.

Another point from the book that is worth reemphasizing: usually the amount of time it takes to complete a project depends on the amount of time available. Procrastination can be good (if you are spending your time effectively on something else), as it forces you to produce output in a much shorter period of time that will probably be at least 80 or 90% as good as if you had spent much more time on the project. I'm experimenting with this now, as I need to get a research paper finished today.

As well, the book emphasizes that is important to specialize. Find a specific niche which you know better than anyone else. That is how you are able to provide value.

But the principle can also be hard to apply in practice. Certainly when working on research, 20% of the time spent results in 80% of the material that finds its eventual way into a research article. It would be nice to cut out the other 80% of the time that doesn't ever amount to much in the way of useful results. But the trouble is that there is a matter of serendipity or luck. It is hard to know in advance when an insight will come or which 20% of the stuff you are working on will eventually become most useful. For instance, "safe" savings rates sat as an entry on my to-do list for at least 6 months without my ever looking at it, but then after having an initial look, the entire article was finished within a week.

In conclusion, the book makes some interesting points, but I think an editor could have cut out 80% of the book without readers really missing out on anything important. And that is the curse of self-help books.

Guest Post on Research at Michael Kitces' blog


Today's blog post is graciously hosted by Michael Kitces as a guest post at his exceedingly popular blog, Nerds Eye View.  Please have a look: