Page 111 - The McKinsey Mind

04 (083-102B) chapter 4 1/29/02 4:50 PM Page 86

86 The McKinsey Mind

THE McKINSEY WAY
McKinsey-ites use the following principles in their daily struggles
with data analysis.
80/20. The 80/20 rule is one of the great truths of business. It
is a rule of thumb that says 80 percent of an effect under study
will be generated by 20 percent of the examples analyzed. This rule
dates back to the economist Vilfredo Pareto. While researching
economic conditions in his native Italy, Pareto determined that 20
percent of the population owned 80 percent of the land. Subse-
quently, while working in his garden, he discovered that about 80
percent of his peas came from just 20 percent of his plants. Based
on these and other observations, he determined that for any series
of elements under study, a small fraction of the number of elements
usually accounts for a large fraction of the effect. Over time,
Pareto’s observation became generalized as the 80/20 rule.
Although the 80/20 rule has been around a lot longer than
McKinsey, McKinsey consultants live and die by it. If you look at
the numbers that drive your organization, almost invariably, you
will find instances of 80/20. For instance, you may determine that
80 percent of your sales comes from 20 percent of your clients, 20
percent of your sales staff generate 80 percent of your profits, 80
percent of your time is spent on 20 percent of your job.
The 80/20 rule is all about data. When you’re doing a data-
intensive analysis on your computer, play around with the numbers
a bit. Sort them in various ways. Whenever you see 80/20 in
action, you should look for the opportunities it implies. If 80 per-
cent of your sales come from 20 percent of your sales force, then
what is that 20 percent doing right, and how can the 80 percent
be brought up to speed? Do you really need the other 80 percent at
all? As you can see, a little bit of 80/20 can go a long way.
Make a chart every day. At the end of each day, ask yourself,
“What are the three most important things I learned today?” Take