Pareto triage
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Office anthropology™
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Pareto triage
pəˈreɪtˈəʊ ˈtraɪɪʤ (n.)
A JC coinage to capture management’s slavish devotion to the Pareto rule.
To exercise “Pareto triage” is to move beyond the observation that eighty percent of your revenues tend to come from twenty percent of your clients, and vice versa — which is just one of those unfortunate and immutably brute facts of life, like “Australians are good at cricket” — and to use it as a plan of business action to try to change the immutable facts of the universe.
The logic — if one could call it that — is this: four fifths of our clients provide just one fifth of our revenue. That great segment — eighty percent of them! — is really not worth the bother. Rather than wasting precious internal resources on the low-yielding mass, we would be better served just foregoing that twenty percent of revenue, or at any rate pay not the blindest bit of attention to maintaining it — and instead concentrate on that lovely twenty percent segment who bring all the rest of our income.
This a variation on the same argument:
“Half our clients generate more revenue than the other half. We should therefore ditch the lower-revenue generating half.”
Unless your client-base is totally homogenous, it is statistically certain that one half of your clients generate more revenue than the other half. This is a function of how you line up your clients: it will be true every year, every month and every day of “your clients” in general but not of any clients specifically. It is an emergent property of all your clients. This is the logical error of jobsworthism. It is to mistake a mathematical property of variable set of data for a hard, determinate, property of artifacts in the real world.
That underwhelming majority is, therefore fractal. It scales down and up. If you cut it off, you will see, to your horror, your new, concentrated, high-value, but radically down-sized customer base still requires Pareto triage: there are still twenty percent of its population generating eighty percent of the revenue. The revenue pot is just smaller, that’s all.
This is Xeno’s paradox for our age: If we chase a Pareto triage we will end up with 20 percent of nothing.
The better approach, perhaps is to enrich the Pareto ratio, but recognising that the key to doing that is not to indulge in jobsworthism, but to have a product which can flex at the edges.