Using the 80/20 rule can help you spend your time and energy more efficiently.

Critical thinking doesn’t only apply to coming up with recommendations. You need to think critically about the way you’re going to spend your time and energy. Those things are limited. You have too many problems to solve and not enough time.

I encourage people to follow the 80/20 rule, also known as the Pareto principle. The Pareto principle was coined by Vilfredo Pareto, and he noticed in Italy, 80% of the land was owned by 20% of the population. He was also a gardener, and he noticed 80% of the peas coming out of his garden came from 20% of the pods. And he said, “That’s interesting. Two totally different realms demonstrating the same principle.” 20% led to 80% of the impact, and that’s the 80 20 rule. 20% of the drivers will drive 80% of the results. You need to think about your work the same way. You can’t focus on that 80% that only drives 20% of the results. Focus your efforts on the meaningful.

Let me offer an example. I have a client that creates capital equipment. They’re a manufacturer, and they were having a whole bunch of service issues in the field. Customers were calling up with a variety of complaints. And at first, this client was going out and trying to solve every single issue out there. But then they said, “Wait. Maybe there are certain issues that are causing more of our problems than others, and we only have limited resources that we can spend going out and fixing these issues, so let’s do an analysis.” And when they conducted that analysis, they found out that of all the service issues they had had reported, two issues were driving 80% of the complaints. One was about their software crashing and one was about the motors breaking down. What this client was then able to do was take all of their resources, focus them on these two issues, and solving those two issues would solve upwards of 80% of the complaints from their customers. That’s not to say the other complaints weren’t as important, but in terms of focusing their resources, they thought critically about what the problem is and where they were going to spend their time.

This has implications for you. When you think about a problem that you’re trying to solve, think through, “What are the major drivers of impact?” If you’re running a business unit at a high level and you’re trying to grow your profits, you can either look at revenues or costs. In revenues, you can look at volume or price. In volume, you can look at current customers and prospective customers. And within those, you can look at geographic regions. And let’s say we said, “Hey, this is going to be a revenue issue. You can’t look at the entire country.” What you’re probably going to want to do is focus on those couple of geographic regions that can drive the most impact for the metric you’re trying to increase.

So, look at whatever problem you’re trying to solve, understand what the drivers are, and understand how much each driver contributes to the overall impact you’re trying to have. Spend your time solving for those issues, the ones that have a disproportionate impact on the metric you’re trying to move. It’ll be a much more efficient use of your time, and you’re going to solve the biggest problems your organization faces first.

Want to learn more about critical thinking? How about taking an entire course on it? Go directly to the course and start learning how to think critically. The entire course is available at LinkedIn Learning. Enjoy!

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Thinking critically about the way your business runs can help you generate new ideas to run things better.

When you go to generate new ideas to run things better, you need to think critically about the way your business runs. I like to look at three things: a business model blowup, a revenue blowup, and a cost blowup.

On the business model blowup, fundamentally rethink about how you go to market, even rethink what your market actually is. You’re going to challenge the entire business model for the way you deliver products and services. On the revenue blowup side, how do you dramatically expand the products, your pricing, the geography, the reach of your business? And on the cost blowup, how do you fundamentally eliminate drag from the business, to become much more efficient?

One company I hold up as an example of one that fundamentally blew up the business, blew up the cost, blew up the revenues is Skybus Airlines. If you think back several years ago, the way the airline industry functioned, everybody was the same. Tickets were all bundled. They had a similar operational model, and prices were pretty predictable. Along came Skybus and they said, “We’re going to blow up the way all of this works. From now on, all meals were going to be paid for it individually.” And people were going to stop subsidizing the meals of other passengers by paying for a bundled ticket. They said, “Don’t call us. We’re not going to have a call center.” Call centers are very expensive to run. Skybus said, “We’re going to do everything online.” It’s a different customer service model. They said tickets aren’t refundable. It costs a lot of money to rebook passengers. They said, “Once you buy it, it’s done.” The impact of all these changes Skybus made because they thought critically about the business model, was pretty tremendous. They were able to sell tickets for $10 or $20 each way. Sure, some of the tickets on the plane cost $200 as you got closer to the flight time, but their pricing model by unbundling everything, and by reducing their overall cost structure, allowed them to compete differently.

I personally benefited. I took my entire family to California from Ohio for $200 total, each way. In the past, those tickets would have cost me thousands. Now, these changes that Skybus made were very radical and they were risky, and these risks won’t always play out well for you. One day, I was teaching a class on how innovative Skybus was and I was talking about how great their business model was. When I got home that night, and I went to book some new tickets on Skybus, I was greeted by a splash screen that said they were out of business. Now, even though Skybus wasn’t successful in the long-term, their critical thinking and looking at the business differently, altered the landscape. I’m sure if you fly today, you’ve noticed that pricing is unbundled. So, that critical thinking led to massive changes in a huge industry.

As you think about applying some of these critical thinking tools, let me offer you some questions you can ask. On the business model blowup, ask yourself, if we had to do over, what will we do differently? If we’re starting this business again today, what would we change? How would you double the size of whatever metric you care the most about is, in two years? That’s a huge goal. Doubling something? But it’s going to challenge you to look at your business differently. On the revenue blowup side, ask, who could create more value with our customers than we can? Who does it better? That’ll get you to look outside of your own walls at different ways of doing things. How would you triple your revenues or your profits within five years? Again, that big provocative number to get you to remove some of the constraints that you currently face. For the cost blowup, how would you run this business with 2/3 fewer people? Wow, new processes, new technologies, new ways of doing things. By making a massive cut, it’s going to force you to look at your business differently.

I love this one question. How would you eliminate your job? That’s pretty unnerving to say I want to put myself out of a role, but by asking that question, it forces you to think critically about the work that you do. What work should you stop doing? What work should you delegate to other members of your team? What work can you automate? And my last favorite question is, what’s the most wasteful thing we do as an organization? And what’s stopping us from stopping that? Look at your business. We all know where some of the waste is. Understanding what the waste is, and what the barriers are to eliminating it, can create new solutions for making your business more efficient and more effective.

So, as you look at your organization, ask yourself, how can you blow up the business model? How can you blow up the revenue side? How can you blow up the cost side? And those answers to those critical questions will help you identify new opportunities that can make your business much more competitive and much more effective.

Want to learn more about critical thinking? How about taking an entire course on it? Go directly to the course and start learning how to think critically. The entire course is available at LinkedIn Learning. Enjoy!

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Understanding the real cause of your problem and considering the consequences of potential solutions can help you make better decisions.

The final thing you should think about as you’re trying to define your problem is causality. I’ve mentioned thinking about causes and consequences. That applies to thinking through how you’re going to define the problem in the first place. You should understand, are some elements of the problem you’re trying to solve derived from other problems or other related elements? How does this problem tie to other issues in your organization? What’s the real root cause of the problem? Remember, we don’t want to solve symptoms; this is about solving the right problem the first time around. Does solving this really mean solving that much deeper or proceeding problem? The more you can get to the root, the more effective you’re going to be in preventing future problems in the organization.

Once you’ve solved it and you come up with that recommendation, think forward about these consequences. Are there organizational, customer, competitor repercussions to anticipate? If you make this change, how will everybody else behave? Are you really clear about chronology and what causes what causes what? Laying out that path that says, if I do this, then this might happen, then this might happen is going to help you predict some of the outcomes that you could face. And if those might be bad outcomes, it can impact the type of recommendation you make in the first place to be able to avoid those issues down the road. Understanding those causes, and then the effects of your recommendation is going to help you solve the real problem and avoid unintended consequences.

Tying to my example when we were changing agency commissions as a collections organization, we understood that the real issue was incentives weren’t aligned. We had two teams working on this issue. One team was my team and we were trying to drive overall collections performance. The other team that was involved was the agency management team. What that team was trying to drive was a very different set of metrics in terms of reducing the amount of money that we were spending with those particular agencies. Those goals were in conflict. So a way that we got past that was we created one single team with one clear objective that would help both of our organizations succeed.

Now, our recommendation was to change the commissions we were going to pay these agencies. By paying them more money, we were going to get them to focus more on our work versus our competitor’s work that they were also being outsourced. Now, this would be great in the short term. Those agencies would change their performance, dedicate more of their efforts to our work, and a side benefit was they would ignore our competitor’s.

But let’s think about the repercussions. And we said, if we make that change, well, I’m pretty sure our competitors are going to make similar changes as soon as they find out what we’ve done. And then it really became a race to the bottom on pricing. So if we raise the commissions, our competitors would raise the commissions, and we’d have to raise them and they’d raise them. So we needed to make sure whatever solution we came up with we’d be able to avoid those types of consequences. This critical thinking time helped us come up with a better recommendation that met the needs of all the stakeholders involved and helped us avoid some downstream negative consequences.

For a problem you’re solving, spend that time thinking about causality. What’s the real cause of the issue? What are the consequences you might face? And then document those thoughts in your problem statement so you keep them top of mind as you’re coming up with your recommendations.

Want to learn more about critical thinking? How about taking an entire course on it? Go directly to the course and start learning how to think critically. The entire course is available at LinkedIn Learning. Enjoy!

Did you enjoy this post? If so, I highly encourage you to take about 30 seconds to become a regular subscriber to this blog. It’s free, fun, practical, and only a few emails a week (I promise!). SIGN UP HERE to get the thoughtLEADERS blog conveniently delivered right to your inbox!