BPM and the 80/20 Rule

Last week, the topic centered on capturing the ‘as-is’ of business processes.  This week, let’s talk about which processes we should be concerned about.

Applying the 80/20 rule to process management

The theory is that by managing/automating a select 20% of your processes, you will achieve 80% of the value.  Managing the last 80% will yield only 20% of the value.  How does one identify those 20%?

My Thoughts…

The first task is to define ‘value’.  When we talk about value, are we talking about dollar savings; customer satisfaction; innovation; what? 

Is the value about dollar savings?

This is where you document the ‘as-is’ and collect metrics expressed in time [dollars].  Then you attempt to improve the process and measure again.  If you are successful in improving the process, you will see dollar savings.

Is the value about customer satisfaction?

In this case, you will need to survey your customers.  Then you implement changes in your process and survey again.  If you are successful, your customer will let  you know.

Is the value about innovation?

This one is more difficult – how do you define innovation?  If innovation is the opposite of a commodity, as I have proposed before, then you will measure your success by the royalty [profit margin] that you are able to charge.

Still, there are only certain processes that are worth the effort to improve.  Once you define what ‘value’ means to your company, you will know where to look for the 20% of the processes in your company that will generate 80% of the value.

Your Thoughts…

How does your company define ‘value’?  Has your company attempted to manage [improve] any of their high value processes?

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One thought on “BPM and the 80/20 Rule

  1. Hi Scott. you are using the Pareto principle the right way by saying that 20% of processes will yield 80% of value. You can apply the same for cost/profit/revenue. It does however not have to add up to 100%. The problem is to identify which 20% are responsible for what. Analysing ALL processes to find the 20% won’t work. There is no link between processes and perceived value to be found by analysis. Analysis decomposes the work into units and doesn’t provide information on what value it produces.
    i posted on this in 2008: http://wp.me/pd9ls-K

    I am not in agreement that value can be measured in cash. Value is a perception only! One can’t however ask a customer which process produces the value perception. The main issue baout value percpetion is nowever not the actual process/product that delivers it but it is the expectation created by the value proposition.

    You are inadventantly pointing to the biggest issue with BPM. Executing a process perfectly or optimizing it for efficiency has nothing to do with what value is perceived by the cuatomer!

    I posted on perceptions here: http://wp.me/pd9ls-jV

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