Capitalizing on the flaw in the Pareto principle
One of the most useful rules in modern business owes its origins to an Italian man poking curiously around his garden. Vilfredo Pareto noticed one day that 20% of the peapods in his vegetable patch contained 80% of the peas. As an economist, Alfredo later elevated his casual observation into a principal in an 1896 paper explaining how this 80/20 split also applied to landownership in Italy.
Since then, it has been noted that the 80/20 distribution, known as the Pareto principle, occurs with incredible frequency. In business it has proved itself a handy rule to maximize efficiency and power growth. When applied to companies, it states that 80% of the effects (work, sales, time, results or profits) come from 20% of clients or partners.
Companies often implement the Pareto principle by splitting sales partners into two groups: Managed and unmanaged. They then lavish attention on the 20% of managed partners to rapidly grow sales and profits, while largely leaving the other 80% to fend for themselves.
While this is a logical use of time and resources, there is an inherent trap in the approach: people and companies are not peapods. Treating them as such ignores the dynamic way they change and grow. Today’s underperformer can become tomorrow’s overachiever. Companies ignore this to their detriment: successful sales partners are tempted to move to the competition if they believe they have been ill-treated in the past.
This creates a bind: on one hand companies don’t want to devote too much time and energy on resellers unlikely to develop into the 20%, but they cannot ignore them either. Many firms are now turning to partner relationship management (PRM) software to solve this dilemma.
With minimal additional effort, PRM software enables efficient and effective communication that gives ALL partners a sense that they are valued.
PRM software, such as ChannelValue© from Aximpro, provides the flexibility, functionality and operational features required to manage complex, extended sales enterprises.It offers a role-based approach with features that include easy access to training modules to keep all partner sales teams current, rapid downloads of sales collaterals to encourage take up, and dedicated communications and news feeds to support specific campaigns.
Such PRM software assists companies to address the flaw inherent in the Pareto principle. Through use of the software, leading partners receive the targeted attention they deserve, while the other 80% are respectively included in relevant communications and promotions.
Such attention builds loyalty, as well as long-term, valuable relationships aimed at market share growth to the benefit of all sides.
This is not to say that PRM software invalidates the Pareto principal when it comes to business. Rather, it applies another principle known to all experienced gardeners – to obtain those 20% of out-performers, you first need to nurture your entire crop.
Click here to find out more about ChannelValue©.