80/20 Case Study:
30% Top Line Growth from Under 10 New Customers
Strategex was approached by the CEO of a public $1B electronics distribution company. The CEO wanted to implement 80/20 methodology to drive waste from the business and then reallocate resources to more profitable areas with better growth potential. As many distribution companies are, the company was heavily top line focused, and operated under the premise that every order was a good order. As a result, product line proliferation was rampant, the customer base numbered in the tens of thousands, and the resulting complexity led to an overhead structure that the business simply could not support. Profitability was poor, and growth was ironically stunted.
The challenge was not only to teach 80/20 and get the results that the CEO wanted, but also to do so while changing a culture firmly lodged in the camp of a “top line at all costs” culture strictly at odds with the tenets of 80/20. The goal was thus to educate and motivate company leadership and the rank and file to operate and think an entirely different way, not because they had to, but rather because they saw the benefit to the methodology and wanted to do so.
The objective, as is always the case with Strategex 80/20 efforts, was to make this a “total company” knowledge transfer process, with a goal of teaching the process and then stepping away. Thus, multiple training sessions were held that systematically taught the 80/20 process deep into the company’s organization structure. By the time the engagement was complete, well over 500 of the company’s associates were trained directly by Strategex, exactly as management had been trained—and the company’s management team was always well-represented during the training.
As for the strategic changes, the thrust was two-fold. One, the customers were organized into three distinct strata—very large existing customers (80s), very large potential customers (targets), and small customers buying only standard items (transactional 20s). The company dedicated a select, hand-picked team of top performers in all disciplines to manage and grow the 80s, while at the same time devoting a significant portion of top sales resources to the targets. Transactional 20s were handled via e-commerce and inside sales—no outside sales resources were dedicated to these customers. Small customers who wished to purchase special items were either converted to standard offerings, or provided the names of competitive distribution houses who might fit their needs better
The effects of implementing this process were dramatic and far-reaching. First, growth accelerated dramatically due to the winning of several massive target accounts—to the tune of 30% top line growth from under 10 new customers. Costs plummeted due to the vast simplification of customer and product base, with one third of warehouse space eliminated and headcount reduced while the organization grew by that 30% figure. Transactions were cut sharply, cash flow increased, helped immeasurably by converting small accounts from “account” status to “credit card—e-commerce” status. Vendor consolidation began and progressed rapidly, new product introductions occurred more quickly and much more effectively…the positive effects were almost unlimited.
In the end, the process was followed to the letter, and the culture was transformed completely. Excellent financial results provided the credibility necessary, as operating income for the entire business increased over 600 basis points with revenue growth. Eventually, the model spread to other segments of the holding company, with similar success.