80/20 Case Study:
Over 500 Basis Points Income Increase for the Business
Strategex was approached by the CEO of a $2B multi-divisional, multi-national public company who wanted to implement 80/20 methodology to drive waste from the business and then reallocate resources to more profitable areas with better growth potential. The company had been using a business model based heavily on the Danaher Business System, and many of its managers knew no other system.
Hence, 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 an alternative method of management that was significantly different than 80/20. The goal was not to oust the existing operating model, but to allow it to operate at a much higher level with 80/20 as a key component. At the same time, we needed to ensure that as excitement for the new 80/20 methodology began to grow, we were able to hold the reins tightly, in order to prevent, as the CEO noted, “running with scissors.”
The objective from the very beginning was to make this a knowledge transfer process, with a goal of teaching the process and then stepping away. Thus, step one was to select three “pilot” divisions to dive deep with, and to have three corporate managers appointed as “subject matter experts” (SMEs) to work with the Strategex lead advisors and be educated in the process.
Once complete, step two was to introduce 80/20 to fully one third of the business, with the SMEs taking on a gradually increasing role. Step three, in year two, was to have the Strategex advisors and the SMEs switch roles—the SMEs would lead, the Strategex advisors would observe and support—while the second third of the company was “80/20’d.” Then, in the back half of year two, the final third would be completed.
In year three, the business would “pivot to growth.” Strategex experts would teach individual business units and the SMEs the 80/20 growth methodology—an entirely different skill set—and then retreat to an “in the shadows” virtual role of support. By the end of year three, the transformation would be complete.
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 500 basis points with revenue growth, despite the dramatic downturn in one of its core end markets. 80/20 is now entrenched fully as the core component of its operating model, a model that still draws heavily upon the Danaher Business System foundation. This model is now one that many peer companies are working to replicate.