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The Laws Of Management

November 12, 2009

They don’t give you a list of the rules before you start to play the game. In fact, some of the best guidelines have been made up as the game was in progress. Here’s one of the best rules, a couple of laws and a few good principles to remember as you head into the new year.

Pareto’s Rule is most commonly referred to as the 80/20 rule. Originally stated in the early part of this century by an Italian sociologist named Vilfredo Pareto, the essence of Pareto’s rule is that in any group of elements, the most important ones are a small portion of the total. Those portions often are in a ratio of 80 to 20 and as a result Vilfredo is frequently deprived of the credit for first observing this relationship.

Where does Pareto’s Rule apply? Almost everywhere. In sales, you can count on the fact that about 20% of your customers account for the majority of your sales. With personnel, you can be sure that just a few of your employees will give you about 80% of your problems. In your inventory, 20% of the items will account for nearly 80% of your sales and the remaining 80% of the items will amount to only 20% of the sales.

If you accept the fact that Pareto’s rule is generally true, how can you use it to your advantage. As a manager, your time is your most precious resource and it is finite in quantity. You can use Pareto’s rule to direct your time to those areas that have the greatest impact. Identify the roughly 20% of your customers that account for the majority of your sales and make sure that you take good care of them. Isolate the 20% of your inventory items that yield 80% of your sales and make sure that they get 80% of your attention. Focus on the few employees that create a majority of your problems and give them a lot of attention.

Give your time to those items that have the greatest impact, but don’t immediately disregard the other 80%. Examine that 80% with an eye to determining how those customers, items or employees can be managed into the high impact group. If they can’t, don’t waste time or money on them.

The Peter Principle has provided fame for its author and amusement for those who have suffered at the hands of incompetent management. In summary, the Peter Principle states that all managers are continually promoted until they reach their level of incompetence.

Good managers have recognized that the real value of the Peter Principle is to remind us that different skills contribute to superior performance in different jobs. For example, it was once generally understood that a good salesman should eventually be rewarded with responsibilities for sales management. If the good salesman performed poorly as a manager, a literal reading of the Peter Principle would tell us that the individual had finally reached his level of incompetence. The correct observation is that the skills of selling and managing are quite different.

The Peter Principle reminds us to be sensitive to the potential problems when promoting someone to a position where proven skills will not be appropriately utilized. In addition to saving a good salesman, it might preclude an able bookkeeper from becoming an incompetent controller, a cheerful waitress from becoming a harried hostess or a competent carpenter turning into a confused contractor.

Murphy’s Law might well be the most universally known. But just it case it applies here and you don’t know it, Murphy’s Law states that anything that can go wrong will go wrong.

Most of us don’t believe that Murphy knows about our next undertaking and we will thus be exempt from his universal maxim. But we are also experienced enough to know that the guy was right more often than not.

Immunity from Murphy’s Law is only gained by planning. Planning consists of thinking through, from start to finish, all aspects of an activity. Identify those critical elements, the ones that if they went wrong could jeopardize the entire project, and give them attention. Murphy’s Law has a special way of being particularly applicable to those matters that have previously received insufficient attention.

C. Northcote Parkinson is credited with having enunciated a cynical but regrettably true principle of human activity. Parkinson’s Law states that work (activities) expands to fill up the time available for its completion.

I don’t have a ready prescription for the ills envisioned by Parkinson but I can confirm the validity of his observation. Have you ever had a day when you had to do the work of two people, and you did? What does that say about the other guy?

I don’t know the originator of the K.I.S.S. Principle and whomever it was would be wise enough to know that we shouldn’t waste time attempting to attribute the credit. K.I.S.S. is the acronym for Keep It Simple, Stupid. It’s adherents have discovered that simplification has greater rewards than complexification. Enough said.

These are a few of the rules I’ve learned while playing the game, if it’s been your business for long enough, you have observed them in operation.

Joe Driscoll is a management consultant whose column appears regularly in the Monday Herald.

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