Pareto and Software !

 Vilfredo Pareto is one of my all time hero’s.  His famous 80/20 rule has on numerous occasions saved me a lot of time and effort.  It is actually quite incredible how often this simple rule that 80% of effects come from 20% of the causes shapes our thinking and our actions. 

It is equally incredible how often we ignore this powerful theory and continue to hope that the results will be different if we only keep throwing resources at a problem.  The reason I wanted to invoke the memory of Pareto and his famous principle was to explore its application towards the benefits we get from software solutions.

Now I am a firm believer in the benefits of software and how it can and does improve our lives, our businesses and our global economy.  But here is the Right Question:  At what point do additional improvements or added functionality in a software product make little or no difference in enabling a user to get his/her job done.

Let’s take MS Excel as an example.  I would consider myself a moderately sophisticated user of Excel.  I have been using Excel for many years especially during my time as a investment banker.   Excel was first released in the mid- 1980’s so it has been around for over 25 years.  There have been significant improvements in Excel since those early days in user experience, functionality, integration with other programs etc.

But here is the issue. I cannot quantify this but I am pretty sure that in my best Excel moments I do not use more than 10-15% of Excel’s vast capabilities.  Yes there are probably some people who use maybe 30-40% but it is more likely that the vast majority use only a small fraction of its formidable capability.

Now let’s look at an example from the world of enterprise software – in particular CRM (Customer Relationship Management software).  Now the only goal of CRM is to drive sales in a cost effective manner.   There should be no other objective for deploying CRM software.  If your company does not have CRM software you can certainly benefit from CRM software at the appropriate stage of scale (no a two person company does not need CRM they just need a piece of paper and a pencil !).  But similar to my example of Excel, at what point do you already get the 80% benefits from CRM software ? Is it at the first purchase, is it on release no. 4,  or do you ever get there ? 

I don’t know the answer and many will rightly argue that “it depends”.  This is always a difficult argument to win because it is a powerful argument – especially when you don’t have the courage to make a decision.  But as an executive or as a technology professional we are paid to make decisions not live in a land of “it depends economics”. 

So here is my assertion.  The right software can play a critical role in driving growth and managing costs for any business – here I have no doubts.  However, I would also argue that it is more important to have a broader and integrated technology footprint than to go deep (read deploying new versions) in any specific functional category.  So, better to have an integrated suite (eg. CRM, financials, supply chain, procurement, HR, mobile workforce etc.) than to buy the version 4.0 of any specific product.

If Pareto is right – and he almost always is – we probably use only 20% of any given software application capability to generate 80% value created. Interesting thought.  

I am sure many will disagree with me and I look forward to the comments and input.



2 Responses

  1. I partly disagree.

    Excel is an excellent example. Most users make use of maybe 20% or so of its features. But those 20% are rock solid – and virtually bug free. But it was not that way when Excel came out. Consider the ease of use today to create a simple pivot table, as opposed to a cumbersome process years ago. Microsoft went above and beyond the 20% – probably because it did not want any competitor to come close to it. And for the most part – people use excel and spreadsheet interchangeably. This might not have been the case if MS stopped at the critical 20%.

    Another example is SAP ERP. Many customers use just a fraction of options available – even in common objects like a sales order. But if SAP did not go beyond the basics and provide the robust integration it gives – I doubt if it would have dominated the market like it did.

    Also – till the product is out there for people to try out, it is really hard to guess what features work for users and what does not. A focus group is seldom a representative sample. And product managers can only figure out so many requirements. So some extra bells and whistles will make sure the product lives to fight the battle another day.

  2. A few perspectives:
    Software that have been around for a long time and/or started out as standalone, meant to be vertical products, like Excel, are hard to broaden and integrate. We former product managers can group-chant Microsoft’s challenges with DOS, backward compatibility, etc. So the technology treadmill pretty much defeats elegant ‘broadness’ and ‘integration.’

    Some software suites aim to ‘be everything to everyone in a narrow segment.’ You mentioned CRM software. Salesforce is an excellent example of a broad, well-integrated, up to date technology CRM platform, but it is risky and expensive to implement because of enterprise legacy business processes.

    Re your comment about whether to buy Rev 4 (or later), that’s where the Freemium or Cloud Computing’s model might work. Apps can be continually updated and spliced and diced into n-versions for users to choose the 20%, or 5% or whatever usage rate that they want.

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