5 Eponymous Laws to Live by in Business Management

These laws encapsulate some of the most common issues I see in business management. Simplify your thinking and improve your business.

Pareto Principle“80% of the effects come from 20% of the causes”. This is one of the most well-known laws and can be translated into innumerable situations. 80% of your issues are created by 20% of your employees, 80% of the revenue is created by 20% of your customers, and so on. Find the key drivers of the goal you’re trying to achieve or the problem you’re trying to solve prior to starting a project. Using data and analytics and methods like “Five Whys” can help.

Most people think about the Pareto Principle in terms of a pie graph, which is the initial insight….

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…..but I like to think about it as Archimedes would, which is the impact you can create based on the insight. By making a small improvement to 20% of products you can make a large improvement to your entire business, much like how a long lever can move a large object with minimal effort.

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Parkinson’s Law “work expands so as to fill the time available for its completion”. We’ve all been there….we know we can start a project now with 100% focus and complete it early, we can procrastinate and wait until the last minute, or we work on it sporadically and constantly tweak it until we run up against the deadline. Keep this law as a reminder when scoping projects, setting deadlines, and when you find yourself letting perfect be the enemy of good and done.

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Goodhart’s Law“when a measure becomes a target, it ceases to be a good measure”. Translation….people will game the system and find workarounds to meet targets. In the best-case scenario, the measure renders itself meaningless and time is wasted tracking and discussing garbage in, garbage out information. In the worst-case scenario, system gaming is actually detrimental to your business. For example, a goal to reduce average call time for Customer Service Agents may result in agents rushing to get off the phone, leading to unresolved customer complaints, higher call volumes, lower customer satisfaction, and increased customer attrition. Tracking average call times and incorporating technology, process changes, and training to improve them while keeping an eye on the real goals (improved customer satisfaction, customer retention, first call resolution) is the right approach.

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Dunning — Krueger Effect — is a cognitive bias in which unskilled individuals suffer from illusory superiority, mistakenly rating their ability much higher than average. This bias is attributed to a metacognitive inability of the unskilled to recognize their mistakes. The reverse of this shows up in the cognitive bias, imposter syndrome. This is a psychological pattern in which one doubts one’s accomplishments and has a persistent internalized fear of being exposed as a “fraud” despite a history of success. Understanding these effects can be extremely helpful when analyzing the performance of employees and ensuring a well rounded and balanced performance review takes place prior to making human resource decisions.

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Murphy’s Lawdespite your best efforts, “anything that can go wrong will go wrong”. Plan for hiccups, be flexible, be agile, and don’t fall into traps such as the plan continuation bias or sunk cost bias.

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More on cognitive biases in another post.

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