by Julie Adamen

You may read this article in the NewsLine by clicking the following link  HOA Manager NewsLine August 2007 in PDF.

Recently, a friend of ours, Rich, owner of a local insurance agency with a large staff, detoured by our house while taking his daily run with his dog, Buzz. It was late afternoon and time for a drink and to discuss our kids and the day’s events. Rich is one of those guys always looking for ways to refine his business and make his staff more efficient, happier and more productive, with a goal of a better bottom line. Of course we had to share business ideas over a second glass of wine, when Rich says he is using a consulting service for insurance firms – and that this firm requires its clients to utilize the “80/20 rule” at their offices.   Though I had heard of the 80/20 rule, I hadn’t seen it used by business consultants in quite the manner he outlined. Since that time I did some research on the topic and reflected on my own life and work.  Wow! What a concept for efficient use of time, energy and resources!  So what is the 80/20 rule? 

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. After this “discovery” many other academics observed that the “80/20 rule” applied not only to wealth distribution, but many other areas of human endeavor:  business, social activities, public management and for our purposes - you guessed it - even community management. To wit:

20% of your output - time, energy, expertise, effort – produces 80% of the results. Thus it follows that 80% of your output is spent on things that are, well, relatively unimportant.  The idea here is to recognize this fact and make the most productive use of your time not just for your or your client’s satisfaction, but to maximize your efforts, increase profits and produce a more satisfying work environment.  Working smarter, not harder, and working on the right things. This is what my friend Rich was after for himself and his company, the working smarter part. Rich’s theory – and that of his consultants -  is that working smarter will make a better bottom line and far more efficient time use for his employees and himself.

80/20 for Managers:  Identify your 80/20 and get on the road to more productivity and satisfaction.

Which account(s) take up the majority of your time? All managers can tell anyone immediately which account(s) suck up their time and energy. The question to ask: Are these accounts good, profitable accounts where your time and energy is well-spent? Or do they have a tendency to be smaller, older accounts with cranky owners?

Of your time and energy, how much of it is spent on truly productive work and how much on trivial issues?  Productive time would be considered things for which you are being compensated: Either covered in the management contract or as a billable “extra.” Non-productive, energy draining accounts are normally those with whom you spend and inordinate amount of time on the telephone, or meeting, with homeowners or Board members or producing endless research on dead-end issues.  These accounts are “takers.” They take your time and energy and squander it on menial tasks.

Next:  How do accounts become unproductive?  Many times accounts are inadvertently trained to be a “taker”  of a manager’s time and energy by the manager  continually performing tasks that are out of contract or by simply not charging for extra work product because it seemed small at the time.  This “downward stepping ladder” of energy output v. appropriate remuneration happens as the manager is continually setting the expectations of the community higher and higher, beyond contract and beyond reason. An 80% time and energy drain. Yet, since it follows executives themselves spend only 20% of their time on critical issues, this very common scenario often goes unnoticed by executive management.

The question is: Can accounts that are time holes be brought to a more normal time/income ratio?  Are the underlying fundamentals of the account good? For example, good contract price (not underbid), good board with understanding of business, strong financials, and community desire to have a healthy property. If these criteria are met then a management plan that bring the time into line with the contract is desirable, and possible.

On the other side, accounts that do not have strong fundamentals,   come to the manager as “takers;” they’ve been that way from Day 1 and will continue to be on Day 1,000. It is not uncommon for this type of account to cause mind numbing phone conversations, meetings with out end and little purpose, and hand holding needy Board members. These accounts should be charged appropriately for their needs and behavior, or dismissed.

Now that you see it, can you change it? The first step on the road to recovery from this enabling behavior starts with recognition of the 80/20 rule. Next, the company must have a system in place to guide the manager and the client to a productive relationship, a “contract and management plan” if you will. Third, through this management plan, begin to wean the negative account from the very comfy spot you and your company have so graciously provided.

Starters for the Manager:

1. Tactfully beg off of meetings that aren’t contract or vital - or -  suggest that you can attend but inform them it will be at an additional fee.  

2. Stop answering emails the second you get them (provide the client with a reasonable timeframe for email returns).

3. Learn to cut phone conversations short without being terse (small talk is nice but 10 minutes of small talk with 12 people is 2 hours of time).

4. Delegate tasks to subordinates whenever possible. This begins a more equitable relationship between you and the client.

If you begin by using these simple methods, your client will begin to know the boundaries of work provided by contract. When the client wishes services that go outside those boundaries -  it is fair and reasonable to charge for those services and the client will know this ahead of time.  

Yes, you can you change a client that has been trained to be a part of the 80%, but the change needs to be slowly and carefully institutionalized by the manager with full support of the company.

Or, is it an issue of  poor contract? It’s my experience that many management firms still use the ol’ full service contract, which, put simply, is “everything for one low price.” Many industry notables (including myself) believe it is time for this type of contract to be flushed from the system and replaced with a menu contract that provides better guidance for the client and the manager. One-price and overly simplified  contracts make it very difficult, especially for less experienced managers, to discern what is reasonable for an account to demand in terms of time and service. This too is an 80/20 issue. How would an executive know which 20% is truly profitable if s/he gives the managers little guidance to staff with a poorly delineated contract?

I have always been one for providing the client what they want -  as long as they are willing to pay for the service. Clients have changing needs, like construction defect litigation, storm damage or other unpredictable issues that will suck time and energy. Better defining the scope of work and contingencies by contract will make both management and the client happier through clearly defined expectations and the fulfillment thereof.

The 80/20 for Executives: Improve your bottom line (and your mental health)

If you own a management firm, or are an executive, you know that 20% of your employees are anywhere from very good to superstars, the ones who make you and your firm look good and make you money. Yet – you spend most of your time with that other 80%.  You also know that 20% of your clients bring in 80% of your profits. Yet – you’ll spend more time hand-holding that large, lower echelon of clients than paying attention to – and gaining more of - those profitable clients, the 20%. The “vital few” v. the “trivial many.” The question is: How and where are you spending your time with the trivial many? And how do you start spending your time and energy with the vital few? You start by thinking about your 80/20, and then proceed to concentrate on the all important 20%.

Many management company executives find themselves caught up in the endless cycle of Board meetings, employee problems and spoon-feeding low- or no-profit clients. Each of these executives got there because s/he thought the more they did functionally, the better the company would perform. This is not using the 80/20 rule positively. In reality – the more an individual executive performs rote management tasks, the worse the company will do. Those executives confused on what is productive and what is not are unwittingly ignoring  critical elements of executive leadership:

1. Executive time is worth something, and that something is usually upwards of $150 an hour,  

2. Executives need to make it a priority to find, train and appropriately pay new talent, producers and executives to cover for new business,  

3. Executives need to look for and acquire productive accounts,

4.  They need to develop methodologies for the company’s producers to maximize their time use on each account (80/20),

5. They need to develop strategies for additional cash flow through extra services,

6. Executives can only achieve the above if they are willing and able to continually delegate responsibility on others.

Think about your 80/20: It may be hard on the ego, but you are probably dispensable for 80% of the tasks you are performing. The majority of these tasks are probably made up of functional association management issues, something staff should be able to handle with ease.  If you concentrate on the 20% of issues that truly matter to your business and in which your participation is vital, you are on your way to a healthier and more profitable work environment for you and your staff.

The executive is desperately needed at the helm of the ship, not shoveling coal in the boiler room. Or, not at a Board meeting over trivialities or dealing with low level management task. Remember, you folks are no longer community managers – you are business executives.  I know it feels good to get your hands dirty once in a while but resist the temptation and let your people do what they do best.

The best accounts, the best staff, the right infrastructure

Identify your most profitable accounts, your most productive employees, and your most profitable “extras.” Then, identify the worst: accounts, employees, and money drains (maybe leasing The Starship Enterprise Copy Machine wasn’t such a good idea). Now, focus!

1.  Where can your best be made better?

2.  What makes your best accounts your best accounts? (Remember we were talking about account fundamentals).

3. Which employees should be nurtured and trained beyond their current level, and which should be in more marginal positions?

4. How can you acquire more good accounts, and employees?  How can you make your marginal accounts or employees better?

5. Which of the worst should be jettisoned?  

6. After your analysis, dump the losers those that not be able to be made profitable.

Terminating those accounts that are sucking up 80% of your (and your staff’s) time but providing only 20% of your revenue may be counter-intuitive to you – after all, they do affect your overall gross income.  However, identifying those accounts, then proactively reducing the time spent on them to bring in a relevant ratio of time spent to return to the company (revenue) will eventually bring the accounts in line with management effort and goals.  If you are unable, or the account unwilling, to go through this realignment, they should be handed their walking papers. By doing so you are developing a management plan that is simple yet effective: Focus on the 20%, obtain and retain only those accounts and employees that are continually profitable and productive and make them your 80%.

Proactive use of the 80/20 knowledge requires the development of a plan that can be set in motion when accounts begin “flip” from being in the 20 percentile to being in the 80 percentile (the trivial many). The company, and the individual manager, needs to have a method to stop the relationship going beyond the contractual.  When this plan is established, adopted and owned by the executives, staff will be far more able to help the executives identify the loser accounts. This new ability to identify those “loser accounts” quickly and make the changes necessary to either stop or mitigate the drain on the company’s resources now – not years from now (when the client’s expectations will be more difficult to change)  will save the company  hundreds, if not thousands of dollars in profit and productivity.

By using the 80/20, you are continuing to raise the bar in your total portfolio of accounts. Of course, since this is all ratio-based, it will be inevitable that you will, again, gravitate towards the 80.  If focus is maintained by the executive and the necessary skills developed within the staff, the ability to identify the tipping point – when the account goes in to the 80% -  will help keep your company more productive, happier and more profitable.

Food for thought on your work force:  “The most highly skilled workers are often given the toughest work, although concentrating their skills on less troubled accounts would allow them to produce significantly more than less-skilled coworkers. The most talented people are often assigned to the most challenging problems that, even when resolved, generally contribute little additional revenue for the company.”[1] We often give the best managers the most difficult accounts instead of focusing their talent in areas where they could generate extraordinary volumes. (Let’s say they could handle a larger portfolio than a less-skilled manager if the portfolios were of better quality other things being equal.)  We also know that the energy draining, time-sucking accounts are personnel eaters – they are the main factor in driving people out of the industry one way or the other… Something to think about while pondering your 80/20.      

For the executive, practical use of the 80/20 rule will cause us to review our accounts and our people to best maximize efficiency. There are all kinds of side benefits to the company as well. Look to happier staff, more productivity, more profit and more time for the executive to look for real opportunities at a higher profit margin.  

Where’s my friend Rich?

My friend Rich is doing well with his 80/20.  I discussed the process with him just the other night. Rich has been using the 80/20 in combination with a new management and sales plan for about 6 months now. It is his experience that gross sales dropped while clearing his loser accounts off the table. However, now he and his staff have time to look for productive accounts, with strong fundamentals and with appropriate contracts to fill “the pipeline.” He now expects his bottom line to exceed anything he has experienced before.

Pareto's Principle, the 80/20 Rule, should serve as a daily reminder to focus 80 percent of your time and energy on the 20 percent of you work that is really important. Don't just "work smart", work smart on the right things.[2 With the 80/20 you can take baby steps or you can take big steps the choice is yours.