A number of weeks ago I spoke about ROI - return on investment. I'm still somewhat focused on it, so I thought I'd share with you something about the law of diminishing returns. Remember that the law of diminishing returns is an old economic theory that's still useful today and therefore its passed the validity test for sure in my book. The law states that achievement in any area of life, or in this case business, add to happiness or improvement only up to a certain point. Beyond that point, more and more gains in any one particular area adds less overall value. It recognizes that you CAN have too much of a good thing or put too much effort into something and when you pass the "optimal line," - the more you experience the good thing, your overall happiness will decline. The goal of course is to continue to push towards the "optimal line" but try not to go past it.
One of the simplest examples I give when talking about this is working with more than one monitor or worse yet, working only off a laptop. Increasing to a full sized monitor and multiple monitors has an ROI in days. Depending on what you do most of the day, more than three monitors crosses the "optimal line", if for no other reason than they start to take up valuable desk space. Of course using a desk mounted arm for at least one of the monitors is a big help.
The Law of Diminishing Returns is generally considered hand in hand with the 80/20 rule that can mean all of the following things:
- 20% of the input creates 80% of the result
- 20% of the workers produce 80% of the result
- 20% of the customers create 80% of the revenue
- 20% of the bugs cause 80% of the crashes
- 20% of the features cause 80% of the usage
We have to remember that most things have an unequal distribution and most things are not 1/1, where each unit of "input" (effort, time, labor) contributes exactly the same amount of output - the majority of results come from a minority of inputs. Taking the above estimates, you would want to focus on rewarding the 20% of employees who produce 80% of the results, fix the 20% of bugs that contribute 80% of crashes and of course, work hardest to satisfy the 20% of customers who contribute 80% of your revenue. And the examples go on and on. The point is to realize that you can often focus your effort on the 20% that makes a difference, instead of the 80% that doesn't add much.
So like all "rules," following the 80/20 principle blindly would lead to some very unwise decisions. That's why it's vital that we try to find the "optimal line," recognizing that everything is not distributed evenly. Sometimes it's vital to seek top quality and for that you need all 100%. When you are trying to optimize the best ROI or bang for your buck, focusing on the critical 20% is a best practice. Study as efficiently as you can the activities that generate the most results and give them your appropriate attention. Be careful of the temptation to do too much; you can have too much of a good thing!
