The 5/67 Rule is a subset of the 20/80 Rule or 80/20 Rule. We discovered it during our War on Waste. We were always in a hurry to get projects completed and we didn’t have time to look at 20% of the problem. But we did have time to look at 5% of the problem. And when we did that we kept seeing that we were getting about 60 to 70% of the targeted benefit. We called it the 5/67 Rule without really knowing much about it. It just seemed to work but it didn’t make sense until we stepped back and looked at what was happening.
It turns out that what we were seeing was effectively the 20/80 Rule operating on the 20/80 Rule. If you take 20% of 20%, you get 4%. And if you take 80% of 80%, you get 64%. And the 4% and the 64% were close enough to 5% and 67% and that is how we got there.
We think that 5/67 thinking is the way that you should run a business. For instance, when you develop a new product, deliver 5% of the features and you will get 67% of the benefit and then you can add other features over time. The rationale here is that 5% of the features gets you to market quickly. The 5% of the features can serve as the foundation for building an aggressive product expansion plan. Another good example of the 5/67 Rule is seen in the healthcare field: 5% of employees account for 67% of a company’s healthcare costs. When you use 5/67 thinking in how you introduce products, it gives you a jump on the competition and you have your progressive plan of features available to quickly introduce new versions of the product.
My theory on new products is that you want to get the product off the shelf quickly and immediately begin generating profits. The problem with most developments of new products is that the engineer is never satisfied until s/he has delivered the 100% solution. That is folly and is very expensive. Get the product to the market, use the profits to pay for expansion and improvements and be recognized as an intelligent source of great innovation.
Managers and executives that I have worked with need about 2 seconds to understand why there is a problem letting engineers work to get the “100% Solution.” My point is that it will take forever and cost a fortune. So I advise CEOs to get the product out the door and see if anyone actually likes it or wants it. Introduce the product with 5% of the features that you need and you will get 67% of the benefit that you are looking for. Once on the market, new features can be added. Of course, you need to anticipate as many of those future features as you can to minimize the costs of upgrades, but if you start generating revenue you can start adding staff to move to a more complete offering. There are many others more knowledgeable about how to do this but trust me, if you adopt a “5/67 Design Mentality,” you will be very successful and profitable.
In fact, I have a theory based upon this principle. It is the Bertain Theory of why electronic tradeshows exist. If you didn’t have a trade show to give an engineer a target for product completion, it would never get done. The theory goes something like this. Engineers are trained in school that in order to get an A, they had to get their homework done each week on time. That is drummed into them for 4 years. So when you tell an engineer that you need a product done in time for a particular trade show, it will usually get done. Maybe at the last minute, but it will get done. I was at an electronics trade show in Las Vegas one year and I asked all the CEOs that I could meet whether their new product would have ever gotten done without the trade show as an end game. They universally laughed when I told them my theory and they all agreed. And all of this is based upon the 5/67 Rule.
This is all part of our thinking about how to improve Tribal Knowledge in a company. Most of this discussion is reviewed in my book entitled: Tribal Knowledge Innovation Encyclopedia: Terms, Phrases and Concepts. The book is available on Amazon.com.
Best,
Len Bertain
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