Monday, February 01, 2016

Pareto Rocks!

I'm a big fan of Vifredo Pareto's work.  He observed the world around him and developed some very simple concepts to explain what he observed.  Pareto was ahead of his time.

Some of Dr. Pareto's work is based on the Pareto Principle:  the idea that 80% of effects come from 20% of causes.  In the real world, we continually see examples of the Pareto Principle.

I've been conducting one of my informal surveys lately...talking to lots of partners, customers and industry analysts about their experiences in implementing SaaS and the way it fits their business.  And I've found that, almost unanimously, the experience falls in line with the Pareto Principle.  Some sources vary the numbers a bit, but it generally plays out as follows:

  • Using the same SaaS footprint, 60% of any SaaS configuration is the same across all industries.  The configuration values and the data values may be different, but the overall scheme is the same.
  • Add another 20% for SaaS customers within the same vertical (healthcare, retail, higher education, public sector, etc.)..
  • Only about 20% of the configuration, business processes, and reporting/business intelligence is unique for the same SaaS footprint in the same industry sector between one customer and another.
Many of the customers I've spoken to in this context immediately place the qualifier: "but our business is different."  And they're right. In fact, for the sake of profitability and survival, their business must be different.  Every business needs differentiators.  But it's different within the scope of that 20% mentioned above.  That other 80% is common with everyone in their business sector.  And, when questioned, most customers agree with that idea.

This is what makes the business processes baked into SaaS so important; any business wants to burn their calories of effort on the differentiators rather than the processes that simply represent "the cost of being in business."  SaaS offers the opportunity to standardize the common 80%, allowing customers to focus their efforts on the unique 20%.  Pareto had it right.

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