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ANALYSIS PARALYSIS

How to stay focused on the business decisions that matter most

Teresa Dietrich
By Teresa Dietrich

Former global head of product and engineering, McKinsey New Ventures

Most people have heard about the 80/20 rule in some form. It asserts that 80% of effects come from 20% of the causes. We can see it applied in many different ways: 20% of your employees are responsible for 80% of the results; 20% of products are responsible for 80% of sales; and in some countries 80% of wealth is owned by 20% of people.

In my 20-plus years of working in technology, I have devised my own application of the 80/20 rule: that only 20% of technology decisions are truly crucial to long-term success, and the other 80% are mostly inconsequential.

Why do you need to quickly be able to evaluate whether a technology choice falls into either the 80% or 20% category? The answer taps into our most valuable natural resource: time.

Technologists love solving problems and will invest significant time to find the perfect solution. If given the chance, they go down the rabbit hole. If the problem that they need to solve falls into the crucial 20%, then you should let them—but with a timeframe and milestones based on how fundamental and complex the solution is to your business. However, if the problem falls in the insignificant 80%, you want to prevent the team from burning too much time on the solution. You will have paid the opportunity cost of the team’s time on an unimportant business decision rather than focusing on other priorities.

But how do you work out what that 20% is?

As a technology leader, feeling confident in determining the crucial 20% emerges as the most challenging aspect of applying the rule. I use two criteria to help me decide:

  • First, is this functionality fundamental to our business operations? For example, if this technology stops working, are you and/or your clients dead in the water?
  • Second, does this technology have a high degree of complexity? For example, will your team have to spend a lot of time setting it up or integrating it with other systems?

If the answer to either of those is yes, then you probably have a business-impacting decision on your hands.

Example one

Let’s say that you need an email service to send reminders to clients. You’re deciding between a bunch of the regular players: Mailchimp, Constant Contact, and SendGrid. Let’s use those two criteria to work out how much you should labor the decision. The goal is to ensure that your team does not invest significant time deciding on which service to use if it isn’t imperative to your business.

First, if emails stop flowing for a couple of hours, does your business come to a halt? Seems unlikely: Emails would get delayed, but they would eventually make it to your clients. Secondly, is this email service complex? Luckily mail delivery follows a standard protocol and you will likely only integrate it with one other system, so it’s not very complex.

That means you strike out with two nos: Whatever decision you make probably won’t impact the future of the company.

Example two

Now imagine your team needs to decide on a database technology in which to store your client data. You’re overwhelmed by choices: Salesforce, Hubspot, and Zoho, to name a few. Let’s apply the criteria again.

If your team or your product is unable to access this client data, does your business come to a standstill? Yes, your product would not be functional for clients, and your team would not be able to support them. (Also, the security of your client data is highly important to both you and your clients.)

And is database technology complex? Somewhat. There are several database standards, but migration between them isn’t simple. To switch down the track could be a real hassle.

In this case, you have a business-impacting decision and should invest the time to make the right one.

Making the 80/20 decision

Technology teams left unchecked will often treat most choices as business critical. As a leader, the best way to empower your teams and give them the autonomy to make their own judgements is to teach them the 80/20 rule.

I like to tell teams that they should really only be investing substantial time in evaluating 20% of their problems. If you entrust them to decide which falls into the 20%, they maintain their freedom, and you ensure they are spending their time appropriately.

What about the other 80%? This portion doesn’t not matter—it simply matters less. And this less meaningful percentage is growing every day; soon we might even creep toward the 90/10 rule.

Why do fewer technology decisions require considerable analysis and introduce less business risk? The growth of “X as a Service” technology across infrastructure, platform, and software solutions have greatly reduced the setup time and cost of implementing new services in your ecosystem.

The rise of open source and common standards in many technologies have also tremendously reduced the switching costs, if you discover the initial solution does not meet your needs. This is a great thing for the 80%: Make a decision quickly, try it out, and, if it fails, you can quickly export your losses into another hopefully more suitable model.

Often teams will get stuck in analysis paralysis when there are variables or requirements that they just don’t know yet. Due to the low investment in adopting new technology and minimal switching costs for most decisions, the best thing the team can do is choose an initial direction and learn more as they go.

As for the 20%? Spend 80% of your time making that decision.

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