#80 20 PRINCIPLE LEAN SOFTWARE#

We first initiated a position in flow control equipment maker SPX Flow in late 2015, in part because we thought its food and beverage business had attractive secular growth potential, but largely because we believed the company had been poorly run for many years under prior management, creating a bloated cost structure that the new, more operationally focused CEO vowed to improve.

Furthermore, numerous companies have seen dramatic improvement in organic growth and profit margins by shifting resources away from less profitable areas of their business to focus on these key customers and product lines. It’s particularly relevant in business where, upon close examination and careful allocation of expenses, companies will usually find that about 80% of profits come from about 20% of customers, as well as about 20% of their products.

#80 20 PRINCIPLE LEAN SOFTWARE#

Since its discovery in 1906 by Italian economist Vilfredo Pareto, the 80/20 principle has been found to hold true in many areas–income and wealth distribution, software bugs and even sports, such as the 2007-2008 NBA season where the top 20% of players accounted for 79.5% of all points scored. The 80/20 principle, also referred to as the Pareto Principle, is the idea that roughly 80% of outputs come from about 20% of inputs. Past performance is not a guarantee of future results. Investing involves risk, including the possible loss of principal. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. The views expressed are those of the speaker as of January 2022 and are subject to change without notice. As of November 30, 2021, Diamond Hill owned debt in Ford Motor Co. As of January 31, 2022, Diamond Hill owned shares of Colfax Corp., General Motors Co.

80 20 principle lean