The 80/20 Rule: The Pareto Principle
The Pareto Principle is based on the work of Italian economist and avid gardener Vilfredo Pareto in 1906. While gardening, Pareto noticed that 80% of the yield of his pea crop came from 20% of the pea pods. After further investigation, he went on to notice that this same ratio appeared in the distribution of land in Italy, where 80 percent of the land was owned by 20 percent of the population. This became the foundation for what is now known as the Pareto Principle. In 1937, Dr. Joseph Juran, the pioneer of Quality Management, applied Pareto’s observations about economics to create a broader body of work. As a result, Dr Juran’s observation of how a few key elements or causes creates the majority of results. The principle that 80 percent of the effects come from 20 percent of the causes, became known as Pareto's Principle or the 80/20 Rule.
This principle recognizes that most things in the world are not distributed evenly. If you have ever picked blueberries or blackberries, do you hang around the bush that has 5 or 6 ripe berries, or do you naturally move to the bushes that have the highest concentration of ripe berries? You lose a little time from going to different bushes, but you collect more ripe fruit in the same time.
The impact of this rule can have large consequences for businesses and help them identify where to focus their energy and their money. We can apply this rule to our own business by asking the following questions:
What 20% of your employees are producing 80% of the productivity of your business?
Do 20% of your products account for 80% of product sales?
Do 80% of job delays arise from 20% of the possible causes of delay?
Do 80% of customer complaints arise from 20% of your customers?
In fact, we can take it further:
Meetings: 80% of the decisions come from 20% of the meeting time
Time Management: 80% of your measurable results and progress will come from just 20% of the items on your daily To-Do list
Interruptions: 80% of a manager’s interruptions come from the same 20% of people
Product Defects: 80% of defects typically come from 20% of input errors
Website: 80% of your visitors will see only 20% of your web site pages
Advertising: 20% of your advertising will produce 80% of your campaign’s results
Cleaning: 20% time and effort will get 80% clean.
Yard Work: 80% of your garden is weeded in 20% of the time; the last 20% of the weeds take 80% of your time.
Colds: You feel the worst 20% of the duration of the cold, the other 80% of the time you just feel the nagging aftereffects.
When we look at it this way, it seems obvious to us that most of the effects (80%) come from the smallest number (20%) of causes.
And the lesson for us in our lives and business is to stop wasting precious time and resources on products and services that drain money, energy and time.
Have a sales force? Focus 80% of their energy on the 20% of big purchasers and repeat buyers.
Want to reduce your costs? Identify which 20% are using 80% of the resources – consider charging for those resources, or shift services away
Have talented people on your staff? Focus their energy in the areas that bring in 80% of your revenue, and be sure they are praised and rewarded for doing so
Doing marketing? Identify the top 20% of your market and assign it 80% of your efforts
Having problems getting through your To-Do list? If something’s not going to get done make sure it’s not part of that 20%
By understanding the Pareto Principle, you will be able to use it in your everyday life to identify where your efforts will be put to the best use. Your ability to separate the essential from the nonessential will improve with practice, especially if that practice involves use of the actual data and not just "eye-balling" the situation. Once established, this approach becomes a normal reaction to solving problems. In time an experienced "Pareto thinker" can even make quick, accurate judgment calls without taking the time to get the data.
Superstar Management is a variation on Pareto’s Principle. Its supporters claim that since 20 percent of your employees likely produce 80 percent of your results you should focus your limited time in management of only that 20 percent, referred to as superstars. However, this proposed implementation of Pareto’s Principle to management is flawed; because it overlooks the fact that 80 percent of your time should be spent doing what is really important, or most likely to deliver the greatest return. By helping your good salespeople become better; you are more likely to reap greater results than by dedicating the same management effort to helping the fewer “great” salespeople become terrific. In this case, the sheer numbers work against you spending time only helping manage and improve the few great workers. Thus, it’s wise to evaluate various management situations and apply the Pareto Principle appropriately – and wisely. An analysis of how much time and effort it would take to increase the level of performance of the 80 percent may not be warranted. The 20 percent may be great because they learn more quickly and would benefit more from the additional management.
To maximize your personal productivity, realize that of the many things you do during your day, only 20 percent really matter. Identify and focus on those things. What do you do with those that are left over? Either delegate them or discontinue doing them.