Pareto’s Principle Rocks!
The “80/20 rule,” first identified by an Italian economist in 1906, says investment and results are disproportionately related. Who knew a concept developed more than 100 years ago could still ring so true?
I think there are a few things we can all agree on. One: We never have enough resources (time, money, energy, effort) to accomplish everything we want or need to. Two: We can never finish everything we have on our ‘to do’ lists.
It’s human nature to focus our attention on the things where we don’t have to invest a lot of resources, just to say we’ve accomplished something. It’s the same thing with our “to-do” lists: We tend to go to the simplest tasks first the low-hanging fruit because we like the sense of accomplishment we get from scratching the item off the list. But is this the most effective use of your limited resources, and will it give you the results you want and need?
Back in 1906, Italian economist Vilfredo Pareto identified that 80 percent of the wealth of his country was controlled by just 20 percent of the people. Using these findings as the basis for further study, Joseph Juran, an innovator of the total quality movement and the Six Sigmaconcept, published a universal principle in his 1951 book, Juran’s Quality Handbook, that he called the “vital few and trivial many.” Juran observed that in anything, a few (20 percent) are vital and many (80 percent) are trivial, a concept now widely known as Pareto’s Principle.
Extrapolate the Rule
It’s likely that you’ve heard this 80/20 rule applied to many different things, and if you did the research, you’d likely find that it has a lot of credibility. Consider how this applies to your life and your business:
- 80 percent of your sales are generated from just 20 percent of your customers
- 20 percent of the items in your assortment provide 80 percent of your profits
- 80 percent of the work is done by 20 percent of a company’s employees
- 80 percent of the results of a project are generated in just 20 percent of the time expended on it
- 20 percent of your marketing generates 80 percent of the results
- 20 percent of the key words and search engines drive 80 percent of the traffic to your website
- This goes on and on and on…
Maybe the ratio in your business isn’t 80/20; maybe it’s 60/40 or 90/10, but I think you’ll find the Pareto Principle concept rings true; there’s almost always a disproportionate result from the resources invested.
Make it Work
So how can you make the Pareto Principle work for you? First and foremost, you must be able to identify which results are most important to you, both personally and professionally, to see the forest for the trees and recognize activities that are vital, not trivial. Some might simply call this a prioritization process, but it goes deeper than that. The next step is more difficult because you have to be disciplined enough to stay the course on those things you identified as vital, and not get distracted from all of the other things in your business and life.
For example, as a manager, of all the things you do, only 20 percent really matters, and that produces 80 percent of your results. Identify and focus on this 20 percent, and when the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something on your schedule or to-do list has to slip if something isn’t going to get done make sure it’s not part of that 20 percent.
On inventory and assortments, make sure that the 20 percent of the items that generate 80 percent of your sales are always in stock and in the most saleable condition. And take a look at your stock levels on the slower-selling items (80 percent of your inventory) to help maintain balance and avoid overstocks.
If 80 percent of your sales are generated by 20 percent of your employees, make sure that you are recognizing and rewarding that 20 percent! That’s not to say that you should ignore the other 80 percent of your employees and try to get them to be more productive, but it’s important to maintain and motivate your high producers.
If 80 percent of your sales come from 20 percent of your customers, focus disproportionate attention and resources on maintaining their loyalty and strengthening your relationships with them.
The Pareto Principle isn’t an ironclad law or a panacea for success, but it is a good tool to help keep you focused on the things that are the most productive and beneficial, that offer the highest paybacks and returns.
In helping us to differentiate the vital from the trivial, the Pareto Principle rocks…
Videos
