The April Edition of the Ilk Review

What Is the Pareto’s Principle aka 80/20 Principle.

The 80/20 Principle according to Vilfredo Pareto states that a minority of causes, inputs or effort usually leads to a majority of the results, output or rewards.

This implies that 80% of what you achieve in your job comes from 20% of the time spent, 80% of what happens to you is a result of what you do with 20% of your time. For all practical purposes in business, 4/5 of the profit you make – a dominant part of it- is a result of 1/5 of the revenue.

This rule of thumb has proven that 20% of products/customers/activities usually account for about 80% of dollar sales value or (profit) ; on the criminal justice front 20% of criminals account for 80% of the value of all crimes; in the family front 20% of those who marry comprise 80% of divorce statistics and 20% of children attain 80% of educational qualifications available.

The 80/20 Principle also discovered two predicament principles in human endeavor.

The first is “The Principle of Least Effort” and second, “The Principle of Imbalance”.

From the latter, in 19th Century England, Vilfredo Pareto postulated that most income and wealth went to a minority of the people. This discovery was also repeated consistently, whenever he studied various data at different times, period or different countries.

In 1949, Zipf George discovered the “Principle of Least Effort” which was actually a rediscovery and elaboration of Pareto’s principle.

Zipf Principle stated that the available resources (people, goods, time, skills or anything else that is productive) tended to arrange themselves to minimise work, so that approximately 20–30% of any resource accounts for 70–80% of activity related to that resource.

Juran’s Rule of the Vital Few and the Rise of Japan.

Romanian born US engineer Joseph Moses Juran postulated the alternate 80/20 Principle and the Rule of the Vital Few virtually synonymous with the search for high product quality.

Our daily lives can be greatly improved by using the 80/20 principle. Each individual can be more effective and happier if they intelligently apply the 80/20 Principle.

Each profit seeking corporation can become very much profitable. Each non-profit organization can deliver much more useful outputs. Every government can ensure that its citizens benefit much more from its existence. For everyone and every institution, it is possible to obtain much more that is of value and avoid what has negative value, with much less input of effort, expense or investment.

At the heart of this progress is a process of substitution. Resources that have weak effect in any particular situation should not be used at all or should be used sparingly.

Resources that have powerful effects are used as much as possible. Every resource is ideally used where it has the greatest value. Whatever possible, weak resources are developed so that they can mimic the behavior of the stronger resources.

How Can We Apply the 80/20 Principle?

By adopting 80/20 Analysis and 80/20 Thinking!

When we are able to examine the relationship between where we are in business,our relationships, career and personal achievement and compare it to where we want to be using facts, figures bound with time, we can determine 20% of what exactly we want to do habitually, what we ought to possess to become what we aspire to be in order to enjoy 80% of the actual manifestations.

When we are able to apply 80/20 Analysis, then we can use the prognosis in 80/20 Thinking to change behaviour and normally, to concentrate on the most important 20 percent. This implies that actions resulting from 80/20 Thinking should lead us to get much more from less.

How can we get more from less?

By increasing the quality of our life and/or products and services we render. Leveraging on technology is another important aspect of applying the Pareto Principle strategically in business decision making in relation to hiring and retaining talent, observing which employee/clients/customers/activities are the result of business success, expanding business operations, improving marketing strategy and becoming more customercentric as against improving production/manufacturing.

Leveraging on technology also helps in assembling the required information needed in simplifying business operations. For example a publishing house using the 80/20 principle may have to consider whether maintaining its head office alongside regional offices and functional offices is contributing to its turnover and profits or surplus when compared to the expenses servicing rent and other fixed costs, overhead costs and variable costs. Simplification may require that technology is deployed to rendering publishing services in terms of marketing, customer relations and the production aspects. Simplification can also require that you use information about what goes on outside the business in detecting where there’re more treats, opportunities and results for strategic decision making according to Peter Drucker.

The Chaos Theory (CT) and 80/20 Principle have profound lessons in the study of the existing social inequality. CT asserts with a great deal of empirical backing that the universe is unbalanced; that the world is not linear; cause and effect are rarely linked in an equal way and some forces are always more forceful than others and will try to grab more than their fair share of resources.

Is the 80/20 Principle just a useful piece of knowledge, a cheap and diagnostic kit to be kept handy at home, office and the lab?

We need to stress the positive and life enhancing way in which the 80/20 Principle is used in practice, because there has been a sudden upsurge of interest in the social inequality implied in “the 80/20 society,” “the winner take all society,” and related themes.

If we want to improve society, the best place to start is by applying the 80/20 Principle to education. There are three key elements to this: identifying the vital few levers that lead to exceptional results, decentralization and competition. If we can deploy resources well enough in educating the masses: time, money, energy, personal effort and intelligence then we can be sure to have better results, better rewards in the society at large because there’ll be healthy competition through the expression of our economic rights from a place of informed decision making.