Confirmations of the 80/20 Rule

The Pareto principle, also known as the 80–20 rule is named after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population. Pareto developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas. More generally, the Pareto Principle is the observation that most things in life are not distributed evenly.

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Value for Business

The value of the Pareto Principle in management is in reminding us to stay focused on the “20% that matters”. It’s therefore critical that we identify and focus on that 20%. It makes sense to spend a portion of your day preparing and identifying the most important tasks for the day. The following examples tend to hold true:

  • 20% of the workers produce 80% of the result – You should focus on rewarding these employees to keep them onboard, and encouraging them to maximize their efforts.
  • 20% of the customers create 80% of the revenue – If you focus on satisfying these customers, they will continue to provide repeat business, keeping you afloat so that you can concentrate on making more sales!
  • 20% of the features cause 80% of the usage – Focus on these critical features, the unique selling points, and develop to keep the majority of users happy.
  • 20% of the bugs cause 80% of the crashes – Focus on fixing these bugs first, to create a more stable product. It makes sense to do the 20% of work first.

Why It’s Important to Be Careful

There’s a new concept in employee management called Superstar Management. Its supporters claim that since 20% of your employees produce 80% of your results you should focus your limited time in management of only that 20%. However, this proposed implementation of Pareto’s Principle to management has a major flaw because it overlooks the fact that 80% 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. It takes considerably more energy to produce a small gain in “great” salespeople, than “good” salespeople.

To Be Continued

Next week, we’ll provide some real life examples of how the 80/20 rule makes sense in the real world.

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