Origin
The discovery of Pareto Principle dates back to 1906 when Vilfredo Pareto, an Italian economist during a research observed that almost 80% of the land in Italy was owned by 20% of the population. He separated the top 20 percent from the bottom 80 percent. In his opinion the 20 percent of the population living in a society were known as the “vital few”, and naturally held power over the remaining 80 percent known as the “trivial many”. Pareto later expressed his surprising observation of this numerical imbalance indicating the influence of 20 percent of the population over the rest of the 80 percent in his book “Cours d’économie politique”. This principle was stated in the form of a mathematical phenomenon better known as 80-20 rule. Originally the principle was discovered as a useful means of showing the imbalance distribution of wealth among the people of Italy; however, it gradually evolved into an essential source of achieving maximum efficiency through proper strategic planning, in business processes. This principle if applied successfully in a business process ensures a positive impact on the ultimate target. It lets you evaluate the factors responsible for the productivity and profitability of your business, making it easier for you to eliminate those which are not contributing in any way towards your business’s success, and focus on the factors that require your immediate attention and have the ability to make your business prosper. The principle, however, should not be solely limited to the business processes, but applied to various daily life activities as well, in order to ensure life growth and prosperity.
An Exposition of the Principle
“For many events, roughly 80% of the effects come from 20% of the causes”
― Vilfredo Pareto
The principle of Pareto states that an output of 80 percent can be achieved by putting in a mere input of 20 percent. Vilfredo Pareto, the innovator who invented the 80-20 rule, while working in his garden noticed that mostly 20 percent of his peapods held 80 percent of the peas. Later, during a research he discovered that the situation of the Italian population was somewhat similar to the peas and the peapods. 20 percent of the Italian population owned 80 percent of the wealth in Italy. He expressed it into a mathematical formula suggesting that 80 percent of your problems can be solved by implementing only 20 percent of the strategies.
The 80-20 rule since then has proved to be a beneficial technique for thousands of businesses as well as other professional and personal fields of life. This principle teaches us to prioritize various tasks that can be a genuine problem solver. Most people in various situations fail to analyze the root of their problem and the factors affecting it. They waste their time and energy on implementing the unimportant strategies that would not in any way bring a positive change to their problem, ignoring the ones that might actually be helpful and be able to solve the complexities of their problems. It encourages us to stop concentrating on the bigger aspects of our problem and demands to reconsider the idea of sorting through the smaller ones first. The smaller aspects being the “vital few” can play a more essential role in solving your problem than the bigger ones that are simply the “trivial many”.
Goal Setting
Having a problem in setting a goal or prioritizing your tasks? Applying the 80-20 rule can effectively solve your problem. Having so many goals and a need to achieve them all can mess up with your head and keep you from achieving anything at all. You may be working a lot in order to achieve every goal that you have set but what you will notice is that you always end up achieving close to nothing. This is because you have been concentrating on achieving the bigger and the most complicated goal first. What you need to do is sit down and review all the goals that you have set and whether you are focusing on achieving the ones that are simply wasting your time and energy. If that is the case then you need to make a list and prioritize your goals according to their importance. The most important one has to come first and needs your complete effort and attention. Then after it is achieved you can move on to the next one and so on. This way you will have a prioritized list of your goals and be effectively achieve one after another.
The Misconception
The 80-20 rule is the most useful tool for solving our personal as well as professional problems of daily life, however, it can often be misinterpreted by people. The human nature to create a balance between everything can disturb the perfectly organized concept of this principle. The misconception most people have about this rule is that the 20 and 80 percent adds to the sum of a total 100 percent. Another misconception is that only the vital few that is the 20 percent is important and the trivial many that is the rest of the 80 percent should totally be ignored. But neither the latter nor the former concept is true. These are just the speculations developed by different people over time, in order to grasp a better understanding of this principle. The percentage of the inputs and outputs simply represents different units and do need to add to a sum of 100 percent. The 80 percent of the output is equally important as the 20 percent of the input. This principle just prioritizes the smaller tasks that are essential enough to produce bigger results.
The Quality Application
In 1941 an evangelist for quality and quantity management, Dr. Joseph Juran applied the Pareto Principle for managing the quality issues. He suggested that the trivial many should be considered important as well and should not be completely ignored. According to him 80 percent of the defects caused in the quality of the products are a result of 20 percent problems that occurred during its production, and by evaluating those defects and eliminating them we will be able to increase the overall quality of our products. The businesses being aware of both the efforts and the mistakes made by them will easily be able to resolve their quality issues. The 20 percent employees who are working hard needs to be promoted so that they could bring more success to the business, and 20 percent of the loyal customers who have been responsible for the majority of the sales should be properly entertained according to their needs. This 20 percent of the effort will effectively increase the quality of the products by 80 percent.
Application in Business
The 80-20 rule is extremely simple yet utterly essential. For decades this rule is being used as a means of strategic planning in various personal and professional fields of life, however, the frequent usage of this principle occurs in business processes. It helps you in analyzing your problems in a better way and helps you to find the root of your problems. For example you can find out what 20 percent of your customers are responsible for the sales and concentrate on satisfying those customers or other customers who have similar needs. It makes it easier for you to figure out what 20 percent activities and strategies are prospering your business up to 80 percent, so that you can devote a bigger part of your time to those activities.
Increasing the Profit
With the ongoing competition in the business field, it has become highly essential for every individual company to profit more. The 80-20 rule has proved to be helpful for the businesses in achieving a desired amount of profit. The profit can be increased by concentrating on three major aspects of the business and deriving strategies to control them. The first are the employees of a business. As a leader you should focus on finding out the 20 percent of employees causing the most 80 percent of the sales. By promoting those employees the business would definitely profit more. The second important aspect are the products being produced by the business. The leader should analyze which 20 products are bringing 80 percent of the profit. Researching on the characteristics of those products, working towards enhancing their features, and producing products similar to those. The third are the dedicated customers who are buying those products and are completely satisfied by them. A proper research needs to be conducted in order to find out more about the interests of those 20 percent of the customers causing 80 percent of the profit and taking every possible measure in satisfying them. More profit can be made by finding out more customers having the similar needs and advertising your products accordingly.
Growing the Production
The Pareto principle is promises an immense growth in your business process. It helps you in determining what 20 percent of your tasks are producing 80 percent of the results. This way you can stop wasting your time by focusing on the tasks that are completely unimportant and are not benefitting your productivity in any way. The prioritization of the tasks is extremely helpful. The leaders and the employees both play an essential role in the production growth. Every individual employee analyzes the condition of his tasks and makes a numbered list selecting those 20 percent which are causing a healthy 80 percent of production, arranging them by the order of their importance. The leader too evaluates all the 20 percent of causes resulting in 80 percent of the unproductiveness. This helps him in easily eliminating those 20 percent of the causes, by taking every possible measure. These strategies when properly executed can result in the drastic growth in the production.
Accuracy of the Rule
The rule being simple yet numerically imbalance has confused numerous of people and made them doubt its accuracy. However, there exists a number of examples to prove its validity. Both the salespeople and business consultants, after applying this rule in their have witnessed their production and sales dramatically grow and their issues being efficiently resolved. There are events where only the 20 percent of customers had increased the sales of a product by 80 percent, 20 percent of employees have innovated new methods to increase the productivity up to 80 percent, and 20 percent of the strategies have derived 80 percent of successful results. There are so many examples of businesses drastically growing after applying the 80-20 rule in their production methods, to clear your speculations about its validity.
