The 80/20 Principle The 80/20 principle reveals that roughly 80 percent of the results come from 20 percent of the drivers. As in nature, there are countless areas where this natural principle can be observed in business:
80 percent of sales revenue comes from 20 percent of customers 80 percent of profits come from 20 percent of products 80 percent of sales are generated by 20 percent of the sales team 80 percent of material purchases come from 20 percent of suppliers 80 percent of quality defects come from 20 percent of the causes The Vital Few and the Trivial ManyThe 80/20 rule is extensively applied in business today in many different ways. In 1941, the great quality consultant guru Joseph Juran named this heuristic principle after its Italian proposer Vilfredo Pareto. In this simple rule, Juran recognized a powerful business tool that helped ignite the quality revolution in Japan during the mid-1950s. The principle is also known by a few other names, including the law of the vital few and the trivial many, the principle of imbalance, and the principle of factor sparsity.
The implication of the 80/20 principle is that when two sets of cause and effect data are compared and analyzed, there is a high probability that the results will show a pattern of inequality. From a time-management and resource-allocation point of view, it means one of two things: either time is being spent on things that really matter, or time is being wasted on things that do not make much difference in the scheme of things. Spreading your attention evenly over the total number of inputs is not the optimal way to achieve the best outputs. Either you have the ability to select the vital few, or you will be wasting time and resources by working on the trivial many. |
Beneficial Side of 80/20 |
Perverse Side of 80/20 |
If you work on the vital few things that matter most, you will tip the scale of the natural imbalance on your favor. By isolating the vital few from the trivial many and by increasing your focus on the 20 percent that create 80 percent, you will boost your outcomes significantly.
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Ignoring the 80/20 laws and focusing on the trivial many will not only diminish your results but also destroy any business over time.
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