The concept of the Pareto optimum is very well known both in business and the self-improvement literature (perhaps better known as the 80/20 rule). Personally I have been in close contact with many senior manager that made this their personal motto. I also mention it in my posts regularly, like in “A Balanced Scorecard for Yourself“, I wrote this small post just to define it and add some side remarks.
According to Wikipedia, Pareto’s Principle states that for many events, roughly 80% of the effects come from 20% of the causes. For example in Pareto’s time, 80% of the land was owned by 20% of the population. In modern management literature, you read 80% of the results come from 20% of your time. Eventually, 80% of profits in a company come from 20% of the customers.
Above all, it’s a great way to prioritize. Every individual has the tendency to allocate efforts uniformly. With that I mean, when 10 problems arrive at your desk at work, you tend to spend 10% of your time on each one. That is just wrong. The world does not work that way, it’s the other way round! Pause, step back and prioritize. Are there 2 problems that represent the majority of the stress you’re under? You’ll probably see this is the case. It also works the other way. When you slash 50% of your work hours, will you be 50% less effective? Absolutely…not! This mode of thinking is revolutionary at first and it represents a true paradigm shift when internalized.
There are however a few things to say against it, before you go about and start cutting 80% in everything you do.
First of all, despite all fancy names we gave it (Pareto’s optimum, Principle, Law, etc) it is not a real scientific fact. You cannot seriously expect everything to behave in a 80/20 way. It is an interesting approach, but sometimes it makes perfect sense to allocate your time evenly, or even adversely to this 80/20. Nevertheless, there are ways to pinpoint and calculate the Optimum, on which I will post later.
Secondly, I find it rather short-sighted. As in so many things in management literature, this is aimed at the short term gain. When coming into a new role, a manager is faced with many problems. Then it makes sense to reflect a bit before acting. But that is a strategy for the first 3 months, then he needs to develop a longer term strategic view. Nobody is really motivated by this scarcity thinking.
Finally the most deadly of consequences… applying 80/20 thinking KILLS diversity. In life, and in business, variety is truly the spice. It is also the seed of new ventures which may blossom to a whole new world of opportunity. No business has ever survived long-term by just executing more efficiently on what it did 10 years ago. Or as someone has put it so eloquently: electricity was not invented by improving the candle. Again here, please put Pareto’s Principle in a closet with a whole arsenal of other tools. And do not overuse it.