10 minutes on Pareto’s Optimum (and some criticism on it)

Hi,

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.

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About curiousmanager

In life there are generalists and specialists. Although your job pushes you down towards a certain specialization, I feel it's important to keep your eyes and mind open for new stimuli. And I want to share my journey through arts, literature and sciences with other knowledge workers and managers. You don't have time to read. Let me do that for you and present only the best of the best in my blog!
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