80/20 Rule (Pareto Principle) Explained

The 80/20 Rule, also known as the Pareto Principle, has been a seminal principle in prioritization, efficiency, and working “smarter” for over 100 years. In short, the 80/20 Rule helps you get the biggest return from the least possible amount of effort. Listen to Jenny Rae as she explains what the 80/20 Rule is, its’ history, and how to leverage the principle in business, consulting, and the case interview.

The 80/20 Rule (Pareto Principle) Explained

YouTube Transcription

The 80/20 Rule, otherwise known as the Pareto Principle. Is an important workflow management tool to help get the most out of the least amount of effort.

History of the Pareto Principle

And the Pareto Principle was begun, or conceived, or at least articulated about 140-150 years ago. This overall principle was evaluated by an Italian economist. And he noticed that 80% of Italy’s land and wealth, or production, were held by about 20% of the population. There was another economist quality management pioneer, Joseph Juran. He built on this concept and coined, “The vital few, and the useful many.” Which meant that there were only a few people who really drove change and progress inside an economy. But there were many people who required to fuel the later stages of that economy.

Recent Adoption of the 80/20 Rule

The concept of 80/20 quickly began an important practice. And as sales teams and sales training became very popular in the United States, post World War 2, it was one of the main tools that was used to identify the top clients, the big fish, as a way to make sure that people were meeting quotas with the least amount of effort. So, this brings us to today. How is 80/20 used in workflow management, in consulting, and how can you put it into practice to make yourself a more effective worker.

80/20 Rule Graph

Well, the concept behind 80/20 is a very simple graph. And we’re going to pop it up on the screen here. It’s that 20% of your effort, your products, your services, or your ideas, result in 80% of the results. The profit, or the overall volume that you do inside your business. And, when you’re working on something as an external advisor, as a consultant, your job, your first job, is to filter through the noise of the 100%, down to the 20%. What are the most important things that people are doing?

80/20 Rule Graph

The Most Important Thing

So one of our first questions at Bain, when we were doing a kick-off meeting, would be, “What is your most important product? What is the most profitable product that you have?”. And it was shocking when people couldn’t necessarily answer that. So we would ask them to go back, or we would offer to that ourselves, and we would evaluate for them using a number of different metrics, some of the ones I mentioned before, such as volumes, or revenues, or profits. And we would say, these, here you go, this is the list of your most important products and services. They were almost always surprised. So getting to consensus around what the most important areas are, then enable you to identify how do you drive results off of those most important areas?

Practical Application

We do this today in our business at Management Consulted, we have a couple of things that are our most important things, we focused on them, resourced them, gone after them, and made sure that we pursue them with tremendous excellence. The harder part for us, and with many workers and with many company’s, is to do less on the 80%. To deliver in a different way. To differentiate what you pour into and what you perform with in your 80% in your environment.

Self Evaluation

If you’re interested in putting it into practice today, just at least do a little evaluation exercise on yourself. Out of a standard week, let’s call it next week, map what you spend your time on. And map what gets you results. Even if it’s not exactly 20%, maybe it’s 22%, maybe it’s 15%, you’re going to notice that the small amount of your time brought big changes and big results. And over time, the most effective workers, the most effective contributors, and the most effective businesses focus on doing really, really well at a limited number of things.

Again, we would love to help your organization, or you personally, implement the 80/20 Principle to be more effective in the work that you do. Just contact us at www.managementconsulted.com or on social.

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