In the late 19th century, an Italian economist named Vilfredo Pareto noticed something unusual: Roughly 20 per cent of the peapods in his garden produced nearly 80 per cent of the peas. Not exactly front page news, and yet Pareto’s observation would provide the foundation for a powerful concept that has been widely embraced by business leaders.
(Not bad for a guy who had enough time on his hands to calculate the efficiency of his peapods.)
These days, the 80-20 Rule, also known as the Pareto Principle, is commonly used in the business world as a way for leaders to identify and maximize what actions, employees, products, and customers provide the greatest value. Those who apply the 80-20 Rule to their business claim they can dramatically increase their productivity, profits, and even their free time. Yaro Starak, a professional blogger and author who wrote an extensive article on how he uses the 80-20 Rule in his life, explains: “I believe it’s fundamental to every business person—to every human being.”
Pareto put his name on the map because he noticed that the 80-20 dynamic didn’t end in his garden. The more he looked around, the more the 80-20 principle seemed to pop up. For example, he found that roughly 80 per cent of the land in Italy was owned by just about 20 percent of the country’s population. It was management consultant Joseph M. Juran who took the big leap several decades later of applying the 80-20 Rule to the business world.
The basic concept behind the 80-20 Rule is that a majority of results come from a minority of causes. Those who embrace the this concept seek to improve the efficiency, effectiveness, and profitability of their business by maximizing the power of the 20 per cent that is providing the greatest gains, and reducing the 80 percent that is slowing down the company. This rule isn’t exactly as reliable as the Law of Thermodynamics, but it is a consistent theme that business owners see over and over again in almost every aspect of their business.