Pareto Rule: 80/20


In 1897, Italian economist Vilfredo Pareto, in his study of the patterns of wealth and income, observed that the distribution of wealth was predictably unbalanced. He first discovered this pattern in 19th-century England and found it to be the same for every country and time period he studied. Over the years, Pareto’s observation has become known as the 80/20 principle.

The principle is simple, but counter-intuitive: Nature creates imbalances. This is true for money (20% of people have 80% of the wealth), crime (20% of criminals commit 80% of crimes), energy usage (15% of population uses 85% of energy), competition (20% of suppliers have 80% of market share)and even carpet (20% gets 80% wear and tear).

Pareto’s findings have touched a great many students of business and economics. In fact, every MBA graduate at one time or another has heard of the “80/20 Principle”. The “80/20 Principle”, also know as Pareto’s law, simply states that approximately 80% of the output is a result of just 20% of the input.

In Pareto’s case, he found that 80% of the world’s resources/wealth was under the control of just 20% of the population. Please note that the use of the term 80/20 is used loosely and is not to be taken literally. The disproportionate relationship could easily be 90/10, 65/25, 70/10, etc.

The basic idea behind Pareto’s law is that the relationship between input and output is rarely if ever balanced. The key then is to isolate what input is causing the most output. This law can apply to an infinite number of disciplines and can be used to increase productivity on the micro and macro level.

The list of relationships goes on and on, but here are just a few examples: 1) Business: Customers-to-Sales, Product Lines-to-Sales, Items-to-Sales, Raw Material-to-Finished Product. 2) Sociological: Automobile Type-to-Number of Accidents. 3) Personal: Hours Worked-to-Productivity, Types of Investments-to-Investment Returns, Scheduled Tasks-to-Personal Happiness.

In a non-linear world:

1) Celebrate exceptional productivity, look for the short cut. Be selective, only do what you do best.

2) Keep it simple. Size often creates complexity – which in turn creates inefficiency. Pour your effort into the 20% that makes a difference. Sometimes it is better to lose unprofitable customers to competitors

3) Hold on to your good customers and employees forever!

4) The key to 80/20 is not time-management. Don’t try to do more. Just do more of the right things.

5) Do what you enjoy because enthusiasm and success is a complementary cycle.

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Bryant Nielson is heavily involved in the Corporate Training and Leadership and Talent space. He currently is the Managing Director for CapitalWave Inc and the training division, Financial Training Solutions. He brings a diverse corporate experience of organizational development, learning and talent development, and corporate training, that also includes personal coaching of top sales individuals and companies of all sizes. For the prior 4 years, Bryant was the Managing Director and Leadership and Talent Manager for Lengthen Your Stride! LLC. In this position, Nielson was the developer of all of the courses for MortgageMae University (MMU), the Realtor Development Center (RDC), and of Lengthen Your Stride! (LYS). In that position, he developed material, refined over many years of use and active training, and condensed the coursework and training to be high impact, natural learning, and comprehensive. Bryant has over 27 years of Senior Management experience encompasses running his own Training and mortgage firm, in New York City. He strongly believes that the corporate training is not to be static but should 'engage and inspire' students to greater productivity and performance.