Better Planning by Flipping the Pareto Rule on its Head

When Joseph M. Juran, the Quality Management researcher who attributed the “80/20 Rule” to Vilfred Pareto, he dubbed it Pareto’s principle. As an economist, Pareto’s effort was concerned only with Italian wealth distribution in the early 1900s, but others from a variety of disciplines found evidence of the principle in their work also. In essence, it states that in any natural process or distribution 80 percent of the effects derive from 20 percent of the causes.

How It Applies to Business

The principle is applied in business to project and people management, sales, troubleshooting, “long-tail” inventory and so on. Supposedly, it tells you that 80 percent of your stock originates from 20 percent of your suppliers and 20 percent of your company’s software bugs create 80 percent of bug reports. Charting a course of action based on the 80/20 rule, however, is not always straightforward.

Shaking Inventory by Its Long Tail

For a brick-and-mortar business, the Pareto principle dictates that 20 percent of your inventory yields 80 percent of your revenue. Warehousing the remaining 80 percent costs you space, time and money disproportionately to its expected revenue. Then along came the Internet. Amazon’s inventory storage is essentially virtual. They happily “store” the 80 percent long-tail inventory in exchange for 20 percent more sales revenue, as do other online retailers. Pareto’s principle predicts the inventory/sales ratios, but Amazon turned conventional, Pareto-inspired, wisdom for inventory management on its ear.

It Could Be More Work to Ignore the 80 Percent

In a similar vein, if 20 percent of your sales staff is accounting for 80 percent of sales, should you - as Superstar Management acolytes preach – devote your time to boosting the performance of the top 20 percent and ignore the rest? The best salespeople already outperform, so you might get another 10 percent from them with coaching. Inducing a 30 percent increase from the more numerous “better” salespeople, however, may drive total sales even higher. If the best mentor the better, you also build a cohesive team that will not crumble when a superstar leaves.

Project Managers Know Pareto Never Had to Herd Cats

When it comes to project management, the principle is really a corollary. The 10-80-10 rule rules. The two periods of greatest effort, which feel the least productive, occur at the beginning and the end of projects. During those times, utilize the talents of your 20-percenters the most to help break through. Delegate or outsource the middle 80 percent.

Double Down on Pareto to Impress the Brass

If you are a Pareto believer, then you consider doubling-down on it. That is, after you have prioritized your objectives such that 20 percent are the ones where you will concentrate your efforts, make a second pass on that top 20 percent. Now, 4 percent of your tasks yield 64 percent of your results. With those kinds of numbers, you are sure to catch upper management’s eye. Make certain not to write-off the remaining 36 percent of work however.

Pareto Doing a Head Stand

Regardless of whether your task adheres to the 80/20 rule, another “rule,” supported by motivational behavior research really gets the job done. Studies demonstrate that motivation – and thus, productivity – increases with a forward-looking assessment versus looking backward. Most of us count crossed off items on our to-do list to mark progress, when significantly better progress occurs by focusing only on the work remaining.

In a sense, this technique flips Pareto on his head. Remember, the B-side of 20 percent effort gets 80 percent results is that the remaining 20 percent requires much more time. Resist ego stroking after thinking you are 80 percent done and then unconsciously slack off. Concentrating attention on the work remaining, by the way, works for both short and long-term objectives.

Vilfred Might Be Pleased

Vilfred Pareto had no idea how universally accepted his principle would be and to what extent it would apply. Invoking the “80/20 Rule” off-handedly is common, but can paper over deeper insights into what its implications are or are not.