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Pareto's Principle - The 80/20 Rule

A big part of being a leader, means having a clue about certain things right? So if I asked you right now what percentage of Americans own what percentage of civilian owned firearms… could you tell me something close without looking it up? Most could not, but I am about to change that for you.

Are you familiar with the 80/20 Rule?

It’s also called “Pareto's Principle” for those who want to research this after reading it. The story of Vilfredo Pareto or Dr. Joseph M. Juran is quite irrelevant to the point I would like to convey though. Sure, history is important, but the point I am making today is not historical so much as real time.

The 80/20 Rule is damn near a law of nature. It was discovered in the world of economics when it was observed that twenty percent of the people owned eighty percent of the wealth. You’re thinking “Ya, I know that!” But did you know that this discovery was made in 1906 and in Italy? Go figure! Weird how it also holds true here in the states over a hundred years later right?

You don’t have to be an economist to utilize this principle though. It’s a rather basic principle and can be used in just about any given situation with surprising accuracy. Essentially, it means that 80 percent of your outcomes come from 20 percent of your inputs. Here are some examples:

80% of your business comes from 20% of your clients, or 80% of production is actually produced from 20% of the workers. But it’s not just in business.

80% of the points will be earned by 20% of the players, or how about 80% of our country lives in 20% of the space?

Of course, this could work a couple of ways. It could also be a 20/80 situation.

20% of the defects are probably causing 80% of the problems for your company. 20% of your staff will cause 80% of your problems for you. 20% of your workers produce 80% of your results. 20% of your inventory may take up 80% of your warehouse.

Look at it from a personal point of view. Perhaps you are spending 80% of your time doing something you hate, and spending 20% of your time doing something you love. Now you know that needs to change.

This is such an easy way to identify potential hazards or negatives, or even positives and victories without having to be some kind of statistical wizard. Are there exceptions to the rule? Sure! Especially if you are trying to tear it apart, sort of.

For example: someone might argue that they own a grocery store and that the sales floor is filled with all kind of different products from all kinds of different vendors. That’s true, but would you say that your sales floor is split from 20% fresh to 80% processes and boxed?

Perhaps only 20% of your friends are REALLY friends. What are you going to do about the other 80%? Maybe 80% of the population is clueless, and 20% actually care what is going on in this country.

Then of course, you could break it down even further if you wanted to. Let us use that last example as the point in reference. Let’s say that only 20% of the population cares what is going on in this country. Of that 20%, it would be safe to say that only 20% of that original 20% (4%) would ever do anything about it and the remaining 80% of that original 20% (16%) would support that group. Look to the Revolutionary War for clarification and proof of this point. It’s insane how crazy accurate this is.

The point is that knowing this simple principle can actually change how much of the world looks. It also gives you a strong starting point to research or guesstimate. I personally like to use this to demonstrate how certain government programs will never work as intended.

Let us look at ObamaCare for a second. 80% of the people are being penalized for the betterment of 20%. Of all the money invested in ObamaCare thus far, which percentage do you think the website accounts for in regard to cost? 80 or 20%?

Play around with it. You’ll be amazed at how it can change your perspectives. I’ll leave you with a couple of things to consider. It is important to have some facts when it comes to the 80/20 rule though. You don’t want to assume too much because then you’ll be considerably off if you’re wrong. Let me demonstrate.

QUESTION: What percentage of people are generally “good” people?

Most folks would assume that 80% of people are generally “good” right? However, using additional factors such as research, we find all kinds of interesting things that may change their minds. An example might be that 80% of people see nothing wrong with stealing from their workplace (Derbyshire , 2009). Of course now, 80% of people are figuring out a way to justify this.

In the example I provided, it would be a safe bet to say that the example did not change the mind of 20% of the people who still believe that 80% of people are good. But if that perception were true, why would 80 percent of organizations now have to provide codes of ethics to guide employees regarding ethical standards in their work (Gioia, 2012)?

See what I mean? Now let me ask the question again. What percentage of Americans own what percentage of firearms? It would probably be safe to assume that 20% of Americans own 80% of all the civilian owned firearms right?

So I make that claim and then do some research. Can you guess what I found? On the flip side, the Guardian ran a story demonstrating that 80% of Americans own firearms. I guess that means they own the 20% that are left.

Some other things I found interesting: did you know that approximately 80% of all crime is committed by 20% of all criminals and that 80% of the homicides were gang related? Or how about that around 80% of gun owners are men?

It never ends!!! It’s a powerful tool. Enjoy!


Resources

Derbyshire , D. (2009, Sept 7). How 80% think it's ok to steal from work as study reveals our wavering moral compass. Retrieved from http://www.dailymail.co.uk/sciencetech/article-1211629/How-80-think-OK-steal-work-study-reveals-wavering-moral-compass.html

Gioia, J. (2012, June 13). Pressure to act unethically is on the rise. Retrieved from http://www.hermangroup.com/alert/archive_6-13-2012.html

David Robertson

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