Italian philosopher and economist, Vilfredo Federico Damaso Pareto, developed what has become known as the 80/20 principle, or the Pareto principle. After observing that 20% of the pea plants in his garden produced 80% of the healthy pods, Pareto turned his attention to wealth distribution and found that just 20% of the population owned 80% of Italy’s land. After gathering data from various fields, he arrived at the general principle that 20% of action drives 80% of results. This pattern can be observed not only in economics and gardening but also in business and even personal habits.
While 80% and 20% are not exact numbers that are set in stone, the general concept that the majority of outputs (result, revenue, usage) come from a smaller percentage of inputs (workers, features, labor hours) is apparent in almost every aspect of human experience. When you understand this, you can use the idea to improve your business processes and, ultimately, your bottom line.
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Apply the 80/20 Principle to Business, Manufacturing & More
Determine What Matters
Evaluate your current processes, products, customer base, and revenue to determine what defines your project’s success. Remember, it’s not primarily about your personal productivity; it’s about focusing the efforts of your team on that crucial 20% of action that drives the most important outcomes for your business. Assess what is working best for your company and which tasks, projects, customers, or products are yielding the best returns.
Identify Key Issues
The Pareto principle doesn’t mean just evaluating what is working or producing. It also applies to things that aren’t working. Chances are that if you take a look at risk management, you’ll find 80% of your problems are coming from just a few key issues. If you can sort out what areas are giving you the most trouble, you’re one step closer to optimizing your processes.
Focus Your Energy
Imagine what would happen if you could direct efforts to ironing out the biggest wrinkles in your process. Spend your time and effort working on those issues that have the biggest impact on your company. When addressing issues within an organization, focus on 100% of the top 5 things rather than 5% of the top 100 things. By focusing your energy on tasks that yield the best results, you’ll use your time more efficiently, and so will the rest of your team. Reward employees who do the most for the company; focus on fixing the problems that cause the most losses first; and put a little extra TLC into those customers who keep coming back.
If you’re looking for a little guidance, contact Cornerstone Consulting Organization's professional consultants for help.