The Pareto Principle (80:20 Rule)
Organisations are constantly facing challenges given the recent changes in the business landscape (due to Covid-19), legislative and compliance requirements, and continuous fluctuations in employee and consumer requirements and needs. Such challenges include effective and efficient time management as well as identifying and ensuring alignment with priority organisational goals.
To address these organisational challenges and to prioritise tasks and business efforts, a wide known principle referred to as the Pareto Principle or 80:20 rule may be used and applied. This principle was initially named after the Italian economist, Vilfredo Pareto who, in the late 19th century, observed that 80% of the wealth of Italy was owned by 20% of the population. Whilst testing the principle, Pareto found that 80% of the wealth and land in almost all countries was controlled by 20% of the people. During the early 1950s, the psychologist Dr Joseph Juran further developed and expanded on the theory and argued that the Pareto Principle could also be applied to organisations and management. In the years to follow, the Pareto Principle / 80:20 principle was coined by Dr Joseph Juran who also noted that focus should be placed on the “vital few” and ignore the “trivial many” (terms also coined by him) to have the greatest success and achievement (Evans, 2023).
The Pareto Principle maintains an 80:20 rule. This outlines the idea or concept that 20% of the effort or input from any given situation or system, should lead to 80% of the results or outputs achieved. Consequently, it may be said that a small percentage of causes may have an outsized effect. As such, the key to the principle is to identify and recognise that 20% of one’s actions on the most productive tasks can lead to the most success. Evidently, the principle enables individuals to identify and focus on the most important situations or tasks and ignore the mass of unimportant situations or tasks (Evans, 2023; Laoyan, 2022).
The question arises as to how this principle can influence organisations today. According to Evans (2023), numerous individuals and organisations have further developed and refined the principle over the years, leading to its widespread use today in a variety of industries, ranging from agriculture, business and healthcare for example. Whether trying to make sense of why goals are not met or achieved, or why an organisation’s human resources are not functioning optimally, understanding, and applying the Pareto principle can often lead to identifying key areas for focus and improvement. Some examples of the application of the principle, include:
- 20% of employees, produce 80% of a company’s results or outputs;
- 80% of profits or revenue, results from 20% of the products or services an organisation sells or provides;
- 20% of a given employee’s time, yields 80% of their outputs.
In today’s working environment, time management and goal setting have proven to be the most common uses of the 80:20 principle. This includes, spending time prioritising tasks and focussing on such tasks identified (time management). In addition, it includes determining one’s organisational goals and ensuring alignment and fulfilment of such goals (goal setting) (Evans, 2023; Laoyan, 2022).
Within organisations, the principle can be used to increase effectiveness of leadership by leaders prioritising tasks and ensuring teams work effectively and focus is aligned to specific initiatives. In general, some other advantages of using the principle include:
- Efficient use of energy and resources;
- Increased productivity;
- Improved problem-solving and decision-making;
- Increased self-confidence in employees;
- Decrease in burnout; and
- Clearer priorities.
At Joubert and Associates, we are committed to assisting organisations achieve their organisational goals and manage their most important resources (their employee) effectively. We have a diverse and specialised team of consultants who are capable of facilitating the implementation of relevant and appropriate techniques or actions. This may include strategic planning sessions, time management training, and structure investigations to name but a few. Joubert and Associates can assist in applying the 80:20 principle effectively and contribute to identifying the most important priorities and elements of focus within an organisation.
Article written by Talita Joubert
Resources:
https://www.simplypsychology.org/pareto-principle.html
https://www.techtarget.com/whatis/definition/Pareto-principle
https://www.sciencedirect.com/topics/engineering/pareto-principle