The 80/20 Principle: The Secret to Achieving More with Less

by Richard Koch

Richard Koch richardkoch8020@gmail.com Gibraltar, March 2017

A good benchmark or hypothesis is that 80 percent of results or outputs flow from 20 percent of causes, and sometimes from a much smaller proportion of powerful forces.

The 80/20 Principle asserts that a minority of causes, inputs, or effort usually lead to a majority of the results, outputs, or rewards. Taken literally, this means that, for example, 80 percent of what you achieve in your job comes from 20 percent of the time spent.

80 percent of results come from 20 percent of effort.

In society, 20 percent of criminals account for 80 percent of the value of all crime.

In the home, 20 percent of your carpets are likely to get 80 percent of the wear. Twenty percent of your clothes will be worn 80 percent of the time. And if you have an intruder alarm, 80 percent of the false alarms will be set off by 20 percent of the possible causes.

Incidentally, Zipf also provided a scientific justification for the messy desk by justifying clutter with another law: frequency of use draws near to us things that are frequently used. Intelligent secretaries have long known that files in frequent use should not be filed!

During the 1980s, all of the gains went to the top 20 percent of earners, and a mind-boggling 64 percent of the total increase went to the top 1 percent!

the 80/20 Principle is how far businesses and markets still are from producing optimal solutions. For example, the 80/20 Principle asserts that 20 percent of products, or customers or employees, are really responsible for about 80 percent of profits.

why continue to make the 80 percent of products that only generate 20 percent of profits?

Most of the time, we do not realize the extent to which some resources, but only a small minority, are superproductive—what Joseph Juran called the “vital few”—while the majority—the “trivial many”—exhibit little productivity or else actually have negative value.

THE 80/20 PRINCIPLE AND CHAOS THEORY

Chaos theory and the 80/20 Principle illuminate each other

Both chaos theory and the 80/20 Principle assert (with a great deal of empirical backing) that the universe is unbalanced.

A great deal of what happens is unimportant and can be disregarded. Yet there are always a few forces that have an influence way beyond their numbers.

The tipping point

The concept comes from the principles of epidemic theory. The tipping point is “the point at which an ordinary and stable phenomenon—a low-level flu outbreak—can turn into a public-health crisis,”10 because of the number of people who are infected and can therefore infect others.

Improving on nature, refusing to accept the status quo, is the route of all progress:

George Bernard Shaw put it well: “The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”15

The few things that work fantastically well should be identified, cultivated, nurtured, and multiplied. At the same time, the waste—the majority of things that will always prove to be of low value to man and beast—should be abandoned or severely cut back.

HOW TO THINK 80/20

About 80 percent of the world’s energy is consumed by 15 percent of the world’s population, for example.

Are you working to make others rich or is it the reverse?

Acting on a few key insights produced the goods. Being intelligent and hard working did not.

Wealth from investment can dwarf wealth from working

Conventional wisdom is not to put all your eggs in one basket. 80/20 wisdom is to choose a basket carefully, load all your eggs into it, and then watch it like a hawk.

HOW TO USE THE 80/20 PRINCIPLE

Traditionally, the 80/20 Principle has required 80/20 Analysis, a quantitative method to establish the precise relationship between causes/input/effort and results/outputs/rewards.

A new and complementary way to use the 80/20 Principle is what I call 80/20 Thinking. This requires deep thought about any issue that is important to you and asks you to make a judgment on whether the 80/20 Principle is working in that area. You can then act on the insight.

Similarly, a firm that finds that 80 percent of its profits come from 20 percent of its customers should use this information to concentrate on keeping that 20 percent happy and increasing the business carried out with them. This is much easier, as well as more rewarding, than paying equal attention to the whole customer group. Or, if the firm finds that 80 percent of its profits come from 20 percent of its products, it should put most of its efforts behind selling more of those products.

The second main use of 80/20 Analysis is to do something about the “underperforming” 80 percent of inputs that contribute only 20 percent of the output.

Although this second application of 80/20 Analysis is sometimes very useful and has been put to great effect in industry in improving the productivity of underperforming factories, it is generally harder work and less rewarding than the first use.

80/20 THINKING AND WHY IT IS NECESSARY

To engage in 80/20 Thinking, we must constantly ask ourselves: what is the 20 percent that is leading to 80 percent?

THE 80/20 PRINCIPLE TURNS CONVENTIONAL WISDOM UPSIDE DOWN

celebrate exceptional productivity, rather than raise average efforts

look for the short cut, rather than run the full course

exercise control over our lives with the least...

be selective, not e...

strive for excellence in few things, rather than good p...

delegate or outsource as much as possible in our daily lives and be encouraged rather than penalized by tax systems to do this (use gardeners, car mechanics, decorators, and other specialists ...

choose our careers and employers with extraordinary care, and if possible employ others rather t...

only do the thing we are best at doing ...

in every important sphere, work out where 20 percent of effort can lead to 80 percent of returns

calm down, work less and target a limited number of very valuable goals where the 80/20 Principle will work for us, rather than pursuing every available opportunity.

make the most of those few “lucky streaks” in our life where we are at our creative peak and the stars...

THE FIRST 80/20 WAVE: THE QUALITY REVOLUTION

Juran published the first edition of his Quality Control Handbook, the bible of the quality movement, in 1951, but it received a very flat reception.

Both Juran and Deming came to use the phrase 80/20 increasingly, encouraging diagnosis of the few defects causing most of the problems.