In business, many examples of the 80/20 Principle have been validated.
20 per cent of products usually account for about 80 per cent of dollar sales
value; so do 20 per cent of customers. 20 per cent of products or customers
usually also account for about 80 per cent of an organization’s profits.
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 per cent of what you achieve in your job comes
from 20 per cent of the time spent. Thus for all practical purposes, four-
fifths of the effort—a dominant part of it—is largely irrelevant. This is
contrary to what people normally expect. So the 80/20 Principle states that
there is an inbuilt imbalance between causes and results, inputs and outputs,
and effort and reward.
The pattern underlying the 80/20 Principle was discovered in 1897, exactly
100 years ago, by Italian economist Vilfredo Pareto (1848–1923). His
discovery has since been called many names, including the Pareto Principle,
the Pareto Law, the 80/20 Rule, the Principle of Least Effort and the
Principle of Imbalance; throughout this book we will call it the 80/20
By a subterranean process of influence on many important
achievers, especially business people, computer enthusiasts and quality
engineers, the 80/20 Principle has helped to shape the modern world. Yet it
has remained one of the great secrets of our time—and even the select band
of cognoscenti who know and use the 80/20 Principle only exploit a tiny
proportion of its power.
So what did Vilfredo Pareto discover? He happened to be looking at
patterns of wealth and income in nineteenth-century England. He found that
most income and wealth went to a minority of the people in his samples.
Perhaps there was nothing very surprising in this. But he also discovered
two other facts that he thought highly significant. One was that there was a
consistent mathematical relationship between the proportion of people (as a
percentage of the total relevant population) and the amount of income or
wealth that this group enjoyed.4 To simplify, if 20 per cent of the population
enjoyed 80 per cent of the wealth,5 then you could reliably predict that 10
per cent would have, say, 65 per cent of the wealth, and 5 per cent would
have 50 per cent. The key point is not the percentages, but the fact that the
distribution of wealth across the population was predictably unbalanced.
What do you about this principle