The 80/20 rule or Pareto principle is named after Italian economist Vilfredo Pareto, who discovered in the early 1900s that (among other things) 80% of the income and wealth in Italy was owned by 20% of the population.
This article is an extension to our "In a Nutshell" series. To read our original overview of The 80/20 Rule (Pareto Principle) click here.
The 80/20 rule is one of the most simple ideas you're likely to encounter. Simplicity is its biggest strength. It takes seconds to learn, is easy to remember, and has applications for any area of life. Perhaps the most beneficial contribution of 80/20 is as a common phrase that people can use as a reminder to look for the critical few things that will make the biggest difference.
Leaders, teams, and individuals can use Pareto’s insight to investigate those things that have the most powerful impact on sales, productivity, and performance. People’s time, effort, and resources can therefore be directed towards activities with the highest payoff. They can then ignore, automate, delegate, outsource, or delete those tasks that do not yield a good return on investment. In theory, the 80/20 rule has the potential to contribute toward more intelligent strategic decisions as well as generate savings in time, hassle, stress, and money.
The 80/20 rule is not just a principle contained in a vacuum; there are many references available for those interested in learning more about how to apply the idea to their work. By far the most popular and relevant is The 80/20 Principle (1999) by Richard Koch. Tim Ferriss has also helped add to the visibility of the 80/20 rule in his bestselling book The 4-Hour Workweek (2009). Ferriss claims Pareto’s work changed his life. The economist’s insight helped him realise that the majority of his time was being taken up by a small number of customers who weren’t worth the financial output and he recommends ‘firing’ these customers.
In a similar vein, Josh Kaufman, bestselling author of The Personal MBA and The First 20 Hours, advises his clients to create a ‘not-to-do’ list. This is essentially a list of low-value activities or requests that are identified ahead of time so that if they happen to come up during the day it will be much easier to say ‘no’. Kaufman, who personally favours the name ‘The Critical Few’ to ‘The 80/20 Rule’, notes the principle isn’t just for business—it extends to all areas of life, including personal fulfilment. Kaufman believes it is fundamentally important to identify the few things that contribute most to one’s overall happiness and inner peace (e.g., for Kaufman it’s spending time with family and friends, having deep conversation, teaching, trying new experiences, and reading). In this way, the 80/20 rule can be connected to the Time Management Matrix, keeping in mind that Quadrant 2 (Important and Not Urgent) is often the most neglected but also has the most potential for generating long-term positive impact.
The main criticism of the 80/20 rule is that any data can be made to fit the principle by tweaking the variables far enough. Because organisational data is highly complex and consisting of many variables, one could be selective in excluding data that doesn’t approach a neat 80/20 pattern. The fact that 80/20 has become widely known in business may actually encourage people to find ways to make data congruent with the rule in order to seem more legitimate.
From a statistical perspective, there is nothing inherently special about the presence of an 80/20 ratio. Similar examples could be found for 90/10, 70/30, 60/40 or numerous other combinations, and there are websites with lists dedicated to such examples.
The other major criticism of the 80/20 rule is one of practicality: people often find it difficult to determine when and how the Pareto Principle should be applied and when and how it shouldn’t. For example, Tim Ferriss used the 80/20 rule to ‘fire’ customers who were taking up too much of his time and not providing enough value. However, this information may not serve to benefit others in a different situation. People who apply the 80/20 rule to a specific context expecting the same results are advised to proceed with caution.