TWENTY AND EIGHTY IS NOT ONE HUNDRED
Josef Steindl once said that “for a very long time, the Pareto law [the 80/20 principle] has lumbered the economic scene like an erratic block on the landscape: an empirical law which nobody can explain”. This has to be the most painful and well-researched article I have ever written. There certainly is some irony here, since the 80/20 principle tells us that I could have obtained an article 80 percent as good in 20 percent of the time. This can definitely be my inclination and only the reader can tell whether the extra effort has been worthwhile. Maybe I think it has been, but I have lost all objectivity. The effort involved has been much more collective than for any of my previous articles. I don’t believe the false modesty of those who write generously that their articles/books have been ‘team efforts’. In the end, only an author (or authors) can write an article/book.
The 80/20 principle tells us that in any population, some things are likely to be much more important than others. Everyday language is a good example. 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. Sir Isaac Pitman, who invented shorthand, discovered that just 700 common words make up two-thirds of our conversation. Including the derivatives of these words, Pitman found that these words account for 80 percent of common speech.
In this case, fewer than 1 percent of words (the New Oxford Shorter Oxford English Dictionary lists over half a million words) is used 80 percent of the time. The movies illustrate the 80/20 principle. A recent study shows that 1.3 percent of movies earn 80 percent of box office revenues, producing virtually an 80/1 rule. But it is very rarely true that 50 percent of causes lead to 50 percent of results. The 80/20 principle can and should be used by a very intelligent person in their daily life, by every organization, and by every social grouping and form of society. It can raise personal effectiveness and happiness.
This article, the first ever on 80/20 principle, is written from a burning conviction, validated in personal and business experience, that this principle is one of the best ways of dealing with and transcending the pressures of modern life. The 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. It states that there is an inbuilt imbalance between causes and results, inputs and outputs, and effort and reward.
A typical pattern will show that 80 percent of outputs result from 20 percent of inputs; that 80 percent of consequences flow from 20 percent of causes or that 80 percent of results come from 20 percent of effort. In business, many examples of the 80/20 principle have been validated. 20 percent of products usually account for about 80 percent of dollar sales value; so do 20 percent of customers. 20 percent of products or customers usually also account for about 80 percent of an organization’s profits.
In society, 20 percent of criminals account for 80 percent of the value of all crime. 20 percent of motorists cause 80 percent of accidents. 20 percent of those who marry compromise 80 percent of the divorce statistics (those who consistently remarry and divorce distort the statistics and give a lopsidedly pessimistic impression of the extent of marital fidelity). 20 percent of children attain 80 percent of educational qualifications available. In the home, 20 percent of your carpets are likely to get 80 percent of the wear. 20 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.
The internal combustion engine is a great tribute to the principle. 80 percent of the energy is wasted in combustion and only 20 percent gets to the wheels; this 20 percent of the input generates 100 percent of the output! 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.
Vilfredo Pareto 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. To simplify, if 20 percent of the population enjoyed 80 percent of the wealth, then you could reliably predict that 10 percent would have, say, 65 percent of the wealth, and 5 percent would have 50 percent. The key point is not the percentages, but the fact that the distribution of wealth across the population was predictably unbalanced.