The Pareto Principle – An Increasingly Powerful Management Tool
Last week’s blog entry discussed John Kotter’s new book “A Sense of Urgency.” In the book, Kotter states that a key component in creating a true urgency for change is the relentless purging of non-important activities. While he may not have realized it, this links directly to a key continuous improvement concept, the Pareto Principle.
The Pareto Principle, sometimes known as the 80/20 rule, is based on the common natural occurrence in which a large proportion of effects result from a critical few causes. While the concept first gained popularity as a tool to help improve product and process quality - 80 percent of defects result from 20 percent of the causes - In today’s complicated and fast-paced world, it is proving to be an extremely flexible and powerful management tool that can be applied to many situations.
For instance, in his 2007 bestselling book “The 4-Hour Workweek,” Tim Ferriss employs the Pareto Principle when he recommends firing the 80 percent of your customers who take up the majority of your time and focusing on the 20 percent who make up the majority of your profits.
The Pareto Principle can be applied in almost any situation where there are a large number of items vying for attention - part SKUs, software bugs, potential Lean Six Sigma projects, change related activities, etc. In these cases, treating every item with equal importance can overwhelm the system and make it difficult to make any progress. Instead, apply the Pareto Principle so the critical few items receive the vast majority of attention. The time and energy that would have been spent on the trivial many can now be fully focused on the things that really matter, resulting in the most impact with the least amount of effort.
I suggest using the Pareto Principle as an ongoing reminder to spend your time and energy on things that are really important. Don’t just work hard, work hard on the right things.