In 1895, Vilfredo Pareto, an Italian sociologist and economist, discovered that 80% of Italy’s money was owned by only 20% of the population. Further studies revealed that other countries experienced the same imbalance of wealth distribution. Pareto then came up with a mathematical formula to describe this unequal wealth distribution, and published the formula along with his findings.
Later, in the 1940s, Dr. Joseph Juran applied this rule to business production methods. He found out that 20% of the production defects were accountable for 80% of the problems. As a result, he named this phenomenon “the vital few and the trivial many.” Because 80% of the problems were stemmed from 20% of the defects, focussing on this vital 20% enabled better use of resources, and effective quality control measures to be appropriated. He then attributed this rule to Pareto, and named it the Pareto’s Principle.
Applying The Rule in Training Your Employees
In an organizational setting, the 80/20 rule means that 80% of your results come from 20% of your input/effort. So, what is most important is separating the trivial many from the vital few, and then, concentrating on the vital few. It is important to understand the principle rather than focussing on the numbers, as they may change often (e.g. 65/35 or 70/30).
If you find that 80% of your sales come from 20% of your customers, you can increase your revenue by focussing on that 20% of customers that bring the majority of the sales. Consequently, you can now concentrate on training the sales team with an objective of retaining the vital few customers, and winning more sales from them.
You may find that a particular 20% of your employees are hardworking and are accountable for 80% of the output. In this case, you can focus on providing a better training to this most productive minority group of employees. This way, you can be sure to increase your overall sales.
Your organization’s product line tells you that 80% of the overall sales volume comes from 20% of the products. If these products are kept in a storehouse as inventory, then 80% of the storehouse’s space should be occupied by those superstar products that make up 20% of the product line. In this case, focus on training your employees on everything that pertains to these superstar products.
In conclusion, Pareto’s principle is all about looking for the value in the top 20% of whatever reward you are seeking in your organization. Examine every training action and decision you make, and adjust it to the smaller success margin.