Why Every Leader or Manager needs The Pareto Principle

Leaders and Managers can use the Pareto Principle in a number of ways

The rule is named after Italian economist Vilfredo Pareto, who according to Wikipedia, observed in 1906 that 80% of the land in Italy was owned by 20% of the population; and that 20% of the peaVilfredo Pareto of Pareto Principle fame pods in his garden contained 80% of the peas. In business, the principle is usually used to estimate that 20% of tasks produce 80% of the total work done.

I first came across the Pareto Principle when introducing a business management system in a process driven team.  Working in the legal sector the processes were complex and varied.  We also had literally thousands of processes which employees needed to know.   In order to be able to physically measure and manage the top processes, we concentrated on the most frequently used work streams.  What this meant was we measured around 20% of the processes, which actually produced 80% of the work.  Not only did we measure these top 20% of processes, the exercise meant we could engineer these processes using lean principles to make sure they were super efficient.   The application of the Pareto process was transformational in the way we managed and prioritised our work.  As with anything there was a huge risk the team concentrated on the processes measured to the detriment to the thousands that weren’t, but in practice it didn’t really happen because the team simply were more focussed generally as a result of sorting the work/measurement into priorities.

The concept of the Pareto Principle sparked a great understanding for me in a whole host of management interventions.  I used the principle when business planning when working out strategies and finally I used it when developing job roles and descriptions.

The Pareto principle can be used in any business and also in your personal life.   If you have many household tasks to complete you can pick out the top 20% which are going to make the biggest difference and concentrate on those.

As with any model, there are always refinements.  Perry Marshall in his fantastic book 80/20 Sales and Marketing goes further.  He explains that you can apply the Pareto Principle to the Top 20%, so that you can further refine and focus on your most fruitful customers and develop a lucrative profile of targeting new customers.  This approach could also be applied to processes and other work-related strategies to develop a targeted methodology to focus on the most productive, or most profitable areas of the business.