Why Every Leader Needs The Pareto Principle

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

The Pareto Principle 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 pea pods in his garden contained 80% of the peas.  The 80/20 concept was applied to situations at work.

Focusing on 20%

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 workstreams.  This concentration represented around 20% of the processes.  Altogether, these processes represented 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 was transformational

Applying the Pareto Principle, transformed the way we managed and prioritised our work.   We were conscious that there was a concentrating on the 20% of processes would be to the detriment of the thousands that we didn’t count.  But in practice, it didn’t really happen like that.  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 in business planning when working out strategies.  I also used the principle 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.

Use the Pareto Principle for profiling

As with any model, there are always refinements.  Perry Marshall in his fantastic book Sales and Marketing”  goes further.  He explains that you can apply the Pareto Principle to the Top 20% of your customers.  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. The result would be to develop a targeted methodology to focus on the most productive, or most profitable areas of the business.