80/20 Rule and how you can apply it

At some point in your life you may have come across the Pareto Principle – better known as the 80/20 rule; founded by Italian economist in the late 19th Century. 

Pareto discovered an interesting phenomenon in that 80% of the output is generated by just 20% of the input. Having discovered that 80% of the pea pods in his garden were produced by just 20% of the pea plants, he noticed the same percentage pattern in a lot of other things such as 20% of the population in Italy owned 80% of the land. 

To this day, this generalised phenomenon can be observed in economics, business, management etc. Here are some examples; 

  • 20% of the sales team generate 80% of the sales.
  • 20% of customers contribute to 80% of the sales.
  • 20% of patients in a public healthcare settings account for 80% of healthcare spending 

There are so many examples in our own personal lives. I have about 40 apps on my phone, but I spend most 80% of my time using only 8of them (or 20% of them). I have about 20 t-shirts but 80% of the time I have my top 4 favourites on rotation (I really need to take advice from Marie Kondo and do a bit of a clean out of my wardrobe come to think of it.). I see my kids spend 80% of the time they spend socialising with the same 20% of their friends. When I had Foxtel and all the channels, I probably only utilised 20% of the channels I had access to. 

We can all apply the 80/20 rule to our personal, business lives and to the economy in general. It’s all around us. 

It is a phenomenon that exists without our intention. But can we pro-actively and intentionally apply it to our management and leadership to get results? After all, if the generalisation that 20% of our input can generate 80% of our outcomes, it makes sense to harness the principle to reap the rewards. Here are some practical ways we can apply it; 

Managers could decide to spend 80% of their time on the 20% of the business yielding the best results. You can’t be expected to put 100% of your efforts into every task, question, idea that comes your way. But applying the 80/20 rule to how you manage your time can help you stay efficient and ensure you are putting your precious time towards the things that matter most. Have a look at your top performing endeavours and ensure you are allocating your time to those endeavours that get the results. We often get bogged down and spend too much time on endeavours that don’t really get results so it’s good to reflect on this and streamline your efforts to ensure the areas of your business that generate the results, are getting the time and energy they deserve. Think about a time you may have disappeared down a rabbit hole on some fruitless endeavour, spending hours of your time on something that simply didn’t yield any results. 

On a wider scale, you can use this principle to identify and review the areas in your business that seem to sap resources without generating the rewards they should. Use the Pareto principle to identify which projects and business goals are the most important and which specific tasks do you need to focus on in order to achieve these goals. Get rid of the rest. 

Identify who your top clients are and nurture and reward them, gain their loyalty. Whether it’s a 3-day all-expenses paid conference to Hamilton Island, or a Christmas hamper, make sure they are recognised and appreciated. Implement processes to ensure their interaction with your business is a pleasant one, that they know they can rely on you. So many businesses spend a lot of resources on acquiring new customers. Using the Pareto approach, focus your efforts ensuring you spend enough time and energy on customer retention, focussed on the 20% of your biggest spenders. 

Have a look at your workforce. If you have 20% of your people generating 80% of the successes – whether it be the sales, the innovation and ideas, the progress. think about how you can apply this rule here. Recognise, reward, nurture and elevate the top achievers. And for those who are not part of the top 20% of employees creating 80% of the output – formulate a way forward to improve this. Do you need to weed out the underachievers, invest in better training, restructure the teams, implement better incentives – figure out how to iron out the imbalance? 

I’d love to hear some other ideas on how you can use this principle in your business? I’d love to hear from you; get in touch today.

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