The 80/20 Principle: The Secret of Achieving More With Less (37 page)

TAKE RESPONSIBILITY FOR PROGRESS

Put away your scepticism and your pessimism. These vices, like their opposites, are self-fulfilling. Recover your faith in progress. Realize that the future is already here: in those few shining examples, in agribusiness, in industry, in services, in education, in artificial intelligence, in medical science, in physics and indeed all the sciences, and even in social and political experiments, where previously unimaginable targets have been surpassed and new targets continue to fall like skittles. Remember the 80/20 Principle. Progress always comes from a small minority of people and organized resources who demonstrate that previously accepted ceilings of performance can become floors for everyone. Progress requires élites, but élites who live for glory and service to society, who are willing to place their gifts at the disposal of us all. Progress depends on information about exceptional achievement and the diffusion of successful experiments, on breaking down the structures erected by the mass of vested interests, on demanding that the standards enjoyed by a privileged minority should be available to all. Above all progress, as George Bernard Shaw told us, requires us to be unreasonable in our demands. We must search out the 20 percent of everything that produces the 80 percent and use the facts we uncover to demand a multiplication of whatever it is that we value. If our reach must always exceed our grasp, progress requires that we grasp whatever a minority has reached and ensure that it becomes the minimum standard for all.

The greatest thing about the 80/20 Principle is that you do not need to wait for everyone else. You can start to practice it in your professional and personal life. You can take your own small fragments of greatest achievement, happiness, and service to others and make them a much larger part of your life. You can multiply your highs and cut out most of your lows. You can identify the mass of irrelevant and low-value activity and begin to shed this worthless skin. You can isolate the parts of your character, workstyle, lifestyle, and relationships that, measured against the time or energy involved, give you value many times greater than the daily grind; and having isolated them, you can, with no little courage and determination, multiply them. You can become a better, more useful, and happier human being. And you can help others to do the same.

NOTES AND REFERENCES

CHAPTER
1

1 Josef Steindl (1965)
Random Processes and the Growth of Firms: A Study of the Pareto Law
(London: Charles Griffin), p. 18.

2 Extensive research has revealed a very large number of short articles referring to the 80/20 Principle (usually called the 80/20 Rule) but failed to identify any books on the subject. If a book on the 80/20 Principle does exist, even if as an unpublished academic treatise, would a reader please let me know. One recent book, although not really about the 80/20 Principle, does draw attention to its significance. John J. Cotter’s
The 20% Solution
(Chichester: John Wiley, 1995) provides in its introduction the right answer: “Figure out the 20% of what you do that will contribute the most to your success in the future, then concentrate your time and energy on that 20%” (p. xix). Cotter refers in passing to Pareto (p. xxi), but neither Pareto nor the 80/20 Principle (under any name) is mentioned outside the introduction, and Pareto does not even appear in the index. Like many writers, Cotter is anachronistic in attributing the 80/20 formulation itself to Pareto: “Vilfredo Pareto was a French-born economist who observed 100 years ago that 20% of the factors in most situations account for 80% of what happens (that is, 20% of a company’s customers generate 80% of its profits). He called it Pareto’s Law” (p. xxi). In fact, Pareto never used the expression “80/20” or anything like it. What he called his “law” was in fact a mathematical formula (given in note 4), which is some way removed from (although the ultimate source of) the 80/20 Principle as we know it today.

3 Living with the car, (1996)
The Economist
(22 June): 8.

4 Vilfredo Pareto (1896/7)
Cours d’Economique Politique,
Lausanne University. Despite the conventional mythology, Pareto did not use the “80/20” phrase in his discussion of income inequality or anywhere else. He did not even make the simple observation that 80 percent of income was earned by 20 percent of the working population, although this conclusion could have been distilled from his far more complex calculations. What Pareto did discover, and what greatly excited him and his followers, was a constant relationship between the top earners and the percentage of total incomes they enjoyed, a relationship that followed a regular logarithmic pattern and could be charted in a similar shape whatever time period of country was taken.
The formula is as follows. Call
N
the number of income earners who receive incomes higher than
x,
with
A
and
m
being the constants. Pareto found that:

log
N
= log
A
+
m
log
x

5 It should be stressed that this simplification was not made by Pareto himself nor, sadly, by any of his followers for more than a generation. It is, however, a legitimate deduction from his method, and one that is much more accessible than any explanation Pareto himself gave.

6 Harvard University, in particular, appears to have been a hotbed of Pareto appreciation. Aside from Zipf’s influence in philology, the economic faculty demonstrated a hearty appreciation of the “Pareto law.” For what is still the best explanation of this, see the article by Vilfredo Pareto in
Quarterly Journal of Economics,
68, no. 2, May 1949 (President and Fellows of Harvard College).

7 For an excellent explanation of Zipf’s law, see Paul Krugman (1996)
The Self-Organizing Economy
(Cambridge, MA: Blackwell), p. 39.

8 Joseph Moses Juran (1951)
Quality Control Handbook,
New York: McGraw-Hill, pp. 38–39. This is the first edition, with a mere 750 pages compared to more than 2,000 in the current edition. Note that although Juran clearly refers to the “Pareto principle” and accurately distills its significance, the first edition does not use the term 80/20 at all.

9 Paul Krugman, op. cit., note 7.

10 Malcolm Gladwell (1996) The tipping point,
New Yorker,
3 June.

11 Malcolm Gladwell, ibid.

12 James Gleik (1987)
Chaos: Making a New Science,
New York: Little, Brown.

13 See W. Brian Arthus (1989) Competing technologies, increasing returns, and lock-in by historical events,
Economic Journal,
vol 99, March, pp. 116–31.

14 Chaos theory explodes Hollywood hype (1997),
Independent on Sunday,
30 March.

15 George Bernard Shaw, quoted in John Adair (1996)
Effective Innovation
(London: Pan Books), p. 169.

16 Quoted in James Gleik, op. cit., note 12.

CHAPTER
2

1 Author’s calculation based on Donella H. Meadows, Dennis L. Meadows, and Jorgen Randers (1992)
Beyond the Limits
(London: Earthscan), pp. 66f.

2 Author’s calculation based on Lester R. Brown, Christopher Flavin, and Hal Kane (1992), (London: Earthscan), p. 111, itself based on Ronald V. A. Sprout, and James H. Weaver (1991)
International Distribution of Income: 1960–1987,
Working Paper no. 159, Department of Economics, American University, Washington, DC, May.

3 Health Care Strategic Management (1995) Strategic planning futurists need to be capitation-specific and epidemiological,
Health Care Strategic Management,
1 September.

4 Malcolm Gladwell (1996) The science of shopping,
New Yorker,
4 November.

5 Mary Corrigan and Gary Kauppila (1996)
Consumer Book Industry Overview and Analysis of the Two Leading Superstore Operators
(Chicago, IL: William Blair & Co.).

CHAPTER
3

1 Joseph Moses Juran, op. cit. (see Chapter 1, note 8), 38–39.

2 Ronald J. Recardo (1994) Strategic quality management: turning the spotlight on strategies as well as tactical issues,
National Productivity Review,
22 March.

3 Niklas Von Daehne (1994) The new turnaround,
Success,
1 April.

4 David Lowry (1993) Focusing on time and teams to eliminate waste at Singo prize-winning Ford Electronics,
National Productivity Review,
22 March.

5 Terry Pinnell (1994) Corporate change made easier,
PC User,
10 August.

6 James R. Nagel (1994) TQM and the Pentagon,
Industrial Engineering,
1 December.

7 Chris Vandersluis (1994) Poor planning can sabotage implementation,
Computing Canada,
25 May.

8 Steve Wilson (1994) Newton: bringing AI out of the ivory tower,
AI Expert,
1 February.

9 Jeff Holtzman (1994) And then there were none,
Electronics Now,
1 July.

10 Software developers create modular applications that include low prices and core functions (1994),
MacWeek,
17 January.

11 Barbara Quint (1995) What’s your problem?,
Information Today,
1 January.

12 See Richard Koch and Ian Godden (1996)
Managing Without Management
(London: Nicholas Brealey), especially Chapter 6, pp. 96–109.

13 Peter Drucker (1995)
Managing in a Time of Great Change
(London: Butterworth-Heinemann), pp. 96f.

14 Richard Koch and Ian Godden, op. cit. (see note 12); see Chapter 6 and p. 159.

CHAPTER
5

1 Henry Ford (1991)
Ford on Management,
intr. Ronnie Lessem (Oxford: Blackwell), pp. 10, 141, 148. Reissue of Henry Ford (1922)
My Life and Work
and (1929)
My Philosophy of Industry.

2 Gunter Rommel (1996)
Simplicity Wins
(Cambridge, MA: Harvard Business School Press).

3 George Elliott, Ronald G. Evans, and Bruce Gardiner (1996) Managing cost: transatlantic lessons,
Management Review,
June.

4 Richard Koch and Ian Godden, op. cit. (see Chapter 3, note 12).

5 Carol Casper (1994) Wholesale changes,
U.S. Distribution Journal,
15 March.

6 Ted R. Compton (1994) Using activity-based costing in your organization,
Journal of Systems Management,
1 March.

CHAPTER
6

1 Vin Manaktala (1994) Marketing: the seven deadly sins,
Journal of Accountancy,
1 September.

2 It is easy to forget the deliberate and successful transformation of society that arose from the idealism and skill of a few pivotal early-twentieth-century industrialists, who advocated the “horn of plenty” argument: that poverty, although prevalent, could be abolished. Here, for example, is Henry Ford again: “The duty to abolish the more disastrous forms of poverty and want is easily fulfilled. The earth is so abundantly fruitful that there can be ample food, clothing, work and leisure.” See Henry Ford (1991)
Ford on Management,
intr. Ronnie Lessem (Oxford: Blackwell), pp. 10, 141, and 148. I am grateful to Ivan Alexander for showing me the draft of his new book,
The Civilized Market
(1997, Oxford: Capstone) whose first chapter makes this and many other points that I have borrowed (see note 3).

3 See Ivan Alexander (1997)
The Civilized Market
(Oxford: Capstone).

4 Quoted by Michael Slezak (1994) Drawing fine lines in lipsticks,
Supermarket News,
11 March.

5 Mark Stevens (1994) Take a good look at company blind spots,
Star-Tribune
(Twin Cities), 7 November.

6 John S. Harrison (1994) Can mid-sized LECs succeed in tomorrow’s competitive marketplace?,
Telephony,
17 January.

7 Ginger Trumfio (1995) Relationship builders: contract management,
Sales & Marketing Management,
1 February.

8 Jeffrey D. Zbar (1994) Credit card campaign highlights restaurants,
Sun-Sentinel
(Fort Lauderdale), 10 October.

9 Donna Petrozzello (1995) A tale of two stations,
Broadcasting & Cable,
4 September.