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How Useful Is the Pareto Principle?

How Useful Is the Pareto Principle?

The Pareto Principle states that 80% of the results from any series of actions are caused by 20% of the actions themselves. In other words, most of the results we get are because of a small minority of our actions. The rest are either wasted or produce little of value. This sounds like a useful observation. However, before you decide the Pareto Principle is true and can be used to guide your actions, I want to ask two important questions.

  1. Can you identify which actions make up the useful 20%? And can you do so in advance?
  2. Does this useful 20% always contain more or less the same actions?

Let’s take the first question. It’s easy to feel intuitively that most results arise from a small group of actions. The Pareto Principle feels immediately valid. It also feels like a practical tool. Identify the “magic 20%” of actions and you can more or less dispense with the other 80% without much impact on your results. What a marvelous saving of time and effort.

Of course, this only works if you can reliably distinguish the 20% of actions (or people, or events) that produce that disproportionate amount of benefits. It also assumes every result comes from a single, identifiable action — or at least a small, obviously linked group of them.

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But is this true? Don’t some results rely on the interaction of large numbers of events, choices, actions and decisions? Can we know which count and which don’t? What if we dropped some, only to find later they were essential in some way? Maybe they only produce good results in combination? Cutting seemingly unnecessary actions because they don’t obviously fit into the “magic 20%” might turn out to be a poor idea.

The Pareto Principle is perhaps most often applied to sales. Suppose you could reliably identify the 20% of sales calls that produced 80% of the orders you took this week. How much might the success of those calls rely on the market intelligence, knowledge and simple practice you gained by making the other 80%? Could you miss out all the rest, or even a significant number of them? That would include new customers being encouraged to place larger orders, prospects and old customers who might be won back from a competitor.

My second concern is this: is it always the same 20%?

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Let’s stick with the sales calls. This week, 20% of your calls produce 80% of your sales. Pareto rules! Next week, you need to sell just as much. Will you visit the same 20% of customers and receive the same orders?
Surely that’s unlikely. They only just placed an order. Most, maybe all, need to use up that order before buying again. Fine. You just need to find another 20%. But how? Everyone else was in the “unproductive” 80% last week? But if Pareto works, at the end of the next week you’ll once again find 80% of orders came from a new 20% of calls.

What’s going on? My guess is the Pareto Principle distinguishes groups you can only find after the event, once you can see what worked and what didn’t. The membership of the “magic 20%” of people or actions shifts each time. Wait long enough and every one will sometime be part of that 20% group.

If that’s so, the Principle is almost worthless as a guide to future action, which is how it’s most often used. There may be some actions or people (20% again? Who knows?) that figure so rarely in the “magic group” they could be removed without loss. There may be some regular members of that group that could be identified and given more focus and investment. Either way, what’s needed is time, careful observation and recording over many occasions, good records and much patience and reflection. None of these are actions or qualities much associated with today’s frenetic organizational pace.

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I’m not saying Pareto is wrong. I don’t know. I’m not sure anyone has ever done the lengthy and extensive research needed to find out. I’m merely suggesting it’s neither the universally applicable principle, nor the simple measure, nor the practical guide to decisions we’ve been asked to believe it is for so long.

To sum up:

I think the Pareto Principle has great intuitive attractiveness — which says nothing about whether or not it works, nor how it works (if it does). However, these questions remain unresolved:

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  1. How do you know which 20% is producing the results? Can you even find out at a time when the knowledge might be useful? I suspect you can usually only find the answer — if there is one — after the event. And if that’s so, it leads me to a second question.
  2. Is it always the same 20%? If it’s not (and I suspect it isn’t), over time maybe the whole 100% will be in that magic 20% group sometime. And if that’s true, the Principle applies only to a specific occasion (if it applies at all).

If any of my concerns is valid, the whole idea becomes worthless as a guide to future action or allocating resources (which is how people try to use it).

Adrian Savage is an Englishman and a retired business executive who lives in Tucson, Arizona. You can read his thoughts most days at The Coyote Within and Slow Leadership, the site for anyone who wants to bring back the fun and satisfaction to management work.

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Last Updated on December 17, 2018

Read this and stop feeling overwhelmed…for good!

Read this and stop feeling overwhelmed…for good!

We live in a time of productivity overload.

Everywhere you turn are articles and books about how to be more productive, how to squeeze 27 hours of work out of every 24, how to double your work pace, how to do more and more all in the name of someday getting out of the rat race. Well this is about the side effects of those ideas. If we aren’t multitasking, we feel lazy. If we aren’t doing everything, we feel like we’re slacking. We compare ourselves to others who we think are doing more, having more, getting more and achieving more, and it’s driving us crazy. We feel overwhelmed when we think we have too much to do, too much is expected of us, or that a stressor is too much for us to handle. And we respond by lashing out with emotions of anger, irritability, anxiety, doubt and helplessness.

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This season especially is the most stressful time of year. Between the holidays, final exams, family gatherings and general feelings of guilt that it’s the end of the year, it’s easy to get overwhelmed thinking of all the things you still need to get done. But if you use these tips, not only will you get the important stuff done, you’ll keep your sanity while doing it!

    Is this you?

    Change your thought pattern-stop thinking negatively

    When you feel overwhelmed, the first thing you do is start thinking negatively or begin to resent why it’s your responsibility in the first place! The first thing you have to do is to stop! Stop thinking negatively immediately. Instead, focus on the positive. If you’re stuck in traffic, think of how great it is to have some time to yourself. If you’re rushing trying to get things done by a deadline, think how lucky you are to have a purpose and to be working towards it. If you’re stressing about a final exam, think of how fortunate you are to be given the opportunity of higher education. After you’ve changed your thought patterns, you must then say to yourself “I can do this.” Keep saying it until you believe it and you’re more than halfway to ending feeling overwhelmed.

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    Take a deep breath/change your body posture

    When you’re stressed certain things happen to your body. You start to breath shallowly, you hunch over, you immediately tense up and all that tension drives your feelings of stress even more. Relax! Straighten your posture and take at least ten deep, cleansing, breaths. Force yourself to smile and do something to change your state. It could be as simple as giving yourself a hug or as silly as clapping your hands three times, throwing them up in the air and shouting “I GOT THIS!” Think to yourself, how would I sit/stand if I had perfect confidence and control of the situation?

    Focus on right now

    Now that you are in a better state of mind and are no longer thinking negatively, you need to focus on the here and now. Ask yourself this question: What is the most important thing I have control of and can act on right now? Keep asking yourself this until you have a concrete next step.

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    Take Action

    Now that you know what’s most important and what to do about it, do it! Start with the first step and focus on getting that done. Don’t worry about anything else right now, just on what your first step is and how to get it done. Once that’s done with, determine the next most important step and get that done.

    Let go of what you can’t control (the gambler’s theory)

    Seasoned gamblers understand the importance of due diligence and knowing when to let go. The Gambler’s Theory is that once your bet is placed there is nothing you can do, so you might as well relax and enjoy the process. The time to worry is when you’re figuring out the best odds and making the decision of what to bet when you can actually take action. I used this one a lot in college. After an exam, there is absolutely no point in stressing about it. There’s nothing you can do. And the same goes for feeling overwhelmed. If you can do something about your situation, do it, focus and take action. But if you’ve done what you could and now are just waiting, or if you’re worried about something you have no control over, realize that there’s no point. You might as well relax and enjoy the moment.

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      Relax and enjoy the moment

      Stop feeling guilty

      Finally, stop comparing yourself to others. If you are at your wits end trying to keep up with what you think you should be doing, you aren’t being fair to yourself. This isn’t to say that you shouldn’t strive for improvement, just don’t go overboard because you feel like you have to. Only you know what’s really important to you, and your personal success journey so focus on what your top priorities are, not someone else’s.

      Everyone feels overwhelmed sometimes. The important thing is to realize it’s normal and that you can do something about it by taking focused and deliberate action. Happy Holidays!

      Featured photo credit: Stress Therapy via flickr.com

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