A simplest form of the 80/20 rule says that 80% of results come from only 20% of efforts. For example, maybe the top two people on a team of 10 are responsible for 80% of the team’s output. Maybe the most popular 20% of items on the menu account for 80% of a restaurant’s sales. Maybe you read 10 books on a subject but most of what you learned comes from the best two (or the first two).
The exact numbers 80 and 20 are not special. For example, one study showed that 75% of Twitter traffic comes from the most active 5% of users. That’s still an example of the 80/20 rule. The point is that a small portion of inputs are responsible for a large portion of outputs.
One criticism of the 80/20 rule is that you can only know which 20% was most effective in hindsight. A salesman could call on 100 prospects in a week and only make sales to 20. At the end of the week he could ask “Why didn’t I just call on those 20?” Of course he had to call on all 100 before he could know who the 20 were going to be. Or maybe the best 20% of your stock portfolio accounted for 80% of your growth. Why didn’t you just invest in those stocks? If you could have predicted which ones they were going to be, you would have done just that.
It’s easy to be cynical about the 80/20 rule. There are too many hucksters selling books and consulting services that boil down to saying “concentrate on what’s most productive.” Thanks. Never would have thought of that. Let me write you a check.
At one extreme is the belief that everything is equally important, or at least equally likely to be important. At the other extreme is the belief that 80/20 principles are everywhere an that it is possible to predict the “20” part. Reality lies somewhere between these extremes, but I believe it is often closer to the latter than we think. In many circumstances, acting as if everything were equally important is either idiocy or sloth.
You can improve your chances of correctly guessing which activities are going to be most productive. Nobody is going to write a book that tells you how to do this in your particular circumstances. It takes experience and hard work. But you can get better at it over time.
The trick (buy my book, attend my seminar) is not to find out what the 20% are, but to find out what the 80% are as fast as possible, and eliminated them. Of course, the best heuristic has flaws, and may accidentally eliminate some of the good, but here the 80/20 rules applies also.
If you could predict what the 20% would be, and only talked to them, would the 80/20 rule apply again? If you know which 20 out of 100 people to talk to and only talked to them, would you get 80% of your output from four of them?
If I could restate your question, does the 80/20 rule apply recursively? This often comes up, and sometimes applying the rule recursively is silly. But sometimes it you really can apply the rule a few times.
Say you want to learn a foreign language. The most common 1000 words are far more important than the rest. And among those 1000 words, the top 200 are more important than the rest.
Or say you’re looking at wealth. Maybe the top 20% have 80% of a nation’s wealth. And maybe the top 4% (20% of 20%) do have roughly 64% (80% of 80%) of the wealth. (This is the context where Pareto discovered the 80/20 rule.)
“It takes experience and hard work.”
Exactly. To extend your example, the inexperienced salesman who tries to exploit the 80/20 rule is much more likely to choose the wrong 20 and have 0 sales to show for it. This reminds me of those who try to time the stock market. It only seems like it can be done successfully because out of the thousands each year who try it, a lucky few get rich. It requires hindsight to identify those lucky few.
Doesn’t a recursive application of the 80/20 rule == Learning?
Fun stuff..
,John
If you apply the 80/20 rule recursively, you get… The Long Tail.
Interesting.
Boiling all of it down to finding out what’s most productive, isn’t that what the field of management consultancy is all about? That’s not a rhetorical question.
I mean, isn’t that what you are doing when you are trying to cut costs in a business, or find time in your life? You trying to do the best of things and leaving out the rest.
And being cynical about ANYTHING is easy. Ask a cynic. :)
Thanks for the reminder, John.
Some of the books recommend firing customers (or cease recruiting new ones of the same type) after observing that they’re not worth the effort. That’s reasonable.
Another way to look at 80/20 is: you can’t do everything. Take time to think strategically about priorities. Easier said than done, of course.
Yet another way: power laws (or power-law-ish distributions) are everywhere.