Smart business leaders are always looking for ways to make better use of their time and resources. While there is no magic formula for success, the right framework can provide a springboardmodernizing your management tacticsand achieving your organization's goals. Enter the 80/20 rule, also known as the Pareto principle. This simple yet powerful concept has the potential to reinvigorate the way you prioritize tasks to drive business success.
What is the Pareto principle (or 80/20 rule)?
OfThe 80/20 rule, or the Pareto principle, is a concept that suggests that approximately 80% of consequences come from 20% of causes. Essentially, according to the rule, a small part of the input can lead to a significant part of the output. For example, it means that 80% of your turnover is likely to be generated by about 20% of the goods or services you offer.
Although it occurs in various parts of life, the Pareto principle, also known as Pareto's law, is not a mathematical law and is not always true. It is more of a broad guideline that can help you optimize your business operations more effectively.
Real-world examples of the 80/20 rule
The Pareto Principle was first proposed by Italian economist Vilfredo Pareto, who wrote in his bookHandbook of political economythat 80% of the land in Italy was owned by 20% of the population.
Although not always identified as a 'rule', this relationship is recognized in several areas of life:
- For example, it has been shown that athletes benefit from spending 80% of their time on exerciselower intensity training, with the remaining 20% spent at medium to high intensity.
- According toNational Library of MedicineAdults spend about 80% of our time in non-REM sleep and about 20% in REM sleep.
- In health law, insurers are generally required to spend at least 80% of the money they receivehealth care costsand quality improvements and 20% on administrative costs and overhead.
In the business world, identifying the 20% of inputs that lead to 80% of output can help managers, employees, and the organization as a whole understand where to focus efforts to better inspire change or deliver the greatest possible value reaches.
For example, if 20% of customers generate 80% of sales, it may be smart to prioritize their needs and preferences to ensure retention and growthlong-term customer value. Likewise, managers can use the 80/20 rule to inform their people management strategy.
The 80/20 principle: 20% of employees contribute 80% of the work
The Pareto principle suggests that a small minority of employees are responsible for the majority of an organization's productivity. This 20% are the floor managers; the ones who know what to do and just take care of business.
If this is the case in your company, you can take advantage of the 80/20 rule to better manage employees and ensure employees are as productive as possible – while creating a positive and rewarding work environment for all employees, not just for the best.
How to get started:
- Identify the top 20% of performing companies.Sometimes these people are obvious. Other times it's harder to figure out who they are. Have you ever had a humble co-worker who quietly carried most of the load? Use performance metrics and peer feedback to determine who is contributing the most. Appreciate these people and reward them occasionally, through bonuses, promotions, public recognition or something else.
- Develop the skills of the remaining 80%.By paying attention to and offering support to 'average' employees, you reduce the chance that they will feel undervalued; after all, they are important too. Make sure they have the tools they need to contribute more to the organization. This could include training programs and mentorship opportunities, or even an annual stipend for skills-building courses.
- Delegate effectively.Identify the strengths and weaknesses of each employee and assign tasks and roles accordingly. This ensures that everyone's responsibilities match their strengths, allowing them to contribute more.
A few employees cause the most problems
What is responsible for 80% of workplace problems? Often only a few – perhaps 20% – of the employees.
Whether their productivity is lacking, they are often absent, or they regularly make mistakes, employees are more likely to do sogetting the most out of itIn some cases, the solution is to let them go. This can be difficult, especially if the 20% include serious people who really try to do a good job.
But it's not always best to immediately discipline or fire employees without addressing the root cause of the problem.
- Find out what causes their behavior and address it immediately.For example, if an employee makes mistakes due to poor training, additional training opportunities may be enough to make him successful.
- Provide regular feedback and support.Some employees have a tendency to 'stand up'. In other words, when they feel undervalued or burned out, they withdraw and put in the minimum effort necessary to get through the day. Routine check-ins can help problem employees understand the impact of their behavior and empower them to make positive changes.
- Listen sincerely and consider their input.If employees have difficulty performing, but are committed to the organization andwill haveto give it your all, it might be time for some changes. Maybe they're familiar with some issues on the floor that have disrupted workflow, or maybe they just need a greater sense of independence. Genuinely considering their thoughts can help foster a positive work environment and go a long way in inspiring a sense of purpose. Think about how you would feel about your work if your input didn't matter. Feeling valued can help make work more than just a means to earn a paycheck — and may help some "problem workers" get back on track.
Personnel management: the 80/20 principle
Business leaders typically spend a significant amount of time working with employees to solve problems and provide advice. If you spend 80% of your time working with the 20% of employees who need the most attention and support, and your tasks are on the back burner, it's time to rethink your daily work.
To better manage your time and resources:
- Use the Pareto principle to set priorities.Focus on the employees who need the most help. If you have an employee who constantly asks questions or asks for help, but you know he or she is capable of succeeding even without help, boost his or her confidence. Let them know you trust them to do the work and encourage them to find their own solutions.
- Set consultation hours.To avoid constant interruptions, clearly communicate to all employees that you are available for a call at certain times, but that you need to focus on other tasks at other times. If several people want to talk to you at the same time, prioritize meeting people who rarely ask questions or have pressing problems. It can help you manage your workforce more efficiently.
Take off
The Pareto principle, also called the 80/20 rule or Pareto's law, states that 80% of consequences come from 20% of causes. Business leaders can use this framework to focus their efforts and resources where they matter most. Pareto's Law can be a great way to gain insight into your employees and inform your people strategy. For example, if 20% of your workforce is taking on 80% of the workload, the Pareto principle can help you decide who to reward and continually challenge, and who needs additional training or development.
A version of this article was originally published on May 10, 2010.
Images: Getty
