2. Pareto Principle
Other names used:
The Pareto Rule
The 80/20 Rule
Law of the Vital
Few
Principal of Factor
Sparcity
3. Pareto Principle
What is it?
80% of the effects comes from 20% of the causes
80% of profits come from 20% of the customers
80% of results come from 20% of employees
80% of repair costs come from 20% of repairs
80% of project results come from 20% of workers
80% of a country’s wealth comes from 20% of the
population
80% of the time you wear 20% of your wardrobe
80% of time writing comes from 20% of writing
activities
4. Pareto Principle
Focus on the 20% who attribute to your
profits
Reward the 20% who focus on their job
Research the 20% to see what repairs
need to be made
Use the 20% of time spend on writing to
really focus on what's being written
5. Vilfredo Pareto
Vilfredo Pareto was an Italian economist and
sociologist born in 1848. His big discovery in 1897,
“Pareto’s Law,” claimed that in any society, 20% of
the people would earn 80% of the income. Pareto’s
observations, now usually referred to as either the
Pareto Principle, Pareto’s Law or simply the 80/20
principle, have since been used in areas that Pareto
could never have imagined.
Discovered the principle while observing that 80% of the
land in Italy is owned by 20% of the population.
Pareto did not name Pareto’s law of income
distribution, (Pareto’s law) after himself. Joseph
M. Juran is responsible for the naming after
Pareto.
6. Vilfredo Pareto
Best known for the two concepts that are named after him: The
Pareto optimality & Pareto’s law of income distribution.
Today’s common rule of thumb, 80% of your sales come from 20%
of your clients” is based on Pareto’s principle and belief.
The Pareto efficiency, or Pareto optimality, also named after him, is
a state of allocation of resources in which it is impossible to make
any one individual better off without making at least one individual
worse off.
In 1923 he was nominated to a senate seat in Mussolini’s fledgling
government but refused the nomination. He died later that year.
8. Zipf’s Law
Examples
Came up Zipf’s law,
which means that many
types of data can be
interpreted by utilizing
this law of distribution.
Also known as the
Discrete Pareto
Principle.
9. Zipf’s law
“Although the literature
surrounding both the Zipf
and Pareto distributions is
vast, there are very few
direct connections made
between Zipf and Pareto,
and when they exist, it is by
way of a vague reference
or an overly complicated
mathematical analysis”
(Adamic)
10. Dr. Joseph Juran
Through his work, the 80/20 Rule became
known as Pareto’s Principle
Realized that Pareto’s distribution applied to
much more than just the wealth of the
population
Applied Pareto’s Principle (80/20 Rule) to
Quality Control
Recognized that 20% of defects were causing
80% of the problems
11. Dr. Joseph Juran
Insisted that quality could not be left to end-of-theline inspections but rather needed to be led from
the top levels of management
His advice on quality and continuous improvement
was applied in Japan which led to the Japanese
becoming a world leader in quality products
Wrote the Quality Control Handbook in 1951, which
was based on Pareto’s Principle and how it applied
to continuous improvement
12. Peter Drucker
BusinessWeek called him “the man
who invented management”
He used the Pareto principle to
show how achieving more with
less is possible. He saw how 20%
of almost everything yields 80% of
the results.
Drucker tried to show companies
with the Pareto principle how to
look at their business’s inner
workings.
13. How Drucker used the Pareto principle
In his writings he gave an example of an employee
survey given to a group of nurses. He used their
answers to show a hospital how they were misusing the
nurses’ abilities and because of it the nurses were
unhappy and patients were unsatisfied.
Nurses were unsure of their tasks and all agreed that they were
given “chores” that took up most of their time. Drucker looked at
the chores and saw tasks that the non-nurse employees could
take over. Within four months this one change doubled
productivity and patient satisfaction, in addition it almost
completely eliminated turnover of nurses.
14. Richard Koch
Use of individual creativity, perhaps only 20%
or so of the time, accounts for 80% of creative
ideas
•
An individual can capitalize on the
20% of the things they do well
•
Though a person must know what
they excel at; to be a specialist
•
An individual should outsource the
80% of the things they don’t do well
•
“People can do precisely the same
thing… Find the 20 percent (or less)
that you are outstandingly good at,
the ask other people to perform the
rest.” (Koch, 2003, p. 33)
•
The 80/20 individual realizes that time
has the greatest value
15. Whether shaping your life or your business look for
the 20% of profit sources
An individual must
find the most
profitable use of his or
her time
By profits, there are
personal profits as
well as financial ones
The individual must
deem which tasks
bring them both kinds
of profit
An individual should
ask these questions
What creates the most
wealth for me from the
least amount of effort?
What resources do I
have an abundance
of, or need?
16. The present economy is shifting toward a state where individuals,
especially entrepreneurs, will be the big winners.
“More and more, ownership
and control are being
reunited. Personal ownership
by individuals is becoming
important again, as key
individuals both run their
corporations and won large
and valuable stakes in
them.” (Koch, 2003, p. 179)
17. Jack Welch
CEO of GE from 1981 to 2001
His unique management
practices are called the
“Welch Way”
GE increased in value more
than 30 times to become the
wealthiest corporation
18. Jack Welch
Used Pareto principle by breaking down staff into three
segments
The top tier or 20 percent performed the best thus earning the
most in bonuses
The next 60 percent were people with potential to rise to the top
tier
The last 20 percent were those who sunk to the bottom and
were eventually let go
Welch’s take on Pareto principle weeded out the many and
focused on the crucial few
The Pareto principle is used by Welch in a wide focus rather
than each specific instance which is what works for the “Welch
Way”
Welch attributes weak managers for destroying jobs and claims
his methods filter out the weak only leaving strong managers
19. Jack Welch
“Welch also developed a "4 E's" formulation
of business leadership. "Energy" people, he
noted, move at 95 miles per hour in a 55 MPH
world. "Energizers" provide the spark that
gets others excited about the task at hand.
"Edge" designates competitive types who
know how to hire, fire, and promote—and who
regard roadblocks as challenges, not
impediments. "Execution" refers to people
who get things done, who channel their work
directly to the bottom line.” (Flaum, 2007)
20. Resources
Adamic, Lada A. "Zipf, Power-law, Pareto." Zipf, Power-law, Pareto - a Ranking Tutorial. HP, n.d. Web. 08 Oct. 2013.
<http://www.hpl.hp.com/research/idl/papers/ranking/ranking.html>.
Admin. (2013). Peter Drucker Quotes. Retrieved from http://www.rugusavay.com
Editorial Staff at Process Excellence Network. (2011). The Secret to Achieving More with Less - The Pareto Principle in
Action. Retrieved from
http://www.processexcellencenetwork.com/people-performance-and-change-in-
process-improveme/columns/the-secret-to-achieving
/peter-drucker-quotes/
more-with-less-increasin/
Flaum, S. (2007, Feb 1). Leadership: Pareto's principle. Retrieved from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=401662
Koch, R. (2003). The 80/20 Individual: How to accomplish more by doing less - the nine essentials of 80/20 success at
work. New York: Currency/Doubleday.
Phillips-Donaldson, D. (2004, May). 100 Years Of Juran. Quality Progress, 25-39.
Unknown. (2005, May 5). The Pareto Principle. Printing World, 33.
Unknown. (2009, May 30). Pareto's principle at work. Dominion Post, p. G.3.
Vilfredo Pareto. (2013). In Encyclopædia Britannica. Retrieved from
http://www.britannica.com/EBchecked/topic/443519/Vilfredo-Pareto
"Vilfredo Pareto." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. Retrieved October 8,
2013 from the World Wide Web: http://www.econlib.org/library/Enc/bios/Pareto.html
Wartzman, R. (2012). A Great Recipe for Management Success. Retrieved from
http://thedx.druckerinstitute.com/2012/02/a-great-recipe-for-management-success/
http://www.themostinfluentialbooks.com/8020-principle-author-richard-kochs-most-influential-books/
http://list25.com/25-most-expensive-yachts-ever-built/
