2. Overview Concept Pareto law The 80/20 Principle asserts that a minority of causes, inputs or effort usually lead to a majority of the results, outputs or rewards. The 80/20 Principle tells us that in any population, some things are likely to be much more important than others. A good benchmark or hypothesis is that 80 per cent of results or outputs flow from 20 per cent of causes, and sometimes from a much smaller proportion of powerful forces. 2
3. Examples Everyday language Over 99% of talk uses fewer than 20% of words. Movies 4% of the films hold 85% of the revenues. 20% of products makes 80% of sales IPOD Distribution of world GDP, 1989 of Population Income: Richest 20% hold 82.7% Second 20% hold 11.7% Third 20% hold 2.3% Fourth 20% hold 1.4% Poorest 20% hold 1.2% 3
4. 80/20 History 1897 Italian economist Vilfredo Pareto (1848–1923) 1949 Zipf’s Principle of Least Effort Zipf’s principle : Resources (people, goods, time, skills or anything else that is productive) tended to arrange themselves so as to minimize work, so that approximately 20–30 per cent of any resource accounted for 70–80 per cent of the activity related to that resource. 1951 Joseph Juran: Quality Revolution of 1950–90 He made what he alternately called the ‘Pareto Principle’ and the ‘Rule of the Vital Few’ virtually synonymous with the search for high product quality. 4
5. Why? Why should you care about the 80/20 Principle? The principle applies to your life, to your social world and to the place where you work. Understanding the 80/20 Principle gives you great insight into what is really happening in the world around you. Our daily lives can be greatly improved by using the 80/20 Principle. Each individual can be more effective and happier. Each profit-seeking corporation can become very much more profitable. 5
6. How? Analytical 80/20: Requires to separate sets of data and a clear relation between them. The use of Substitution to increase the effect on the overall outcome. The use of mimicking and replications of efficient resources. Thinking 80/20: Mined set Change initiator Based on the Vital Few 6
10. In Business Innovative look at data analysis Reset Priorities According to outcome Re-focus based on customers highest contribution towards outcome Focus product development on top 20% products required by customers Others.. 10
