The 80-20 rule Pareto’s Principle
Vilfredo Pareto an Italian economist devoted his life to turning economics into an exact science, describable by laws comparable to those formulated by Isaac Newton. In the early 1900’s Pareto noticed a trend of relation between 80% and 20%. For instance he noticed that 80% of Italy’s land was owned by only 20% of its population. Another similar ratio is how 80% of customer service problems are created by only 20% of consumers. These instances from Pareto’s Law have been turned into Murphy’s Law of Management. These Principles help with the management of customer service businesses and how ‘four-fifths of our efforts are irrelevant’ and how in order to run a successful business, one needs to understand these principles. As well as this, however, one needs to be careful not to assume this 80-20 rule relates to everything.
The reading also discusses the bel curve and how most quantities in nature follow a peaked distribution. Connected with the 80-20 rule and the bel curve, is that of power law distribution. A power law distribution does not have a peak unlike that of the bel curve. The Power law suggests that many small events coexist with a few large events. This is a lot of new information to wrap my head around, however I feel it is very important to know in regards to learning the tactics of business progress.
Vilfredo’s discoveries:
- 20% of landowners own 80% of the land.
- 20% of workers do 80% of the work.
- 20% of salespeople make 80% of sales.
- 20% of criminals carry out 80% of crime.
- 20% of websites get 80% of the traffic.
- 20% of the customers create 80% of the calls to techsupport.