What is the art of focus?- Why the 80% / 20% rule matters?

This is a post for businesses to focus on what matters. This post highlights why discussing and making decisions based on averages could ruin your business.

This is an excellent guide for small business owners and SME investors and owners to consider the Pareto Principle in all their daily business undertakings.

Focusing on the details is important but is it wise to focus on the details that matters.

I am sure that most of you have heard and know about the Pareto principle or sometimes referred to as the Pareto efficiency. However, I have observed that day in and day out not many people actually give it thought, much less actually apply this “universal” cardinal principles in everyday life and business.

So who is this Pareto?

So what is the Pareto Principle and why is it so important? Let me first define what the Pareto principle is, and who Mr. Pareto was.

The Pareto principle (also known as the 80-20 rule,[1] the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes. Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas. (Source: http://en.wikipedia.org/wiki/Pareto_principle)

The fallacy of averages

If you are like me, most of you have heard in everyday business, stuff like the average sales per day is so much, the average revenue per customer is this, the average score is that or the average age is this and so on.

Others often talk about the average returns of the stock market or the average height of the terrain is x and y.

Just take a moment and think about this. These averages mean nothing. They are fallacies in real life and I cannot fathom why it is so common in business.

Imagine a plane flying from a to b and the average terrain is 3000 feet,  calculated from a low of 0 feet above sea level and a mountain peak of 6000 feet.   You can just imagine if the pilot decides to plot his flight plan based on an average of 3000 feet.  Or, imagine a person with no swimming skills trying to cross a lake just because some one said that the average depth is 3 feet. J

Therefore, discussing averages have no meaning if the average revenue derived from a few customers is exponentially bigger than the rest.

In my industry (telecommunications), I often hear folks speaking about the average revenue per customer, the average minutes of use, the average orders per channel or the average customer care service levels.

These averages are useless and baseless. They tell me nothing. The average revenue might be a result of having a few large customers versus the rest of the base. Not focusing your attention on these few large customers can sometimes mean the end of some businesses.

In most companies that I have worked for, 80% of the incremental sales (new sales) are generated through about 20% of the sales folks. Still most training investments are spread across the entire sales force. Just imagine the returns if a company can hone to the next 5th or 10th percentile. Imagine the savings and the focus and the tremendous results that can be achieved.

Imagine building capacity for a network, factory, hotel, restaurant and others based on averages. I have often been to restaurants that have excellent food but very poor service during peak times. I am pretty sure that the owners of the business have been misdirected to resource based on averages.

Trying saying to an employee that the average bonus payout is $X when he or she probably received one fifth of that $X.

The average is as close to the bottom as it is to the top

As the famous George Carlin said “just think of how stupid the average person is, and then realize half of them are even stupider!”

Alfred Sloan also once famously said that “If you do it right 51 percent of the time you will end up a hero”

As you would have noted by now, focusing on the averages really mean nothing.

Be laser focused using the “64-4” law.

If a result, problem, outcome or anything has 80% of effects coming from 20% of causes, it will follow that the 80% of that top 80% of effects coming from 20% of that top 20% of causes, and so on. (80% of 80% is 64%; 20% of 20% is 4%. So there is a “64/4″ law;

Often, just by knowing that 4% of customers, revenues, problems or issues could be much more worth your while than all the others.

What you would have noticed is that it does not always have to add up to 100 (80/20). It can be 64/4 or 70/40, like 70% of a company’s revenue comes from 40% of its customers. The key is to focus on what matters. Trying to solve all major issues at one time without focusing on a few critical ones often is costly, non attainable and almost always futile and a failure.

The “Pareto” as a way of life.

The application of the Pareto principles doesn’t just have to be restricted to business, but rather can be applied to everyday living.

Imagine if you are trying to save money or if something or some one annoys you or you feel “good” at times. Just focusing on the few issues or attributes or behaviors can help you address, alleviate or enhance the experience or relationship or whatever it is that you are trying to do.

Power law

The Pareto Principle is a “power law” relationship. A power law is a special kind of mathematical relationship between two quantities. When the frequency of an event varies as a power of some attribute of that event (e.g. its size), the frequency is said to follow a power law. The distribution of a wide variety of natural and man-made phenomena follow a power law, including frequencies of words in most languages, frequencies of family names, sizes of craters on the moon and of solar flares, the sizes of power outages, earthquakes, and wars, the popularity of books and music, and many other quantities.

Source : http://en.wikipedia.org/wiki/Power_law

Life is too short!

In conclusion, I salute and thank Mr. Pareto for this universal principle that can be applied in our everyday life. This might seem as something that is too obvious or easy, but remember that most folks ignore this principle day in and day out.

If you do not believe me just observe this at your work place tomorrow. The good folks from Finance, Sales, HR, Technology, Operations and Marketing will all be preaching to you about the average of this and that. Take note and decide if it makes sense. Force the discussions around stuff that matters. Stay focused, as life is too short.

John.lincoln@gmail.com Twitter @lincolnjc

  • Facebook
  • Twitter
  • del.icio.us
  • Google Bookmarks
  • Digg
  • Mixx
  • Yahoo! Bookmarks
  • StumbleUpon
  • Yahoo! Buzz
  • Technorati
  • LinkedIn
  • MySpace
  • Reddit
  • email
This entry was posted in Decision, Leadership, Pareto, Strategy, Uncertainty and tagged , , . Bookmark the permalink.

70 Responses to What is the art of focus?- Why the 80% / 20% rule matters?

  1. Michael Smith says:

    Hi John,

    Good thoughts, and also applies to the success in project delivery when it comes to expending time during planning phase and by that I mean pro-active planning.

    It’s advisable that business strategies, business cases for new products be borne by senior management and in an ideal world this would be the case if senior management had time to expend reading market indicators, filtering new product trends and sales data but in reality it’s an assigned marketer, product specialist or analyst who crunches the numbers and sells the business case to senior management who filter good ideas from not so good ideas and in the process projects / product launches are borne (It might be a good idea to assess and see how the 20 / 80 rule is split here in this example and where it should be split?)

    From a Project Management perspective it is said that if enough time is spent during the planning stage that between 60 to 70% of the project success is already garranteed, the remaining 30% is the skill that the project team brings to the table in terms of risk management, scope management, resource management etc etc. In the ideal world a project / product launch that takes 6 months should enjoy + – 1 month in planning. In reality real time expended on quality planning is much less and because of administrative lag and approvals takes longer than 1 month. In addition that 20% that was not expended in the planning phase causes re-works, scope creap, unforseen impacts and stretches out the 6 month delivery causing project teams to have to deliver while re-planning / adding in contingencies and work-a-rounds.

    I think the question I’m asking here is how is the Pareto Principle applied, is it the 20% of the proactive thinkers and do’ers that deliver 80% of the effort? If this is true then even these ratio’s are thwarted by other factors causing inefficiencies as described above

    Alignment is necessary …. from the top down …. together with other complimentary strategies

    These are my thoughts and maybe the questions posed could be used when assessing effectiveness of strategies during initialisation and planning

    thanks for the article

  2. JOhnny Malek says:

    Couldn’t agree more with you John on this one.
    As a company, the pareto principle is often said when that firm doesn’t know who the 20% are!
    If one is able to identify these 20%, one can communicate to them in the most compelling way, saging that firm, time, effort, and most of all money !

  3. Manoj Nair says:

    this is so true prof….however let me put an interesting spin to it

    I would say a capitalist looks at things the pareto way while a socialist looks at things the average way. Both ways have their plus points…..the capitalist knows how to maximise his value and his returns by focussing on the highest value customers while the socialist is tryin to ensure that everyone is benefitting from the economy, so for him the average (or the per capita as he is obsessed with) has to improve…..hence the need to observe both

    Let us also look at our industry telecom – pareto helps us improve our efficiencies and aligns cost to value…..however if u do not look at ARPU, you ignore Market share and once you do that it is a matter of time when you are crowded out of the market – you will be cannibalised by your competitor

    But havin said pareto is a must , especially in today’s life where looking at an average is so convenient and easy but pareto causes us to think that much more harder and optimise our results

  4. Sajid A R says:

    Its a accepted fact, the think tank, action team and sales team constitutes to 5 to 10 percent of the entire work force, the entire sales generated by this key group is backed by the rest of the team its a chain……….

  5. Pawan Pratap Singh says:

    In response to Manoj:

    Socialists might benefit from looking at thing the Pareto way as well. Rather than focusing on the top “customers” giving them 80% of the revenue, they could focus on the bottom end of the population causing 80% of the losses.

    In all, a great article John!

  6. Denisha Lincoln says:

    good job dad!! :)

  7. jatin says:

    Great insight. Works all the time

  8. Rana says:

    Very interesting article and very insightful content. Your style in presenting it hooks me to read more and wait for the following post to appear. Great job

  9. PK Gulati says:

    Hmmm. Succinctly put, John. Insight that would be valuable to everyone and in every part of whatever you do.

  10. Anonymous says:

    i like this webpage. i have alerted my buddy donny about it because he likes this kind of stuff as well!

  11. Anonymous says:

    What a well written blog post you have got here. You were able to really highlight the important factors that basically matter. I really enjoy reading your blog, the caliber of the knowledge is excellent along with your way with words certainly makes it simple to absorb and fully grasp. Love it! Keep up the great work.

  12. Gustavo Rediske says:

    Fine This really is one of the most informative blogs I’ve ever browsed on this subject.

  13. Anonymous says:

    Fab article, this is one of my favourite subjects and very close to my heart. LOL. I like keeping up to date on all things new so I will be bookmarking this website. Keep up the great work!

  14. Anonymous says:

    I really like the colors here on your blog. did you design this yourself or did you outsource it to a professional?

  15. Anonymous says:

    A enlightened insight into Life is too short! Grazie mille signor Pareto! | Lincoln's musings from Dubai and ideas I will employ in my blog. You’ve obviously taken some time on this. Excellent stuff!

  16. implanty says:

    There is noticeably a bundle to know about this. I assume you made certain nice points in features also.

  17. Kip Serens says:

    Top-notch article it is actually. Friend on mine has been awaiting for this content.

  18. Kazuko Altomari says:

    Another Interesting post. I enjoyed it very much.

  19. Anonymous says:

    Maintain up the beneficial function mate. This website article exhibits how nicely you recognize and know this subject.

  20. Anonymous says:

    I’m grateful for you because of this fantastic information. You actually did make my day :

  21. Anonymous says:

    Do you let advertising on your blog,site,website?† If so please get in touch me.

  22. Anonymous says:

    Your thoughts and opinions help me see the light. Thanks.

  23. Ricarda Oreb says:

    I have to say: Nice blog, Nice Job !

  24. Anonymous says:

    Pleasant post. It seems that most of the steps are relying on the creativity factor.

  25. Malcolm Hoye says:

    I need to say, a lot of these comments strike a chord with me but some peoples comments seem to get a bit too angry if you do not agree with their opinions.

  26. Nilda Orce says:

    Do you have a top posters page to honour your best blog comments?

  27. Anonymous says:

    Your site is definitely filled with remarkable knowledge and also is really very pleasant to see via.Properly carried out:)

  28. business travel says:

    Great Post!! Thank you very much!

  29. Anonymous says:

    Oh, this is quite interesting. Actulally, I found your blog on google search. I will tell my friend about your blog later.

  30. router em says:

    Appreciate your inforamtion. It is just too greeeeat!

  31. 花蓮民宿 says:

    if most webmasters and bloggers produced very good content as you do,the usefulness and significance is overwhelming.

  32. hava yolu says:

    Can i use rss feed of your website?

  33. comfortable heels says:

    I am linking this webpage from my private blog . this has all of the usefull data necessary.

  34. Julio Rysavy says:

    I together with my pals were actually studying the good helpful hints from your web site and so all of a sudden I had a horrible suspicion I had not expressed respect to the website owner for those tips. All of the young men appeared to be as a result glad to read them and already have truly been taking advantage of them. I appreciate you for being so kind as well as for pick out this kind of incredibly good subject matter millions of individuals are really wanting to be aware of. Our honest regret for not expressing gratitude to you sooner.

  35. click to download movies says:

    I found your site via look for engine several moment ago, and luckily, this is the only facts I was trying to find the last hours

  36. serp says:

    Its like you read my mind! You seem to know so much about this, like you wrote the book in it or something. I think that you could do with some pics to drive the message home a little bit, but instead of that, this is excellent blog. An excellent read. I will certainly be back.

  37. Rosario Kubik says:

    Thank you on your help!

  38. Burn Fat says:

    I am usually to blogging and i really appreciate your content. The article has actually peaks my interest. I’m going to bookmark your site and maintain checking for brand spanking new information.

  39. wireless router reviews says:

    Hey! This is my 1st comment here so I just wanted to give a quick shout out and say I really enjoy reading your articles. Can you suggest any other blogs/websites/forums that go over the same subjects? Appreciate it!

  40. Adriene Haroldsen says:

    Solid post, nice work. It Couldn’t be written any improved. Reading this post reminds me of my previous boss! He always kept babbling about this. I will forward this article to him. Pretty certain he will have a superb read. Thanks for sharing!

  41. Anonymous says:

    I have already been visiting your site for 3 days. really love your posts. by the way i’m conducting a research concerning this topic. do you happen to know other good sites or maybe online forums where I might get more info?

  42. Elnora Plavnik says:

    Undeniably believe that which you said. Your favorite justification seemed to be on the internet the simplest thing to be aware of. I say to you, I certainly get irked while people think about worries that they just don’t know about. You managed to hit the nail upon the top and defined out the whole thing without having side-effects , people can take a signal. Will likely be back to get more. Thanks

  43. Charlotte Eader says:

    Sensational info. I look forward to seeing more.

  44. Anonymous says:

    The layout is what really caught my eye, then the I looked at the writing and I think you did a very nice job. Good work :)

  45. Hong Toone says:

    I often read your blog admin try to discover it quite interesting. Thought it was about time i show you , Sustain the really great work

  46. solar panel homes says:

    Great to find yourself in a growing industry. On the contrary, imagine working in a field where you fear being outdated and out to lunch. Were I not a writer and blogger, I’d be mightily enticed by your industry. Keep up the good work

  47. Medical Assistants says:

    I got good info from your blog

  48. Barney Caetano says:

    I see something genuinely interesting about your website so I saved to fav.

  49. Thumbprint Cookies says:

    Good article , thanks and we want more! Added to FeedBurner likewise.

  50. north austin locksmith says:

    Sorry for not furthering the discussion, but I just wanted to say thank you for the insightful post.

  51. Cloud Server says:

    I found your website on google. It contains wonderful and helpful posts. I have read most of them and got a lot from them. You are doing the great work!

  52. Pozycjonowanie stron internetowych Kraków says:

    Hello,I love reading through your blog, I wanted to leave a little comment to support you and wish you a good continuation. Wishing you the best of luck for all your blogging efforts.

  53. 7275649725 says:

    Hello, I was researching the net and I saw your site. Keep up the great work.

  54. Anonymous says:

    Hi my loved one! I wish to say that this post is awesome, great written and include approximately all vital infos I¡¦d like to peer extra posts like this

  55. dancing lessons says:

    I have bookmarked your site for future reference.

  56. Melaine Zeilman says:

    Sensational info. I look forward to seeing much more.

  57. infant car seat covers says:

    *I discovered your blog site on google and check a few of your early posts. Continue to keep up the very good operate. I just additional up your RSS feed to my MSN News Reader. Seeking forward to reading more from you later on!…

  58. ninja saga game says:

    Quite interesting article. Your own web page is rather quickly growing to be considered one of my favorite features.

  59. Anonymous says:

    Blogs Very informative article. I’ve found your blog via Yahoo and I?m really glad about the information you provide in your posts. Thank You for sharing this very informative article… Regards

  60. 7812 says:

    Wow, thanks for publishing this great article. I’m a real enthusiast and get pleasure from reading your web-site. Believe it or not it’s generally rather tough to expose this information penned with any actual sense of quailty like it is here. Thanks.

  61. koha ditore says:

    I think other web-site proprietors should take this website as an model, very clean and wonderful user genial style and design, as well as the content. You’re an expert in this topic!

  62. Tricia Detamble says:

    Great work! That is the kind of information that are meant to be shared around the internet. Disgrace on the seek for no longer positioning this publish upper! Come on over and consult with my web site . Thanks =)

  63. Artykuly tematyczne says:

    A powerful share, I ‘ve been searching for this. BTW, nice layout. Greets.

  64. Allan Wallwork says:

    I wish more people would write blogs like this that are really fun to read. With all the fluff floating around n the net, it is rare to read a blog like this instead.

  65. yichiban says:

    great post man. Keep it up

  66. Brian Kozub says:

    Thank you for another excellent post. Where else could anyone get that type of info in such an ideal way of writing? I’ve a presentation next week, and I’m on the look for such info.

  67. gabloty z przeworska says:

    It’s actually a nice and helpful piece of information. I’m glad that you shared this helpful information with us. Please keep us up to date like this. Thanks for sharing.

  68. There are some interesting points in time in this article but I don’t know if I see all of them center to heart. There is some validity but I will take hold opinion until I look into it further. Good article , thanks and we want more! Added to FeedBurner as well

  69. I do not even know how I ended up here, but I thought this publish was once good. I do not realize who you are but certainly you’re going to a well-known blogger for those who aren’t already. Cheers!

  70. Twila Stenerson says:

    I’m impressed, I must say. Really rarely do I encounter a blog that’s both educative and entertaining, and let me tell you, you have hit the nail on the head. Your idea is outstanding; the issue is something that not enough people are speaking intelligently about. I am very happy that I stumbled across this in my search for something relating to this.

Leave a Reply

Your email address will not be published. Required fields are marked *

*