The 80/20 Rule or Pareto Principle states that about 80% of the results (outputs) come from about 20% of the causes (inputs). Koch provides examples of how various companies have used the principle, with additional insights and contributions from readers who have applied the principle.What is the 80/20 Rule (Pareto Principle)? We also elaborate on how you can apply the 80/20 Principle to your personal life (including how to change the way you see and use time, and multiply your achievements, wealth, relationships and happiness).īesides the key ideas outlined in our summary, the book also includes details of how the 80/20 Principle has been conceptualized and applied over the decades. In our complete 12-page summary, we’ve distilled how businesses can apply the Pareto Principle to generate the most money with the least effort and resources (including applications in strategy, cost reduction, sales and marketing, decision-making, negotiation, inventory and project management). In our personal lives, 80% of our achievement comes from 20% of our efforts, 80% of our happiness comes from 20% of our life experiences, and so on. 80% of the value from the employees will also come from 20% of their activities. 80% of these surpluses will be generated by 20% of market segments, 20% of customers, 20% of products and 20% of employees. In any business, 20% of the market players will make 80% of the surpluses or profits. The 80/20 Principle in Business and in Life When things go unexpectedly well or badly, look for the hidden causes at work. There’s no such thing as luck in success. Dig deep to understand why you’re getting surprisingly good or bad results in certain areas. Think deeply to look for non-linear relationships that can bring you exponential results. Don’t make simple/linear conclusions or jump into action.Keep moving your resources from low-value to high-value uses.Seek to excel in the few things that matter the most. Working harder in every area won’t bring results. Address the under-performing 80%: Find ways to make the unproductive activities more productive or effective.ĭigest these powerful tips in minutes with our summary & infographic! Remember these points when applying the 80/20 Principle.Allocate more resources to the top 20% by moving time/resources away from the unproductive 80%.80/20 Thinking: Think deeply about an important question, form your 80-20 hypothesis intuitively, then take action to apply it.You may find that 15% of your friends drank 90% of the beer. For example, ask 100 friends how much beer they drank the previous week, then rank the data in decreasing order to find out what percentage of your friends consume the majority of the beer. 80/20 Analysis: Develop a hypothesis about an 80-20 relationship and test it by collecting and comparing 2 sets of data.You can do so using a more analytical approach or a more intuitive approach: Here are some general tips on how to use the 80/20 Principle: Identify your top 20% vs bottom 80% The 80/20 Rule means that there’s great inefficiency all around us, but there’s also a huge potential to improve our current results. By understanding and applying the principle, you can become a lot happier and more effective. In the book, Koch elaborates on why small inputs can create disproportionate results. At home, we’ll wear 20% of our clothes 80% of the time. In society, 20% of people own 80% of the wealth. The key idea is-there’s typically a non-linear relationship between input and output, between effort and results, and between causes and consequences. In business, 20% of our products/customers tend to contribute to 80% of our revenues/profits. it could be more imbalanced at 90:10 or less imbalanced at 60:40. The ratio may not always be exactly 80:20, i.e. Today, it’s also known as the Pareto Principle, the 80:20 Rule, the Principle of Least Effort, the Principle of Imbalance, the Pareto Law, the Law of the Vital Few, and the Principle of Factor Sparsity. The principle was discovered in 1897 by economist Vilfredo Pareto and became popular after WWII. The 80/20 Principle says that the majority of your results or outputs will come from a minority of causes or inputs. In this summary of the 80/20 Principle, we’ll give a synopsis of how the principle works and how you can apply it to multiply your productivity and happiness.įor the full details, examples and tips, do get a copy of the book, or get a more detailed overview with our complete book summary bundle. Richard Koch was the first to write a book to present how individuals and groups can apply the 80/20 Principle to achieve much more results with much less effort. In all aspects of life, 80% of outputs, results and consequences come from 20% of inputs, efforts and causes.
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