80/20 rule and make-up of an organization:

One of the most quoted concepts in leadership and the make-up of organizations is the 80 / 20 rule, developed by Vilfredo Pareto. A variation of the Pareto principle can be stated as “the trivial many and the critical few”.

Vilfredo Pareto was an engineer who migrated into economics and political sociology. He lived in Italy from 1848 to 1923. Pareto first published his observations in 1888 [Pareto].

Pareto observed that 80% of the land and wealth was owned by 20% of the people. His further research, and that of others, confirmed this general principle: in any general population 20% of the people will succeed, 20% will flounder, and the remaining 60% will just exist.

The principle has many applications in every venture. Eighty percent of revenue will come from twenty percent of your customers.

Eighty percent of problems will come from twenty percent of your clients.

Eighty percent of the work will require only twenty percent of the total project time. The remaining twenty percent of the work will require eighty percent of the time.

Eighty percent of the taxes are paid by twenty percent of the people. Is that fair? The best approach to increase tax revenue is to apply 10% to all income. The top 20%, then, will have more money to develop more spending, which will ultimately increase the total tax income.

Eighty percent of the revenue will come from twenty percent of the time. This is extremely well known in the retail business. The store remains open all year, but it is only the season between Thanksgiving and Christmas that is highly profitable. The Friday after Thanksgiving is commonly referred to as “Black Friday”, because that is the first day all year that many retailers begin to make a profit.

Eighty percent of the work will come from 20% of the people. The least productive twenty percent of the people will create 80% of the problems.

Being aware of the Pareto Principle assists the leader in focusing his effort. At first glance, the effective thing to do would be to eliminate the eighty percent and focus on the upper twenty.

This action, however, would be counter-productive. Even the top 20% is segmented by the 80 / 20 rule. If carried to conclusion, there would be no one left. Nevertheless, the rule can be used to determine the most effective place to expend resources and efforts.

Rather than eliminating the 80%, a better plan is to increase the total volume. The rule still applies, though the twenty percent is now of a larger number.

When analyzing why the rule works, several things come up. It is a quick approximation of a standard deviation (sigma) in statistics. It would be expected, therefore, that an equal number will excel as will fail, and three times that number averages out the middle.

Other than assisting with a vision for an organization, how does the 80 / 20 apply to developing leaders?

From the first look, 80% of the people in any group are out of the running. The leaders will come from the 20%. That is, however, a larger number of leaders than is observed in practice.

Consider applying the 80/20 rule to the 20%. The result is that 5% of the total, or 20% of 20%, will excel. Apply the rule to the 5% and the result is the 1% rule.

Now translate that to practice in any group. Eighty percent are below the line and will not have a substantial impact. Twenty percent will contribute most of the results. Five percent will be leaders. One percent will be stellar performers who will change the world.

Can you move up the scale? Absolutely, apply the principles of leaders. The principles work whether you are presently in the position of leader or not. Leadership is about whom you are, not what position you hold.