The 80/20 Rule - What to Know to Make it Work for You

Most of us have heard of the 80 20 rule or Pareto principle postulated by Joseph Juran, as he reflected on the earlier work of Vilfredo Pareto. It’s essentially a law of distribution; a description of a pattern that states for many things roughly 80% of the effects come from 20% of the causes. Or as Richard Koch, said, “Very few things matter at all, but those that do matter enormously.”

Perhaps you’ve seen it represented as a graph as when it comes to results, there’s not a linear connection between effort and resources at work and results. Or perhaps you’ve heard expressed in one or more 80/20 ratios such as: 80% of a company's profits come from 20% of its customers, or 80% of a company's sales come from 20% of its products.

According to a 2013 survey by WorldatWork, the 80/20 method is used by about 12% of US corporations. That means that most businesses aren’t exploiting the 80/20 rule or doing it very well. In reality it’s a challenge to apply a distribution model into cause and effect. But one you can definitely fix.

In this post I’d like to share 3 keys that I’m 99% sure no one has ever explained to you about applying the 80/20 rule. 3 key that you need to know in order to apply 80/20 successfully at work.. I discovered them myself in various consulting assignments, not because they are published anywhere.

1. Actively Embrace the AMBIGUITY Factor:

The 80/20 has wonderful predictive capability. But the problem is that we’re often confused, or perhaps more accurately inaccurately myopic, in identifying what the 20% is that’s going to generate 80% of our success. Given that the 80/20 rule is fractal (80/20 applies to the 20% as well as to the 100%), think about these numbers for a moment and ask yourself would you know specifically what falls in each group:

• 20% of whatever you work on or work with generates 80% of the results, but
• 4% of whatever you work on generates almost 2/3rds (64%) of the entire results, and
• 1% generates 51% of the total results.But here’s the thing, or the troubling question: “How do you or your staff know what the 1% or the 4% is that gives such high leveraged results?”

The truth is most of us are pretty fuzzy on exactly what comprises the 1%, 4% and 20% categories. Worse yet, like the parable of the blind men and the elephant, we tend to inaccurately identify the tasks that comprise the 4% on personally or locally based results, not on over-arching business results, because we simply don’t see an easy connection or link between our choices and actions and results.

Some of us use our education or theoretical orientation to identify the high leverage tasks. For example here’s how it might look if you are a project manager:

• Some focus on dependencies and the critical path as the route to identify the 20%
• Other project managers focus on constraints as the key,
• Other project managers focus on burn down lists or estimated versus actual time indicators.

They all represent different perspectives on what gets focused on when applying the 80/20 rule. By-the-way, did you notice all the examples above were “inward facing”?

You see the 80/20 can be inward facing which often looks like “doing things right”, being effective at your job and the roles it embodies. But it can also be outward facing, which tends to look like “doing the right things” so as to grow the business, meet customer needs, etc.

It’s important to understand that the inward facing 20% is different than the outward facing 20%, and often is managed by different personnel. The inward facing vs outward facing dynamic is critical to understand, so I’ll go there next, but let me conclude with how to actively embrace the ambiguity factor in applying the 80/20 rule.

Given the ambiguity involved, it can be difficult to clearly identify the 20% that generates the 80% return when it comes to cause and effect. It’s even more of a challenge to identify the 4% that generates 2/3rds of your results, and the 4% is what you need to focus on to get really powerful results. Faced with varying levels of uncertainty, I recommend that you:

• Actively test your assumptions and your strategies against results on the identified 4%,
• And manage the 4% much closer than you do other tasks (I’ll talk about that later).

2. The 80/20 Curve is U Shaped

In any business there should be very different conversations going on about what represents the top 4% and top 20% of action generating results. That's because the majority of the people in any organization are going to have a much clearer line of sight on inward facing 80/20 then outward facing. They aren’t the same and shouldn’t be. So here’s the graphic and the model to use when applying 80/20 rule and a couple of tips:

• Inward vs Outward Facing 80/20. The 80/20 rule is going to target different issues, different actions and certainly different results whether you are focusing on the inward or outward facing curve. Think of corporate officers as being responsible to address the outward-facing curve (ex. do we grow through acquisition, change in product mix, etc), while the closer you get to your front line, they should be focused on the inward-facing results (ex. quality, consistency, efficiency, customer satisfaction).
  
  Think of the left side as measuring the ability to “do things right” and the right side of the curve as the ability to do the “right things.” To accurately apply the 80/20 rule you need to have both inward and outward facing 4% operating at the same time. And yes, just in case you were wondering, mid-management gets stuck with managing both sides.
  
  
• Stuff naturally falls to the bottom. Gravity effects us all, and if you think of the U 80/20 curve as a container, then left to our own devises and attempts to “manage it all,” you see that most of the work effort fills up the bottom with relatively low results generating activity. In order to get big results you need to push the focus to the sides.
  
  
  
  This is a bit like pushing water uphill. It takes ongoing effort and if you relax, it falls to the bottom again. That’s the bad news. The good news is that there are 4 methods that will definitely help you push the focus to the outside 4% and the big results. Let’s look at those now.

3. You Need to Manage the 20%, and even more the 4%, DIFFERENTLY.
The same techniques and tools, meetings and emails, power points and spreadsheets aren’t going to provide nearly enough horsepower, given the effort it takes to stay on top of the 4%.

It’s essentially up to management to make the call as to what the 1%, the 4% and the 20% efforts are when it comes to outward facing 80/20 leverage, e.g. to define what that “one thing” is for the business that Curly described in City Slickers. But whether you are managing inward or outward facing effects, you need to manage them differently than how you manage the rest of the work process pounding on your desk. Here’s what you need to do:

1. Be ruthless about check the results value of any activity given the remaining time and actively prioritize those tasks over the other 80% or 96%. First comes first, which inevitably means you’re “not going to get to it all”… and in fact shouldn’t be based upon the 80/20 rule. Be absolutely clear on what the 4% is and get that done with priority.
   
2. Manage the 80% based upon basic processes and values for “how to get things done”, this should be relatively automatic, based upon the processes and practices in place. On the other hand manage the “identified” 20% or 4% like an experiment, with lots of visibility on the process, on updates and verification to confirm results. The top 20% is a “hands-on” process in which you often aren’t sure, so approach this effort with a “let’s test or confirm” mind-set.
   
3. Often what makes the 4% or 1% come to light is the ability to solve issues or obstacles that have thwarted others. So be very rigorous about identifying issues, next steps to resolve them and results. Use “swarming” to flood identified problems in this % to quickly resolve with your best experts. Expose any authority’s recommendations for problem resolution to the same level of testing.
   
4. Integrate the often highly intuitive processes that surround managing the 1% and 4% with stream-lined updates. This isn’t the realm of power-points, spreadsheets or your average project management tool. You need to use something like ManagePro that easily bridges the prioritization of the 80/20 challenge with results testing and scoring and narrative updates that fuel an accurate creative process.
   
   Successful leveraging of the 4% and above requires:
   - A connected creativity that stands on the shoulders of excellent critical thinking, and
   - The discipline for capturing the essence in an information management process that leverages the information bread crumb trail along the way.

Bottom Line: The 80/20 rule captivates our imagination about what’s possible if we could just focus and expand on the 20% that delivers 80% of the results. Unfortunately most organizations are not successful at applying the 80/20 rule. In order to be successful, I’ve found you must incorporate the following three approaches into your daily practice of focusing not just on the 20%, but the 4%:

1. The 20% and below can be hard to identify, embrace the ambiguity by testing and experimenting.
2. The 20% and 4% are different depending on whether they are inward or outward facing. Don’t be confused by the difference, address both.
3. You have to manage the 4% differently then the remaining 96%. Your approach has to be much more involved, using different tools and resolving obstacles with heightened priority. Hope these tips put the benefits of the 80/20 rule squarely in your grasp.