UNDERSTANDING THE PARETO PRINCIPLE (THE 80/20 RULE)

The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes (the “vital few”). Other names for this principle are the 80/20 rule, the law of the vital few, or the principle of factor sparsity.

Management consultant Joseph Juran developed the concept in the context of quality control and improvement, naming it after Italian economist Vilfredo Pareto, who noted the 80/20 connection while at the University of Lausanne in 1896. In his first work, Cours d’économie politique, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population. The Pareto principle is only tangentially related to Pareto efficiency. More generally, the Pareto Principle is the observation (not law) that most things in life are not distributed evenly. It can mean all of the following things:

The Uneven Distribution

What does it mean when we say that things aren’t distributed evenly? The key point is that each unit of work (or time) doesn’t contribute the same amount. In a perfect world, every employee would contribute the same amount, every bug would be equally important, every feature would be equally loved by users. Planning would be so easy. But that isn’t always the case.

The 80/20 principle observes that most things have an unequal distribution. Out of 5 things, perhaps 1 will be good. That good thing/idea/person will result in majority of the impact of the group. Of course, this ratio can change. It could be 80/20, 90/10, or 90/20 (the numbers don’t have to add to 100 even). The key point is that most things are not 1:1, where each unit of input (effort, time, labour) contributes exactly the same amount of output.

The Upside of the 80/20 Principle

When applied to life and work, the 80/20 Rule can help separate the vital few from the trivial many. For example, business owners may discover the majority of revenue comes from a handful of important clients. The 80/20 Rule would recommend that the most effective course of action would be to focus exclusively on serving these clients (and on finding others like them) and either stop serving others or let the majority of customers gradually fade away because they account for a small portion of the bottom line.

The 80/20 Rule is like a form of judo for life and work. By finding precisely the right area to apply pressure, we can get more results with less effort.

An Everyday Example – Home Cleaning 

Let us say we are cleaning our house. Some people might approach this by distributing their effort evenly across a variety of tasks, including dusting, vacuuming, and mopping each room. But this probably is not very efficient — it would take many hours to get everything done. The Pareto Principle tells us that 80% of how clean our house appears comes down to 20% of our cleaning efforts. Again, we don’t need to work out exactly what 20% of our cleaning looks like. But we do need to ask questions like:

We might conclude that giving the house a quick vacuum, clearing away the bulk of the clutter, and dusting down the main surfaces makes a huge difference. Or perhaps we figure that visitors will spend most of their time in the living room and dining room, so we will focus on them and only give other rooms a cursory clean? But giving every mirror a perfect polish and removing every speck of dust from the house might not make such a big difference to the overall result. 

The Downside of the 80/20 Principle

We get one, precious life. How do we decide the best way to spend our time? Productivity concepts will often suggest that we focus on being effective rather than being efficient.

Efficiency is about getting more things done. Effectiveness is about getting the right things done. In other words, making progress is not just about being productive. It’s about being productive on the right things. But how do we decide what the right things are? The 80/20 Rule states that, in any particular domain, a small number of things account for the majority of the results. The point is that the majority of the results are driven by a minority of causes. There is a downside to the 80/20 principle, and it is often overlooked. To understand this pitfall, here is a story.

A Story: Audrey Hepburn- A New Path

Audrey Hepburn was an icon. Rising to fame in the 1950s, she was one of the greatest actresses of her era. In 1953, Hepburn became the first actress to win an Academy Award, a Golden Globe Award, and a BAFTA Award for a single performance- her leading role in the romantic comedy Roman Holiday. Even today, over half a century later, she remains one of just 15 people to earn an “EGOT” by winning all four major entertainment awards: Emmy, Grammy, Oscar, and Tony. By the 1960s, she was averaging more than one new film per year and, by everyone’s estimation, she was on a trajectory to be a movie star for decades to come.

But then something funny happened- she stopped acting. Despite being in her 30s and at the height of her popularity, Hepburn basically stopped appearing in films after 1967. She would perform in television shows or movies just five times during the rest of her life. Instead, she switched careers. She spent the next 25 years working tirelessly for UNICEF, the arm of the United Nations that provides food and healthcare to children in war-torn countries. She performed volunteer work throughout Africa, South America, and Asia.

Hepburn’s first act was on stage. Her next act was one of service. In December 1992, she was awarded the Presidential Medal of Freedom for her efforts, which is the highest civilian award of the United States.

The Shortcoming of the 80/20 principle:

For a moment, let us all Imagine it is 1967. Audrey Hepburn is in the prime of her career and trying to decide how to spend her time. If she uses the 80/20 Rule as part of her decision-making process, she will discover a clear answer- do more romantic comedies. Many of Hepburn’s best films were romantic comedies. They attracted large audiences, earned her awards, and were an obvious path to greater fame and fortune. Romantic comedies were effective for Audrey Hepburn.

In fact, even if we take into account her desire to help children through UNICEF, an 80/20 analysis might have revealed that starring in more romantic comedies was still the best option because she could have maximized her earning power and donated the additional earnings to UNICEF.

Of course, that’s all well and good if she wanted to continue acting. But she didn’t want to be an actress. She wanted to serve. And no reasonable analysis of the highest and best use of her time in 1967 would have suggested that volunteering for UNICEF was the most effective use of her time. This is the downside of the 80/20 Rule: A new path will never look like the most effective option in the beginning.

Optimizing for the Past or the Future

Let us look at another example. Jeff Bezos, the founder of Amazon, worked on Wall Street and climbed the corporate ladder to become senior vice-president of a hedge fund before leaving it all in 1994 to start the company. If Bezos had applied the 80/20 Rule in 1993 in an attempt to discover the most effective areas to focus on in his career, it is virtually impossible to imagine that founding an internet company would have been on the list. At that point in time, there is no doubt that the most effective path—whether measured by financial gain, social status, or otherwise—would have been the one where he continued his career in finance.

The 80/20 Rule is calculated and determined by our recent effectiveness. Whatever seems like the “highest value” use of time in any given moment will be dependent on our previous skills and current opportunities. The 80/20 Rule will help us find the useful things in our past and get more of them in the future. But if we don’t want our future to be more of the past, then we need a different approach. The downside of being effective is that we often optimize for our past rather than for our future.

The Way Forward

Given enough practice and enough time, the thing that previously seemed ineffective can become very effective. We get good at what we practice. When Audrey Hepburn dialed down her acting career in 1967, volunteering didn’t seem nearly as effective. But three decades later, she received the Presidential Medal of Freedom—a remarkable feat she is unlikely to have accomplished by acting in more romantic comedies.

The process of learning a new skill or starting a new company or taking on a new adventure of any sort will often appear to be an ineffective use of time at first. Compared to the other things you already know how to do, the new thing will seem like a waste of time. It will never win the 80/20 analysis. But that doesn’t mean it’s the wrong decision.

Content Curated By: Dr Shoury Kuttappa

PERSONAL EFFECTIVENESS AND PRODUCTIVITY: BEHAVIOURS ASSOCIATED

Story – The Ivy Lee Method:

By 1918, Charles M. Schwab was one of the richest men in the world. Schwab was the president of the Bethlehem Steel Corporation, the largest shipbuilder, and the second-largest steel producer in America at the time. The famous inventor Thomas Edison once referred to Schwab as the “master hustler.” He was constantly seeking an edge over the competition. One day in 1918, in his quest to increase the efficiency of his team and discover better ways to get things done, Schwab arranged a meeting with a highly respected productivity consultant named Ivy Lee. Lee was a successful businessman in his own right and is widely remembered as a pioneer in the field of public relations.

The Ivy Lee Method:. . . . . . . . During his 15 minutes with each executive, Ivy Lee explained this simple set of daily routine steps for achieving peak productivity:

1. At the end of each workday, write down the six most important things you need to accomplish tomorrow.
2. Do not write down more than six tasks.
3. Prioritize those six items in order of their true importance.
4. When you arrive tomorrow, concentrate only on the first task.
5. Work until the first task is finished before moving on to the second task.
6. Approach the rest of your list in the same fashion.
7. At the end of the day, move any unfinished items to a new list of six tasks for the following day.
8. Repeat this process every working day.

The strategy sounded simple, but Schwab and his executive team at Bethlehem Steel gave it a try. After three months, Schwab was so delighted with the progress his company had made that he called Lee into his office and wrote him a check for $25,000. A $25,000 check written in 1918 is the equivalent of a $400,000 check in 2015.

The Ivy Lee Method of prioritizing our to-do list seems stupidly simple. How could something this simple be worth so much?

A) It is simple enough to actually work: . . . . . . . . The primary critique of methods like this one is that they are too basic. They do not account for all of the complexities and nuances of life. What happens if an emergency pops up? What about using the latest technology to our fullest advantage? Sometimes, complexity is actually a weakness because it makes it harder to get back on track. Emergencies and unexpected distractions will arise. Ignoring them as much as possible, dealing with them when we must, and getting back to our prioritized to-do list as soon as possible is what brings productivity. The use of simple rules to guide complex behaviour often serves the best results.

B) It forces us to make tough decisions: . . . . . . . . . There is nothing magical about Lee’s number of six important tasks per day. It could just as easily be five tasks per day. However, there is something magical about imposing limits upon ourselves. Sometimes, the single best thing to do when we have too many ideas (or when we are overwhelmed by everything we need to get done) is to prune our ideas and trim away everything that is not absolutely necessary. Constraints can make us better. Lee’s method is similar to Warren Buffett’s 25-5 Rule, which requires us to focus on just 5 critical tasks and ignore everything else. Basically, if we commit to nothing, we will be distracted by everything.

C) It removes the friction of starting: . . . . . . . . . The biggest hurdle to finishing most tasks is starting them. Lee’s method forces us to decide on our first task the night before we go to work. If we decide the night before, we can start work immediately the next day, and not end up wasting time deciding what needs our attention. It is simple, but it works. In the beginning, getting started is just as important as succeeding at all.

Another tool that could be useful here is known as the Eisenhower Box (or Eisenhower Matrix) and it’s a simple decision-making tool. General Dwight Eisenhower had an incredible ability to sustain his productivity for weeks and months. And for that reason, it is no surprise that his methods for time management, task management, and productivity have been studied by many people. Before becoming the 34th President of the United States, Eisenhower was a five-star general in the United States Army, served as the Supreme Commander of the Allied Forces in Europe during World War II, and was responsible for planning and executing invasions of North Africa, France, and Germany.

D) It requires us to single-task: . . . . . . . . . Modern society loves multi-tasking. The myth of multi-tasking is that being busy is synonymous with being better. The exact opposite is true. Having fewer priorities leads to better work. World-class experts in nearly any field—athletes, artists, scientists, teachers, CEOs—have one characteristic that runs through all of them: focus. The reason is simple. We cannot be great at one task if we are constantly dividing our time ten different ways. Mastery requires focus and consistency. The bottom line? Do the most important thing first each day. It’s the only productivity trick we need.

The Myth of Multitasking: Why Fewer Priorities Leads to Better Work

The word priority did not always mean what it does today. In his best-selling book, Essentialism (audiobook), Greg McKeown explains the surprising history of the word and how its meaning has shifted over time.

Yes, we are capable of doing two things at the same time. It is possible, for example, to watch TV while cooking dinner or to answer an email while talking on the phone. What is impossible, however, is concentrating on two tasks at once. Multitasking forces our brain to switch back and forth very quickly from one task to another. This would not be a big deal if the human brain could transition seamlessly from one job to the next, but it cannot. Multitasking forces us to pay a mental price each time we interrupt one task and jump to another. In psychology terms, this mental price is called the switching cost. Switching cost is the disruption in performance that we experience when we switch our attention from one task to another.

For example, A 2003 study published in the International Journal of Information Management found that the typical person checks email once every five minutes and that, on average, it takes 64 seconds to resume the previous task after checking your email. In other words, because of email alone, we typically waste one out of every six minutes.

The myth of multitasking is that it will make us more effective. In reality, remarkable focus is what makes the difference. While we are on the subject, the word multitasking first appeared in 1965 IBM report talking about the capabilities of its latest computer.

Finding Your Anchor Task: . .. . . . . . .  . Doing more things does not drive faster or better results. Doing better things drives better results. Even more accurately, doing one thing as best you can, drives better results. The power of choosing one priority is that it naturally guides our behavior by forcing us to organize our life around that responsibility. Our priority becomes an anchor task, the mainstay that holds the rest of our day in place. If things get crazy, there is no debate about what to do or not to do. We have already decided what is urgent and what is important.

Saying No to Being Busy: . . . . . . . . As a society, we have fallen into a trap of busyness and overwork. In many ways, we have mistaken all this activity to be something meaningful. The underlying thought seems to be, “Look how busy I am? If I am doing all this work, I must be doing something important.” And, by extension, “I must be important because I’m so busy.” The people who do the most valuable work have a remarkable willingness to say no to distractions and focus on their one thing.

Implementation Intentions: Mastering One Thing at a Time

Many people have multiple areas of life they would like to improve. The problem is, even if we are committed to working hard on our goals, our natural tendency is to revert back to our old habits at some point. Making a permanent lifestyle change is difficult.

The approach to mastering many areas of life is somewhat counterintuitive. If we want to master multiple habits and stick to them for good, then we need to figure out how to be consistent. How can we do that? Research has shown that we are 2x to 3x more likely to stick with our habits if we make a specific plan for when, where, and how we will perform the behavior. For example, in one study scientists asked people to fill out this sentence: “During the next week, I will partake in at least 20 minutes of vigorous exercise on [DAY] at [TIME OF DAY] at/in [PLACE].”

Psychologists call these specific plans “implementation intentions” because they state when, where, and how we intend to implement a particular behavior. For example, implementation intentions have been found to increase the odds that people will start exercising, begin recycling, stick with studying, and even stop smoking. However (and this is crucial to understand) follow-up research has discovered that implementation intentions only work when we focus on one thing at a time.

When we begin practicing a new habit it requires a lot of conscious effort to remember to do it. After a while, however, the pattern of behavior becomes easier. Eventually, our new habit becomes a normal routine, and the process is more or less mindless and automatic. Automaticity is the ability to perform a behavior without thinking about each step, which allows the pattern to become automatic and habitual. But here is the thing: automaticity only occurs as the result of lots of repetition and practice. The more reps we put in, the more automatic a behavior becomes. The most important thing to note is that there is some “tipping point” at which new habits become more or less automatic. The time it takes to build a habit depends on many factors including how difficult the habit is, what our environment is like, our genetics, and more.

The counterintuitive insight from all of this research is that the best way to change our entire life is by not changing our entire life. Instead, it is best to focus on one specific habit, work on it until we master it, and make it an automatic part of our daily life. Then, repeat the process for the next habit. The way to master more things in the long run is to simply focus on one thing right now.

Content Curated By: Dr Shoury Kuttappa