I’ve heard about it and it seems like a tremendous insight if true.
If it is true, how does it work? If I fire the bottom 80% of my employees, will 20% of the remaining 20% be responsible for 80% of the results? That is, if I have 100 employees and 20 of them are responsible for 80% of the results, are 4 employees responsible for 64% of the results?
For things for which the Pareto principle is true, yes, any subset of the group will also match the Pareto curve (assuming the sample size is big enough to defeat any noise in the data).
I think you should be careful when applying rigid mathematical analysis to vague ideas that are not really meant to be so rigidly interpreted. In this context the rule seems to be claiming that if you have a team of 100 people, about 20 of them will be of a significantly higher caliber, and will be able to outperform almost everyone else. I’m not sure firing 80 people is going to mean that some of the remaining 20 suddenly get super productive while others start slacking off - all else being equal that 80% of work will be distributed among the 20 roughly the same as it was. (Of course it isn’t a case of all else being equal, the remaining 20% of work needs to go to these people, and morale in such a place will plummet - I suspect your 20 stars will be too busy jumping off the sinking ship to do any real work!)
Pareto was an Italian economist and found that 80% of the country’s wealth was held by 20% of the population.
Subsequently, any number of people have co-opted this observation and turned it into a “principle” or even a “rule.” But it’s not like it’s an immutable law of physics, should not be applied willy-nilly to anything that pops into your head, does not predict anything, and is at best an interesting observation.
The inferences in your example are not valid.
In general, it might be valid to say that the top 20% of your workforce are responsible for a disproportionate amount of results, but to conclude that the number is 80% has no basis.
In business it’s one of those “rules” which can be used to justify almost any conclusion.
In your hypothetical 100 person company, the 20 salesmen can get together and declare that they’re the 20% who matter since without them there’d be no sales and hence no revenue.
And the 20 in maufacturing can say they’re the ones who matter since without them there’d be no product to ship, so customers won’t pay. Still no revenue.
etc.
Another way the idea is misused is as a statement which amounts to “there’s always some fat to cut”. As you’ve noticed, there is a limit to that. When you get down to one person and saw them in two at the chest, you’ll find that the head & shoulders aren’t real productive all by themselves.
Known as the “Vic Morrow Rule”.
Where its useful is to try and pick the “low hanging fruit” when fixing a problem. For instance, if you are working for a company and the parato has 80% of your returns falling into four kinds of manufacturing defect, then it drops off into six other types - and an other category - for the last 20% - you focus attention on the top of the problem set.
I did it with help desk calls and found out that the majority of our calls were password related. So we worked on solving password problems first. Then we moved down the stack. We didn’t worry about the application that blue screened once in a blue moon, those calls weren’t worth worrying about.
But, as was said, you have to be smart about it. If the application that blue screens is one that shuts down the factory while the system is rebooted, it may be more important than every password problem in the company.
If you fire the bottom 20% of your company, your top producers will decide the company isn’t stable or that they are being expected to do more work and leave for new jobs. Watch your consequences.
The Pareto Principle is best applied when addressing problems; it’s more for things like - before you try some fix, be sure it’s part of the problem. Addressing the most serious problems first will yield the best results.
As an example - what are the biggest causes of automobile accidents? Odds are you’d put mechanical failure way down the list. Seriously, how many are operator error, drunk driving, etc.? How many are hardware failure? 5%? Yet many jurisdictions require you to have a car “safetied” before you sell it. The single biggest mechanical failures that DO happen are tires and brakes, and only checking these at time of sale will miss most of the brakes and tires about to fail on the road.
So you would probably save a LOT more lives by cracking down on drunk driving, or driver education and traffic enforcement, than by safetying cars. It’s a matter of money well spent for results.
It’s not a fixed rule - but I would guess for example that 20% of your employees would account for 80% of lateness and absence problems. Do something about that 20% and your business will run better. Another 20% are probably responsible for 80% of the screwups that cost you money.
You can’t fire 80% and expect the same results. If you don’t have a 20% of employees with those significant problems, then odds are the problems are not really significant. (There will always be SOME absenteeism…)
the main lesson I learned about this principle in statitical problem management was to determine what exactly were your biggest problems and causes. Use real data and statistics, not gut feelings. You might think absenteeism is a problem for example, but analysis will show that it is same or better than industry norms. Then put the effort to addressing the problems that would give the most “bang for buck” to solve.