“Typically, causes, inputs, or effort divide into two categories: (1) the majority, that have little impact, and (2) a small minority, that have a major, dominant impact.”
Richard Koch
Hey there, it’s me, Jerry Garrett, and today we’ll dive into another MBA topic – the Pareto Principle. Let’s get started.
The Pareto Principle, also known as the 80-20 rule or the critical few, states that 20% of your input yields 80% of your output. By focusing on that crucial 20%, you can achieve great things. Conversely, if you concentrate on the less significant 80%, you may not reach your full potential.
Pareto, a 19th-century economist from Italy, discovered this principle through extensive data collection. He found that 20% of people owned over 80% of the land in Italy. This 80-20 relationship appeared in other areas too – for instance, in his pea garden, 3% of the peapods produced 80% of the peas.
You can see this pattern in many complex systems. In businesses, less than 20% of customers often generate more than 80% of annual revenue. Moreover, fewer than 20% of employees contribute to 80% or more of a company’s valuable work. You might even notice this in your daily life – you wear less than 20% of your clothing 80% of the time and spend over 80% of your time communicating with fewer than 20% of your personal contacts.
In a business context, the critical few employees drive success. If these key individuals leave due to dissatisfaction, your company may suffer. While it’s essential to focus on the significant 20%, don’t forget about the remaining 80%. They still contribute to your organization and complete that vital whole.
Lastly, consider costs: there are critical and non-critical expenses. Reducing non-critical costs can improve your profit margin.
Read the original one from Josh Kaufman here: https://personalmba.com/critical-few/
That’s it for now – see you next week!
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