Advanced Business English Article for Leaders

The 80/20 principle, also known as the Pareto Principle, was first discovered by the Italian economist Vilfredo Pareto in the early 20th century. 

Pareto initially observed that approximately 80% of Italy's land was owned by 20% of the population, with the same distribution seemingly applying to the overall wealth in the country. He soon noticed that such a distribution of wealth and land ownership was prevalent not only in Italy but also in numerous other countries he studied. 

Pareto's Garden

He soon found the same principle at play in his own garden! Over the next year, it became apparent that 20% of his pea pods produced 80% of his peas, demonstrating that the principle could apply to agricultural production as well.

Applying this to Business

This principle was later applied to business and economics by management thinker Joseph M. Juran, who named it the "Pareto Principle" after Vilfredo Pareto.

In business, for example, he analysed that 80% of results come from 20% of efforts. Leveraging this principle can vastly improve efficiency. If 80% of your results come from 20% of your efforts, identifying and maximizing this efficient 20% can multiply your productivity. Taking the time to analyse work processes and focus on those 20% high-impact tasks can pay off immensely, allowing you to achieve the best of both worlds: increased productivity and reduced work!

The 80/20 Principle with Company Products

Let's apply the principle to products themselves. Coca-Cola’s classic flagship drink constitutes around 80% of the company’s revenue. The same goes for
the Apple’s iPhone and the Big Mac at McDonalds. Zeroing in on top-performing products and focusing resources on them can help companies to reduce
costs. Of course, that doesn’t mean to say that you should taking your eye off the remaining 80%completely!

Many businesses have reported that 20% of customers often bring 80% of the revenue. By targeting the most valuable customers, businesses can achieve better outcomes and foster customer loyalty.

Where does this 80/20 imbalance stem from? 

The 80/20 principle exists primarily due to a combination of mathematical properties, human behavior, natural phenomena, and systemic factors that create imbalanced distributions. In wealth distribution, for example, those who have more resources can invest and grow their wealth more effectively, often leading to something resembling an 80/20 distribution.

With various other contexts, passing a certain threshold can lead to a disproportionate increase in impact. When a YouTuber reaches a certain number of subscribers, they can monetize their content, thus allowing them to invest further in better quality content, further attracting new subscribers. In networking, simply having more high quality connections can open up the opportunity to broaden your network exponentially, thus allowing an 80/20 distribution to play out naturally over time.

Business English Phrases Used in this Article

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