Systems Thinking – The Pareto Principle

The Pareto Principle comes to us from quality guru Joseph Juran. He named it the Pareto Principle in honor of Vilfredo Pareto who was an Italian economist. Pareto himself first developed the concept by recognizing that 80% of the land in Italy was owned by 20% of the people. This was reinforced when he realized that 80% of the harvest of peas in his garden came from 20% of the pods. This has been generalized in business into the Pareto Principle that states “80% of your sales come from 20% of your customers. And that 80% of your problems come from 20% of your issues.”

In it’s most general sense Pareto says that 80% of gain comes from 20% of the effort. And the last 20% of the potential gain requires 80% of the effort…four times the effort required to reach 80%.

The Pareto principle argues for the lean concept — which is the concept of the interrupted journey. The cost benefit ratio favors limiting your aspirations to 80% or less of your way to the ideal state. When you execute an improvement effort in Lean — when you apply PDCA or the Deming Cycle — you make this targeted state explicit. You look for the balance between your opportunities and your constraints. You get done what is available to get done at manageable expense. This is all done in the effort, not of a complete and total trip to the ideal state, but a trip to a better state and improved situation.

Contact us to learn more about how Systems Thinking and the application of our Product Development Operating System can help your organization become more efficient, productive, innovative, and competitive.

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