The 80/20 Principle Book Review

By Richard Koch

A book summary by Jeff Abbott.

The Pareto Principle has been a big factor in my own management style over the years.  It eventually helped me to choose the significant issues in complicated factory life during my professional management career.  But never have I been so impressed to be thorough in my application of this idea than after reading the book.  I think that with intentionality, I can benefit 10 times the amount I’ve benefited from this in the past. 

 The concepts featured apply all the way from worldwide wealth distribution to being free and happy in one’s life.  The applications and implications for the CEO are clear and many, and every reader has much to gain from its instruction.  Here are the main points:

• The 80/20 principle is basically the Pareto principle, which states that 20 percent of causes explain 80 percent of effects
• If you take advantage of this imbalance, you can increase your effectiveness by spending time, effort, or money in the area most likely to produce results
• There are 80/20 gaps and imbalances in every aspect of life
• It’s up to ME to get started in MY life applying these principles today
• The 80/20 arbitrage can either start or prevent the tipping point from occurring in many social and mechanical situations in life.
• If you haven’t measured and analyzed the 80/20 factors in your life and business, you are most likely chasing your tail in many areas

In business, you can apply it to things such as:

• Machines and breakdowns/downtime, maintenance costs
• Office locations by profit margin performance
• Defects by causes, costs, customer, product line, operator
• Customer returns by costs, product line, sales, profit, gross profit, A/R’s
• Suppliers and late deliveries, defects, costs
• Employees and sales, sick days, errors, accidents, costs, units produced, etc.
• Processes and safety, time delays, costs, defects

Lots of waste can be eliminated from your business by conducting the analysis and arbitrage of 80/20 rules

• Discontinuing work that does not suit your strengths
• Do only what you have unique abilities to do
• Stop doing what robs you of time, money, happiness, and rewards
• Almost no company/corporation/industry takes full advantage of the 80/20 opportunity to make a competitive advantage
• Less is more….you can get more from less
• Isolating can lead to success, optimum profits, happiness
• Product line rationalization
• Outsourcing of non-value steps

There is a ton of resistance to this thinking in the typical person’s paradigm.

• You must use arbitrage to simplify your business and your life
• Simpler is better
• More complex is worse
• Simplicity is on the far side of complexity
• Complexity costs.  Even if it looks better, it costs too much in your organization in real money
• Eliminate complexity and you will eliminate costs
• Aim for the 80% of your organization’s detail that adds no value
• Streamlining is good by definition
• Standard cost systems hide the 80/20 rule and spread costs and activities in an equal manner
• Isolate elements of your business and measure ACTUAL costs
• Bigger isn’t better.  “The road to hell is paved with the pursuit of volume”
• Do the arbitrage and don’t spend too much time resuscitating the 80% factor
• Go overboard on serving your 20% customers:  Spend time, money, effort there!

• Apply arbitrage to your sales department
• Focus on your 20% customers
• Focus on your 20% salesmen
• Assign those salesmen to the 20% customers
• Don’t spend too much time and training on the 80% salespeople.  Get new ones
• What if all your staff could be discarded or outsourced to make it possible to go after your dream?  How would that change your life/business?
• Focus on your core customers, serve them over the top!

Can I benefit from doing 80/20 arbitrage in sales and marketing, management?

Top 10 uses of 80/20

• Strategy
• Quality
• Cost reductions
• Service improvements
• Marketing
• Selling
• Information technology
• Decision making and analysis
• Inventory management
• Project management
• Negotiation

Top 10 best activities to spend time on:

• Things that advance your life purpose
• Things you always wanted to do
• Things already proven to be optimal
• Innovation
• Things that “can’t be done”
• Things others have done in a different arena or industry
• Things that use your own creativity
• Things you ca have others do for you
• Anything highly effective collaborators are doing
• Things for which it is “now or never”

• Top 10 worst activities to spend time on:
• What others want you to do
• Things that are always done this way
• Things you’re not good at doing
• Things you hate doing
• Things always getting interrupted
• Things that won’t interest others
• Things that are already taking twice your planned time
• Things where collaborators offer only low quality, unreliable assistance
• Things that have a limited or predictable cycle
• Answering the phone/email!

Never let the 80 “box out” the 20!

What opportunities are passing me by because I’m not looking for the 80/20 imbalance?

• Get a balance of happiness inside/outside of work
• Find your best career fit using achievement vs. autonomy quadrant table
• Money is overrated:  Happiness is underrated
• 80/20 applies to personal/business relationships- be careful who you spend time with
• Form an alliance group with those who are your best quality associates
• In personal and professional relationships, respect, experiences, reciprocity, trust are key
• The Lazy/Industrious vs. Stupid/Intelligent quadrant table will point out where your stars will come from. (Lazy/Intelligent generates great ideas and performance)

• When considering going first cabin, remember the Michael Jackson famous name principle….go after the best you can afford (maybe more) and the results will be 10 times better

• 10 rules of creating/finding a successful career
• Specialize in a core skill
• Choose a niche you enjoy
• Realize knowledge is power
• Identify your market – the core 20%
• Identify your 80/20 efforts vs. returns
• Learn from the best
• Become self employed
• Employ the most high value creators you can
• Use outside contractors/outsource weak side
• Exploit capital leverage

• 80/20 thinking can be applied to investments and wealth management

• Use 80/20 to increase your quality of life
• Expand your happy experiences
• Avoid unhappy experiences
• I have power to define relationships that make me happy
• I can change the way I think and act, making my life more positive, self assured
• Choose, avoid!
• Construct your own “right story” about choices you have made to make your life joyful

• In order to bring the most joy to your life, choose the following daily “joy drill”
• Spiritual meditation/Devotion
• Exercise
• Mental stimulation
• Doing a good turn for others
• A pleasure date with a friend
• Give yourself a “treat”; whatever you like most
• Congratulate yourself for being joyful (instead of focusing on weaknesses, beating yourself up)

• Strategies for happiness
• Maximize your control, avoid bad situations where you lack control
• Set attainable goals
• Be flexible
• A close relationship with my spouse
• A few good happy friends
• A few good close professional relationships
• Evolve your ideal lifestyle
• Hang out with great friends
• Hang out with great alliances

• Doomsayers are wrong!
• Because of civil service 50/50 egalitarian thinking, everything must be same/same by definition….there is no opportunity
• Privatize everything, then concentrate on winners, ignore losers
• 80/20 works for prison systems
• 80/20 works for education system……concentrate on the best schools
• 80/20 works for health care
• 80/20 works for crime reduction in New York City;  concentrate on most active criminals
• Privatize everything except funding

• Conclusions/Applications for personal growth:
• Let the savings from discontinuing the 80% finance making the 20% flourish!
• Outsource base business activities I tolerate and focus/increase the fantastic dream I have
• Don’t waste my time on things, people, customers, products, activities that steal your joy and return little
• Apply this to my home, personal, spiritual, relational, and work life
• What if all my staff’s mundane activities could be discarded or outsourced to make it possible for me/us to go after our big dream?
• Where can I apply 80/20 to my personal situation?