The Origins of the 80/20 Rule
The “80/20 rule” has become ubiquitous in the business language of today. It is usually used to suggest that a small part of something is of greater importance or is responsible for most of the results. In call centers, we often use this rule to imply that 80 percent of the workload comes from 20 percent of the calls, or that 20 percent of the staff is responsible for 80 percent of the production. Many refer to the 80/20 rule as the “Pareto Law.”
Vilfredo Pareto (1848 - 1923) was an Italian economist and social scientist whose work is based on an axiom that people are unequal physically as well as intellectually and morally. In society as a whole, and in any of its levels and groups, some people are more gifted than others. Those who are most capable in any particular grouping are the elite.
Pareto’s use of the term “elite” has no specific connotation; it simply denotes "a class of the people who have the highest indices in their branch of activity.”[1]
Pareto’s theory of society divides the elite class into two classes: "a governing elite, comprising individuals who directly or indirectly play some considerable part in government, and a non-governing elite, comprising the rest."
Pareto claims that society has a tendency to maintain equilibrium, where a balanced number of people from each class are present in the governing elite of any group, and people are always entering and leaving the elite to restore and maintain the natural balance.
Pareto is best known for his “Pareto’s Principle” of income distribution. He discovered that 20 percent of the wealthiest people in Italy owned 80 percent of the land, which led him to conclude and argue that in all countries and times, the distribution of income and wealth follows a regular logarithmic pattern described by the formula:
log N = log A + m log X
Where N is the number of income earners who receive incomes higher than X, and A and m are constants.
Quality management pioneer Dr. Joseph Juran (1904 - ) recognized a universal principle he called the "vital few and trivial many": 20 percent of a population are always responsible for 80 percent of the results. In his 1950 article "Pareto. Lorenz, Cournot Bernoulli, Juran and Others",[2] Juran incorrectly applied Pareto's socio-economic observations to this broader observation, which became known as Pareto's Principle or the 80/20 Rule.
In 1974 Juran published an article titled "The Non-Pareto Principle; Mea Culpa"[3] in which he writes:
The "Pareto principle" has by this time become deeply rooted in our industrial literature. It is a shorthand name for the phenomenon that in any population which contributes to a common effect, a relative few of the contributors account for the bulk of the effect.
Years ago I gave the name "Pareto" to this principle of the "vital few and trivial many." On subsequent challenge, I was forced to confess that I had mistakenly applied the wrong name to the principle. This confession changed nothing – the name "Pareto principle" has continued in force, and seems destined to become a permanent label for the phenomenon.
The matter has not stopped with my own error. On various occasions contemporary authors, when referring to the Pareto principle, have fabricated some embellishments and otherwise attributed to Vilfredo Pareto additional things which he did not do. My motive in offering the present paper is in part to minimize this tendency to embroider the work of a distinguished Italian economist. In addition, I have for some time felt an urge to narrate just how it came about that some early experiences in seemingly unrelated fields (quality control, cryptanalysis, industrial engineering, government administration, management research) nevertheless converged to misname the Pareto principle.
As Juran writes, the incorrect name does not change the validity of the principle of the vital few and trivial many. Focus your attention on the few vital elements of your business operation and avoid the common trap of trying to improve issues that may be more visible but will have only a trivial impact.
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