Pareto Principle and the law of diminishing returns

As with many of the my heroes, Vilfredo Federico Damaso Pareto, is an economist and a philosopher (See also Daniel Kahneman) and his simple idea resonates in today’s business as much as in his own day (early 20th Century). It’s a simple idea that states that, in general* you get your first 80% of benefit from your first 20% of effort. This could be the effect of a sales promotion, or a new staff incentive. It also applies in the sense that 20% of workers do 80% of the work etc.. his model was founded on  observations of his such as that 80% of the land in Italy was owned by 20% of the population.

For me, what it means is…. focus on the first 20% of effort, get lots of 20% effort events going on and come back to squeezing the last remnants of benefit out afterwards if you have that luxury of time. Obviously, if you are a nuclear scientist you will need to do thoe whole 100% no matter how painfully slow those last test, test, retest etc. are to generate results, but in business generally, it’s a rare person that hasn’t got something new lined up that should jsut be getting started to reap those easy rewards!

*normally distributed stats/ caveat emptor etc.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: