How Not to Use the Pareto Principle

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How Not to Use the Pareto Principle

Did you know that 20% of your workers are doing 80% of the work and 80% of your workers are doing only 20% of the work? That’s a pretty shocking statistic.

It’s also most likely wrong.

There are few concepts in management as poorly represented as the Pareto Principle. That’s a bit ironic considering the Pareto Principle isn’t even a management concept.

Vilfredo Pareto was an Italian economist who, in the very early 20^th century determined that 80% of the wealth in Italy was distributed among 20% of the population.

So how did this become a management principle?

For the answer we turn to Joseph Juran who admits to being the one who brought Pareto to the management world. If you want to learn about statistical process control, study Juran. In fact, I recommend his book, Juran on Quality by Design in which he takes responsibility for causing the transition of the principle from economics to management: more precisely to quality control.

Juran found that Pareto’s work in economics seemed to have some similarities with his own work in quality control. He called it the “vital few and the trivial many” and graphically displayed curves of quality losses with curves of wealth distribution from Pareto. In a short caption he wrote “Pareto’s principle of unequal distribution applied to distribution of wealth and to distribution of quality losses.” Though the subsequent text made the necessary distinction, the caption did not and lived on. Juran was merely making the point that this distribution seemed to apply to more than just economics.

So, Pareto referred to wealth distribution. Juran referred to quality losses. How did this come to be a management principle applied to people?

Because it sounds good. It’s easy to accept that 20% of your workers do 80% of the work. Unless you really think about that. Then you might ask yourself why you’re paying the 80% who are only doing 20% of the work.

The fact is, the general idea of Juran’s distribution does correlate to your people. A large number of problems probably correlate to a small number of people. Looking at it another way, you no doubt have a few people who produce more than most and some who produce less than they should. In the not very distant past, when good economic times reigned, many companies weren’t too concerned about that. These days you can’t afford to ignore it. Actually, you never could, but now it’s more noticeable.

Investigate, find the truth, then – and only then – take action. But don’t assume that only 20% are really producing.