The 80/20 Principle: The Secret to Achieving More with Lessby Richard Koch
How can anyone be more effective with less effort? Simply by incorporating the 80/20 Principle into their lives! This is the well-known, unpublicized secret that 80% of all our results stem from 20% percent of our efforts. The 80/20 Principle is one of the greatest secrets of highly effective people and organizations.
The Laws of Biology
"Usually 80% of the results come from 20% of the effort."
Looking back at your work history, you will likely see that most of your work is completed near the closing deadline. What you do in the last few days tends to yield far more than you did in the past weeks of leisure.
We may notice it, but this imbalance between our outputs and inputs is common. In fact, you can see it just happening everywhere. For example, you will see it on the road that most people drive safely. But while only about 20% drive recklessly, they are the ones that cause 80% of the accidents. This imbalance can also be seen in businesses where only 20% of their products brought in 80% of their profits.
These facts just show how the 80/20 Principle works, which states that about 80% of the results or outputs are produced by 20% of our efforts or input. It happens because not every cause equally influences the results.
The causes can be divided into two categories, which generate the 80/20 division:
- A minority that has a great impact on results;
- A majority that has only a small impact.
One important thing to remember about the 80/20 Principle is that it is only an approximation, and the ratio does not always add up to 100%. One example is that, out of 300 films, only four (1.3%) generated almost 80% of ticket sales. This approximation also works when applied in practice.
At work, for example, you can apply the 80/20 Principle by focusing on the 20% factors that generate 80% of your results, but this ratio may change. Depending on the case, it could be adjusted to 70/30 or 99.9/0.01. The sum of the odds doesn't even have to be 100.
The 80/20 rule can manifest in many other forms and aspects of life. In terms of productivity, for example, many people struggle to deal with the high demand for tasks. After finishing the activity on the list, a few more pop up in its place. In business, companies are immersed in complexity, serving several markets with large quantities of different products and trying to deal with them effectively. Once we recognize the need to apply the 80/20 rule in these aspects, it will be extremely helpful.
Looking at the complexities of language can give us a clearer understanding. It only takes 700 common words to create two-thirds of daily conversations. If you include the forms divided from 700 words above, the number can be up to more than 80%. That is, less than 1% of vocabulary accounts for 80% of commonly used words.
The 80/20 Principle is present everywhere. The exact numbers may change. For some things, the ratio may be about 90/10 or even 99/1, but the important thing is to figure out a practical way to apply the principle in your daily life.
Actions to take
The Laws of Physics
"The relationship between work and result is not balanced, meaning most work does not necessarily generate most of the results."
When applied to businesses, the 80/20 Principle can generate the most profit with the least cost and effort.
To begin, we must segment the market. This can be accomplished by identifying the 20% of products that account for 80% of the company's value, the 20% of the customers who bring in 80% of the profits, and the competitors who hold the majority of the market share. The analysis should be based on specific data and clear facts.
At this stage, you may have already realized that the relationship between work and results is not balanced, meaning that most work does not necessarily generate most of the results.
After knowing the 20%, we proceed to the next step: simplification. While diversification is key to generating more profits, producing too many different products means spending more time and effort on complicated management systems. With a tangled internal chain, even one link failure can have terrible consequences. Therefore, we must ignore the ineffective 80% and focus on the simplest, most effective 20% instead.
Take Corning, a company that produces ceramic substrates for automobile exhaust systems, for example. In 1992, their US facility was stagnant, and in the following year, their German market was severely reduced. But instead of panicking, the administrators sat down to scrutinize the products' profitability by differentiating between high and low-volume products, and they got a surprising result.
At Kaiserslautern, the company produces two items, the simple R10 (a symmetrically shaped ceramic substrate) in large quantities and R5 (an odd-shaped substrate) in much lower numbers. As expected, the production cost of R5 is 20% higher than R10, but when the full price is increased, this number reaches 500000%!
Since the costs of maintaining the specifications of R5 require a lot of engineers on duty to supervise, they focused only on R10 production. By eliminating unprofitable, low-volume products that contribute very little to total revenue and generate negative profits, the workforce requirement for engineering skills has been reduced by 25%.
Generally, large companies like Corning are very complex. This shows that managers must be able to manage difficult situations, even if they often appreciate the intellectual challenge it provides.
However, flirting with complexity is not the best way to lead a business to success. This is because complexity carries high costs, which include more complicated logistics, more training for salespeople, and more administrative work.
In contrast, making your business simpler reduces costs. If your product line is shrunk and emphasized, your employees can focus more on the few products they sell. Rather than being good at many processes, they can focus on being excellent at a few.
Actions to take
The Non-Linear Laws
"Change the way you think, change the way you live."
Life doesn’t always give us quantitative problems we can solve with data. For most problems, the analytical approach doesn’t work, and so we need 80/20 Thinking. When we think 80/20, we are focused more on quality rather than quantity.
Think about relationships, for example. When we were still young, we were taught to play with all our friends because each is as precious as the other. But as we grow up, we understand that not all relationships are equally valuable to us.
We realize that some friends are more important to us than others. In fact, it is not an exaggeration to say that only 20% of our friends bring us 80% of life's value—joy, happiness, intimacy, or any other things that cannot be measured.
This thinking can also be applied at work. By focusing only on the 20% of tasks that produce 80% of the results, we increase our productivity and efficiency as we have redirected our efforts away from tasks that have only a small impact on results.
If you’re struggling to identify the things that you need to focus on, here’s a list of the ones you may find with the highest-value uses of your time:
- Things that help you quickly achieve your general purpose in life;
- Things you've always wanted to do;
- The things that already have an 80/20 ratio between time and results;
- New ways of doing things promise greater productivity;
- Things other people tell you can’t be done;
- Things that have been done successfully in another field;
- Things that require creativity;
- Things that cannot be done by someone else;
- Jobs with high-quality collaborators and;
- Things where opportunities only come once.
When assessing the top 20% of things you need to focus on, it’s important also to consider your happiness. Ask yourself: What is the 20% that brings you 80% of your happiness?
If a job or something that you always do no longer makes you happy or inspires you, it’s time to make necessary changes in your life. You can find another job, redefine your self-worth, reduce your working hours, or anything that would free you from a job that doesn’t work for you anymore. If you eliminate 80% of the things that make you unhappy, you will automatically have 20% more to create joy in life.
Actions to take
We all have the potential to achieve something significant in our lives. However, putting only effort alone won’t get you anywhere.
We may not realize it, but the ultimate key to success is finding the right thing to achieve. That is because there will be only specific areas where we will be more productive than others. Therefore we must not dilute our effectiveness by focusing on areas where we are less productive or skillful. We also need to engage with areas that others suggest suit us. Our success will come from choosing the areas we want to engage with.
Aside from success, another important thing we want to achieve is happiness. While society tends to equate happiness with having and spending money, they are completely different things.
Money has the potential for compound interest. You can save and invest money, and it will multiply through compound interest. The same cannot be said for happiness. You cannot save today’s happiness to spend tomorrow.
Generating happiness is like strengthening our muscles. Without appropriate exercise, our ability to achieve it will become weaker. To attain lasting happiness, we must constantly spend it, seek it today, and reap the benefits tomorrow. This is how we can build a compound interest in happiness.
Remember that our success and happiness take place in 20% of our time. However, we can heavily expand these peaks by seeking more happiness. The most effective way of doing this is by recognizing the factors that cause happiness and making decisions based on these.
One important factor contributing to our happiness and success is our relationships with others. Keep in mind that we do not need many relationships to be successful. Instead, we just need to ensure that we have the right relationships at the right time in our lives and in our current environment. Most importantly, our relationships should always be built on a shared goal of advancing our interests.
Since only 20% of our relationships are likely to constitute 80% of the positive impact on our interests, we should not assume that all our relationships are equally important. Instead, we must focus most of our attention on nurturing the alliances we have identified as the most important. These alliances will be crucial to our success, as we cannot succeed alone.