Leadership Development: The Real Pareto

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paretoYou’ve probably heard that 20% of what you do is producing 80% of the results. Or maybe someone told you that 80% of the issues you deal with come from only 20% of your people.

They most likely called this the Pareto Principle. What is this Pareto Principle and where did it come from?

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 20th century determined that 80% of the wealth in Italy was distributed among 20% of the population. That’s it – the Pareto Principle.

So how did this become a management principle? With apologies to the late Paul Harvey, here’s the rest of the story.

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 compared 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 the confusion 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, well, everything?

Because it sounds good, and it seems to apply, at least in general terms, to many situations outside the narrow boundaries of early 20th century Italian economics. Pareto’s Principle provides an easy way to remember this important point: most issues leaders face involve some version of Juran’s “vital few and trivial many.” It isn’t exact, but does work as a general principle.

Now you know the rest of the story.

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