“This 80:20 Principle which is also known as Pareto Principle which says that 20% of caused invariably produce 80% of the results”.
It means that 80 % result require 20 % efforts Only. Initially this principle uncovered by Italian economist Vilfredo Pareto in 1897, according to his research 20-30% of the resources accounted for 70-80% of the resulting activity. Interestingly this logic and pattern can be applied in every field of life.
Later on, management writer Richard Koch puts it in his very readable, The 80/20 Principle, a predictable imbalance at work in the universe.
What Koch calls “80:20 Law of competition” suggests that in any market 80% of operating profits generated by 20 % of segments, by 20 % of customers and by 20 % of products. As a result this practice and analysis has been put in place by large and smart corporations in the Business Intelligence reporting system to keep an eye on 20 % of the segment which account for 80 % of the portfolio to improve efficiency and margin as the case may be.
However, Koch warns that the 80:20 Principle should not be interpreted too religiously. The Percentage might vary but the logic will remain the same. But Pareto still rules.
Izhar Khan – Author is the FCA- CA ANZ, Business Consultant based In Melbourne Australia associated with Business Consultancy Firm having more than 20 years’ experience including Blue Chip MNCs like 3M and Stanley Black & Decker internationally.
Disclaimer: The contents of this article is for information only and is not offered as advice. Readers are encouraged to consult a suitably qualified professional adviser to obtain advice tailored to their specific requirements.