Pareto Principles: examples of the 80/20 rule for business success

02/03/2023 | Santander Universidades

Did you know that 80% of the world's wealth is held by just 20% of the population? In other words, the remaining 80% of the population is content to own just 20% of the world's wealth. 

These figures are in line with the well-known Pareto Principle, also known as the 80/20 rule or the "vital few". This principle is applicable to many spheres of life, including the world of business, where it tells us that 80% of all consequences stem from 20% of causes.

If you want to know more about the Pareto Principles and examples of applications in the business world, let us explain all to you. 

What is the Pareto Principle?

The Pareto Principle or rule was first formulated by the Italian philosopher and engineer Vilfredo Federico Pareto (1848 - 1923) in the book Cours d'économie politique in 1896. He claimed that, in general, just 20% of all effort is what actually produces 80% of the results, or to put it another way, 80% of our actions have no effect on the results obtained.

To test whether this theory was true, Vilfredo Pareto used empirical knowledge. Specifically, he studied land ownership in Italy and, by researching the available data, he was able to draw the conclusion that 20% of all owners owned 80% of the land, while the remaining population, i.e. 80%, owned only 20% of property.

Over the years, various economists and scientists have been able to prove how this 80/20 rule holds true in different spheres of life, from the economy and quality control, to politics and business administration. 

Indeed, behind its mathematical ratio, the Pareto Principle hides a message that encourages us to focus on what's really important, thus bringing us greater satisfaction or profit. So, if we follow the rule, we can achieve better results without wasting resources and energy on activities that barely bring any benefit. 


Pareto Principles: examples of applications in the business world

Time has demonstrated that it's not difficult to find analogies between the Pareto Principle and certain results in the business sector. In fact, there are many operations that confirm the 80/20 rule of consequences and causes.

It has been shown that the Pareto Principle, for example, holds true in the field of quality control. Here, it can be determined that 20% of defects will affect 80% of processes. This allows businesses to focus on resolving the most important errors, as these are what will have a greater impact on results.

Likewise, the principle is applicable to the field of product sales. Any company will find that 80% of their sales come from 20% of their clients, or that 20% of their products generate 80% of their sales. 

When it comes to putting this theory into practice, the Pareto chart is one of the most commonly-used techniques. This is a type of bar chart used to organise a set of data in descending order. Harnessing this chart, it is possible to identify the most relevant points in a strategy in order to improve decision making and thus achieve greater impact for less effort.


What are the benefits of applying the Pareto Principles in the business world?

As mentioned, the aim of the Pareto Principle is to focus attention on what produces the most benefits. When applied to work philosophy on a daily basis, it can prove highly fruitful. Some of the main advantages are: 

  • It increases the work efficiency ratio: since the aim is to focus on what matters most, it allows less profitable actions to be set aside, thus increasing the working time efficiency ratio. 
  • Business development: when time is better managed, business growth is boosted.
  • Reduction of burnout and stress: the approach taken by the Pareto Principle makes it possible to streamline daily tasks, which has a knock-on effect on the well-being and happiness of staff.
  • Improved decision-making: the 80/20 approach also focuses on improving decision-making, because, with data on what is actually important, we can make the right decisions and suggest improvements or reduce errors.
  • Resource optimisation: one of the main aims is to reduce resource waste, both human and material. The majority of resources will be spent on activities that bring greater benefits.

So, as you have seen throughout this article, the Pareto Principle is a universal law that can be applied to greater or lesser extents in any field of business. Ultimately, it's a focus strategy that helps to identify what matters most, with the aim of enhancing the relevance of our actions. 

In a world of work as competitive as the current one, the Pareto Principle can prove very handy when it comes to achieving professional goals, because it facilitates continual improvement, thanks to resource optimisation and better time management. So, knowing this and other techniques, as well as increasing your skills and know-how, is a great way to achieve professional success, because without perseverance, training and personal development, it will be difficult to attain what you want.

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