Culture and the 80:20 Rule

Hansei Technology Ltd

How does the 80:20 Rule apply to Continuous Improvement?

The 80:20 rule, also known as Pareto’s Principle, states that 80% of an observable effect is caused by 20% of the variables at play.

The first recognition of this rule was by Vilfredo Pareto who, in 1906, recognised that 80% of Italy’s wealth was owned by 20% of Italy’s population.

The same 80:20 split can be seen in many places; management, economics, software/interface design, quality control systems and many more.

Whilst the rule is called the 80:20 rule – the actual percentages are not all that important: 90:10, 70:30, 80:20 are all valid variations.

Indeed – it is perfectly valid to say 70:10 as there is no requirement that the two sides add up to 100 – the important thing with the principle is that a large number of outputs are determined by a relatively small number of inputs.

The point is that not all things are equal. Indeed there is a disproportionality, with the vital few having more effect than the all the rest put together.

In terms of business, it’s crucial to identify the ‘vital few’ from the ‘trivial many’ and then pay special attention to them.

Maybe the top 20% of customers that generate 80% of revenue, maybe 20% of processes are responsible for 80% of the issues.

Once you’ve identified the vital few, it allows you to make decisions about where to focus your efforts for the biggest gain.

So we find ourselves constantly addressing the age old problem that, given the knowledge of the tools & techniques of Continuous Improvement, why change in our organisations is not taking place as we would expect.

We have to acknowledge that the 80:20 rule is in operation. Tools & techniques account for 20% of our required improvement; indeed without them there would be no improvement.

The most significant part of our observable effect is caused by the culture of our organisations; if we do not have the right mind-set then we can learn all there is to know about the tools & techniques of Continuous Improvement but nothing, in effect, will change.

*Please contact us with examples you may have of the rule in practice in your creative enterprises or if you would like to discuss this or any other issue further.

Jargon Buster: Poka-Yoke A mistake-proofing device or procedure to prevent a defect during operation. May sometimes be called a baka-yok.