- Explain what the 80/20 rule is
- Offer some examples of the 80/20 rule
- Provide an Excel tool I built to help you illustrate your own 80/20 examples
WHAT IS THE 80/20 RULE?The concept of 80 / 20 comes from the law of the vital few. Typically, a small number of causes (the "vital" or "critical" few) drives the vast majority of the results, with roughly 20% of the causes driving 80% of the results. The remaining 80% of the causes constitute the long tail - you can see what this looks like if you plot the data in the form of a Pareto diagram with the causes sequenced in descending order:
EXAMPLES OF THE 80/20 RULE
It is a ubiquitous phenomenon and I've seen examples across multiple industries:
- Manufacturer where ~20% of the product lines generated ~80% of scrap
- Sales organization where ~20% of the product categories accounted for ~80% of sales
- Service facility where ~20% of tickets took up ~80% of time
WHAT IT MEANS IF YOU'RE TOLD TO "BE MORE 80/20"
One of the primary implications of this concept is that you can realize a lot of impact by investing your effort in addressing a relatively small number of issues. When someone from McKinsey encourages you to "be more 80 / 20", they are probably suggesting one of the following:
Invest your time and effort more wiselyIf you haven't taken the time to figure out the vital few issues to tackle, you might be working sub-optimally by addressing the less critical topics. Be more strategic before you get tactical.
Know when to stopIf you've already solved the 20% of the issue to deliver 80% of the impact, you will begin realizing diminishing returns from further effort. If 80% of the answer is enough, you can move on to something else, or you can focus on pushing the answer further at some other time.
Approach problems from a higher levelMcKinsey folks will often use 80 / 20 as a euphemism for thinking in terms of the big picture rather than getting bogged down in the details. Other phrases for this include thinking more "top-down" or at a "higher altitude".
80/20 PARETO TOOLIf you have a data set and want to perform a Pareto analysis to see if it fits the 80/20 rule, the following link will take you to an Excel tool I've set up to help you with the analysis and graphing:
80/20 Pareto Tool