If you have never heard or already heard of it without learning as well as benefits, that article will show you the 80/20 Rule in detail so that you can understand it clearly.
1. What does The 80/20 Rule mean?
The 80/20 rule (also known as the Pareto rule) is a principle named after the Italian economist VFDamaso Pareto, who worked from the late 19th century shows the “unequal imbalance” balance” between the efforts we put in and the results we get.
Originally, the Pareto Principle referred to the test that 80% of Italy’s assets were owned by only 20% of the population. Lately, more generally, the Pareto Principle became known as the 80/20 Principle, meaning that the vast majority of things in life are not equally distributed: About 80% of the results are due to 20 % cause. In other words, about 80% of work results or outputs come from only 20% of efforts or inputs. Thanks to this principle, businesses can know strengths and weaknesses in their management circle so as to devise appropriate strategies.
To better understand the 80/20 rules, you can take a look at the case of IBM- a multinational corporation that has successfully pioneered this principle.
The period began in 1963, the internal department found that 20% of the encryption was running 80% of the time on a computer (IBM product). Immediately, they implemented new software that optimized 20% of continuous use encryption in a user-friendly manner. It has made their output computers work faster than products on the market.
From the above results, you can understand that optimizing 20% of the software will improve the computer’s performance by 80%. It is the best illustration of the 80/20 principle. Thanks to the success of IBM, other big empires like Apple and Microsoft have applied the 80/20 rule to their computer and software product lines to optimize costs and be friendly to users including those who are not good at technology.
Besides, you can also understand more about the principle from some statements such as:
- 80% of sales come from 20% of customers
- 80% of product demand comes from 20% of feature upgrades
- 20% of the company’s main products come from 80% of employees’ efforts
- 80% of work performance comes from 20% of corporate employees
The 80/20 rule is one of the principles that has been applied in management and production to improve output quality as well as find solutions to solve problems.
2. How does the 80/20 rule help businesses and individuals improve?
2.1 Benefits of applying the 80/20 principle in business
The Pareto Principle helps you motivate yourself to focus your efforts on the 20% of the factors that make your business different instead of spreading it out at the 80% that doesn’t get many results.
- In labor productivity management: In an enterprise, 20% of main products can bring up to 80% of sales for the business itself. Or 80% of the value of a product or service comes from 20% of its key features. It proves that the input (inputs) and output (outputs) values are always unbalanced. When businesses realized that, they could focus their resources and resources on this 20% to produce the expected results.
- In providing products: Businesses need to have 20% of products/services that are considered core products. They have to invest 80% of their time and effort. Even within the same product, 20% of the features can be considered most important and hold 80% of its value. Production, marketing, and sales teams can focus on this set of features to introduce to customers.
- In time management: Spend 80% of the time on 20% of the tasks that have the greatest impact on the business’s survival. Rooted in economic thinking, the 80/20 Rule is widely used in business and production. The Pareto Principle effectively supports managers in deciding the optimal allocation of time and resources. Focusing your efforts on the 20% important factors that make your business different, instead of spreading it out at 80% without getting any results.
- In inventory management: In business, you discover that 80% of inventory costs come from 20% of customers. If you can find the cause of the problem, your inventory costs will likely be significantly reduced, thereby optimizing revenue.
- In customer management: 80% of the business’s revenue comes from 20% of the focus customers. Many businesses mistakenly consider all customers the same and should be treated equally. However, reality proves that there will be customer groups that bring more benefits to businesses than the rest. Therefore, defining a strategy for the 20% customer focus group is essential for every business. From there, instead of taking care of all customers spread out, businesses will invest, care more about 20% of this customer group, find out what they like, what their needs are, and need. how to spend preferential benefits to increase the loyalty of this customer group.
- In management, motivate employees: 20% of excellent employees in a company bring 80% of revenue or business performance for the business. Therefore, it is essential to have the policy to reward and motivate employees to improve the performance of the whole system.
- In customer service: Sticking to the 80/20 model, you’ll also find that 80% of customer complaints and business losses stem from 20% of certain defects. Focusing on correcting these urgent defects will improve the business situation for the enterprise.
2.2 Benefits of applying the 80/20 rule to individuals:
The 80/20 rule helps with time management: you need to list your tasks by priority. Then spend 80% of your time dealing with the most important 20%. After completing these tasks, you proceed to do other tasks according to the setlist or delegate authority to subordinates.
The 80/20 Rule helps refine relationships: Applying the 80/20 rule will help you find the 20% of relationships that bring 80% of happiness, value to your life. You can then spend 80% of your time on this group of positive relationships and less time on other social relationships.
The 80/20 principle in improving self-knowledge: Identify personal goals and knowledge items to improve. Then focus 80% of the time on the 20% most important items. The rest of the time is spent perfecting less important elements.
Through the above content, hopefully, helps you to have a better understanding of how the 80/20 or Pareto principle has optimal benefits. Please continue to follow BEMO’s articles to be updated with much useful knowledge