Pareto and His Garden: 80/20 and Freedom from Futility – Management Essay

Pareto and His Garden: 80/20 and Freedom from Futility What gets measured gets managed. — PETER DRUCKER , management theorist, author of 31 books, recipient of Presidential Medal of Freedom BE... years ago, an economist changed my life forever. It’s a shame I never had a chance to buy him a drink. My dear Vilfredo died almost 100 years ago. Vilfredo Pareto was a wily and controversial economist-cum-sociologist who lived from 1848 to 1923. An engineer by training, he started his varied career managing coal mines and later succeeded Léon Walras as the chair of political economy at the University of Lausanne in Switzerland. His seminal work, Cours d’economie politique, included a then little-explored “law” of income distribution that would later bear his name: “Pareto’s Law” or the “Pareto Distribution,” in the last decade also popularly called the “80/20 Principle.” The mathematical formula he used to demonstrate a grossly uneven but predictable distribution of wealth in society —80% of the wealth and income was produced and possessed by 20% of the population —also applied outside of economics. Indeed, it could be found almost everywhere. Eighty percent of Pareto’s garden peas were produced by 20% of the peapods he had planted, for example. Pareto’s Law can be summarized as follows: 80% of the outputs result from 20% of the inputs. Alternative ways to phrase this, depending on the context, include: 80% of the consequences flow from 20% of the causes. 80% of the results come from 20% of the effort and time. 80% of company profits come from 20% of the products and customers. 80% of all stock market gains are realized by 20% of the investors and 20% of an individual portfolio. The list is infinitely long and diverse, and the ratio is often skewed even more severely: 90/10, 95/5, and 99/1 are not uncommon, but the minimum ratio to seek is 80/20. When I came across Pareto’s work one late evening, I had been slaving away with 15-hour days seven days per week, feeling completely overwhelmed and generally helpless. I would wake up before dawn to make calls to the United Kingdom, handle the U.S. during the normal 9-5 day, and then work until near midnight making calls to Japan and New Zealand. I was stuck on a runaway freight train with no brakes, shoveling coal into the furnace for lack of a better option. Faced with certain burnout or giving Pareto’s ideas a trial run, I opted for the latter. The next morning, I began a dissection of my business and personal life through the lenses of two questions: 1. Which 20% of sources are causing 80% of my problems and unhappiness’? 2. Which 20% of sources are resulting in 80% of my desired outcomes and happiness’? For the entire day, I put aside everything seemingly urgent and did the most intense truth-baring HOUSE_OVERSIGHT_013841