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Revisiting the Pareto law Revisiting the Pareto law
by Joseph Gatt
2020-09-25 08:29:13
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The Pareto law, designed by Italian economist Vilferdo Pareto, has it that 80% of your work will produce 20% of the results.

The law is somewhat vaguely framed, and often misunderstood.

A lot of people and businesses understand the law as meaning “I can slack around for 80% of the time because only 20% of my time will bring in cash, and will be valuable. So I'll only work that 20% of the time I'm bringing cash in.”

The law also has it that 20% of your clients will bring in 80% of your income. So a lot of people go like “I'll work for the 20% and neglect the 80%.”

labour01_400When you only work for the 20%, and still apply Pareto's law, that means 20% of that 20% you're working for will bring in cash, and that means you're reducing your income to 4% of your potential.

What does Pareto's law really mean? Pareto only analyzed sales data at major Italian companies and found out that 20% of the client base brought in 80% of the income.

How can that be?

Let's say that you're a farmer. 80% of the time you will be sowing, watering, growing, weeding produce. And then 20% of the time you will be harvesting, collecting, storing, packaging and selling the produce.

Let's say you're a factory. 80% of the time you will be purchasing raw materials, transforming, producing, crafting, cleaning and packaging the product. 20% of the time you will be selling and distributing the product.

Same thing goes if you're a white collar worker (which is something white collar workers often neglect). 80% of the time you will be planning, studying, thinking, searching for ideas, meeting, discussing, implementing ideas, negotiating with clients. And 20% of your time will be dedicated to activities that actually bring in the hard cash.

Same thing goes for if you're in retail. 80% of the work will be displaying products on the shelf for an 80% client base that has little or no interest in purchasing anything. 20% of the clients will be determined in making purchases, and maybe 10 or 5% of the clients will be regular shopaholics.

So in any case, 80% of the time is not dedicated to “putting on a show” like they teach you at business schools and in MBAs. 80% of the time is working, laying the groundwork for the 20% harvest.

A lot of people understand this as neglecting the 80% time they should be preparing for the 20% result.

Let's think of it this way. If you're planning a wedding, or a birthday party, or a decent bar mitzvah, 80% of the time will be laying down the prep work, decorating, calling caterers, choosing wedding attire and dresses, inviting guests and so on, 20% of the time will be receiving guests and holding the actual party. And perhaps having people sign you a few cheques.

Now if you reason like an MBA graduate, you're going to think “80% of the work brings in 20% of the cash, so let's focus on the 20%, so let's not plan anything for the wedding or birthday party. We'll all meet at Grand Central Station, pick a restaurant, and we'll come up with something. That's where 20% of the rewards will come in.”

Focusing on the 20%

So by now you get the idea that 80% of your prep work will lead the 20% of the reward or income.

Why am I writing this article in the first place?

Having worked with corporations, small and large, and with governments, here's the behavior I noticed.

It goes like this.

“Dude, Pareto law. Only 20% of the client base is the real deal. Only 20% of the work is the real deal. Let's figure out a way to ditch the cumbersome 80%. Let's display our products in ways that will eliminate the 80% that create unnecessary traffic, and focus on the 20% that are the real useful traffic.”

That's not how it works. If that 80% “visitors” were not visiting the retail shop, the 20% would not come in the first place. It's because the 80% are window shopping that the 20% are shopping.

If it weren't for the 80% who are window shopping, the 20% would not shop in the first place.

Now here's how idiots I've worked with behave.

Among the 80% window shoppers, it's not “once a window shopper, always a window shopper.”

Some of the morons I worked with behave like this.

Guy comes window shopping on Monday. Window shops in Tuesday. Decides to make a purchase on Wednesday. Mr. Kim or Mr. Zhang or Mr. Yamamto or Mr. Smith, the floor supervisor, tells the guy “that product is not available.” and sends the client home. Client comes back on Friday, shop assistant tells the window shopper again that the product is not available. That's your punishment for window shopping, and that's how we weed out the unnecessary 80% useless traffic.

If you weed out the 80% to focus on the 20% you end up with 80% of 20% which is 4%. And if you try to weed out the 80% out of that 4% you end up with 1%. And if you weed out the 80% from the 1% you end up begging the IMF for a bailout, or end up sleeping in a cardboard box at Grand Central Station or whatever train station in your country.

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