Axioms: The Pareto Principle

20 Jul

In the middle of the 18th century an Italian economist named Alfredi Pareto discovered that 80% of the property was owned by 20% of the people.  Everyone promptly forgot this until WWII when Joseph Juran, one of the early Quality gurus, rediscovered it as a powerful tool in quality management.  More recently organizational development people have generalized the principle, casually known as the 80 – 20 rule, to describe a core characteristic of complex systems.

Simply stated: In any complex system a small number of variables, usually fewer the seven, control most of the variance in the system. If you can identify these variables you can exert great influence on the performance of the system.  Variance is a statistical term for the total activity in a system.  For those of you who are purists it is the square of the standard deviation in a data set.

This happens to be an amazingly important principle because it essentially means that if we can identity this handful of characteristics we can run any complex system.

Beyond Luck is now an e-book on Amazon.  At $6.95 it’s a great deal.

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2 Responses to “Axioms: The Pareto Principle”

  1. 1inawe July 26, 2011 at 3:51 am #

    Very interesting! Can you give a couple of examples of complex systems whose core characteristics are understood and useful in running such systems?

    • jlanghorne1 July 26, 2011 at 10:42 am #

      the most obvious is a business that has a strategic plan with handful (<5) of initiatives, one of these might be defining the "core business." Again < 5
      successful people usually focus on a small (<5) set of core competencies and build, Google Gallup"s StrengthsFinder2.0 for more

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