THE BLOG
05/15/2013 05:52 pm ET Updated Jul 15, 2013

The 80/20 Rule Revisited

You learned about the 80/20 rule in college or early in your career. If you still adhere to it, formally or otherwise, the business you're responsible for may be suffering without your even realizing it.

Why? Because, as I see it, the ratio is closer to 95/5 now. And if I'm right, the way you develop strategies must be more focused and calculating than ever before; this focus relates to hiring, revenues, marketing, clients -- just about any area where an unbalanced cause and effect relationship exists.

The Pareto Principle was named after Vilfredo Pareto who, in 1906, observed that 80 percent of the land was owned by 20 percent of the population. This mathematical relationship has since been extrapolated to describe how 20 percent of something (the vital few) is responsible for 80 percent of the effects or outcomes (the trivial many).

For example, 20 percent of a company's sales force might produce 80 percent of its sales, or 80 percent of a company's revenue is generated by 20 percent of its clients, and so on.

This concept of uneven distribution, or inversely disproportionate cause and effect, is widely used across many industries and applications, and served us well in the twentieth century. Even if the math is imprecise, it shines a light on relationships and circumstances such that they can be more closely examined and, hopefully, corrected by diversification, change in strategy, and so on.

My observation is that the ratio has become obsolete. The vital few are fewer, the trivial many are greater. The relationship is more disproportionate than ever before. Like the financial analyst who takes into account world history and cultural trends as much as technical statistics, Pareto was not just an economist but also a philosopher, among other things. So, it's not surprising that the equation he discovered is as useful conceptually, as a law of nature, as it is quantitatively.

We hear about this lop-sided relationship when it comes to wealth and taxes but it applies to many other realms. For example, I can't be the only one who has observed the degeneration of competence, performance, reliability, empathy, service, attitude, quality, effort, and productivity, among many other things, both concrete and abstract.

I'm curious if anyone in HR or recruitment can verify whether the hiring/firing ratio has increased, in spite of better tools and training. And if you're in the recording or publishing industries, perhaps you can validate my assertion that even fewer titles today are responsible for more revenues than ever before. Nearly anything of significance seems driven now by an even more vital few. If this were not true, could Chris Anderson have written The Long Tail?

It's important to contemplate your place in this causative and, I think, palpable shift in our society, even if I'm off by a few percentage points. Because the bigger point is that your company cannot afford for you to be trivial. And if it's 95/5 now, how can everyone in your company be among the vital few?

They can't. But you can.

That's one reason you're reading this, I hope, and why you must be the vital exception to the not so trivial rule. For the sake of your business, you must make the right decisions, identify trends, connections and relationships, and be ever vigilant to recognize when one set of rules is replaced by another. Indeed, if you anticipate such changes, you'll have a leg up on the competition for your company's business and for your job.