“Vital few and trivial many”: a few important causes, and a host of lesser, insignificant causes. This is the Pareto principle, otherwise known as the 80/20 rule. Pareto analysis is one of the most widely used instruments in the modern branch of Quality Management, called Statistical Process Control.
Marco Lisi
“Vital few and trivial many”: a few important causes, and a host of lesser, insignificant causes. This is the Pareto principle, otherwise known as the 80/20 rule. The principle, the basis of many contemporary theories on company management and quality control, states that in every organised system, in which a collection of elements contributes to a common effect, most of the final effect (for example, 80%) is due to a relatively small percentage of the contributions (20%).
From this general principle a very powerful analytical method has been derived which, starting with experimental statistical data, enables the main causes of a problem to be identified and thus to focus efforts on these causes.
Pareto analysis (based on the diagram from which it takes its name) is in fact one of the most widely used instruments in the modern branch of Quality Management, called Statistical Process Control or SPC.
A question of fatherhood
The Pareto principle takes its name from Vilfredo Pareto, an Italian economist who lived in the second half of the nineteenth century and the start of the twentieth. Pareto, a creative and, before its time, “system” thinker, noted that in the Italy of the day around eighty percent of wealth was held by twenty percent of the population and vice versa. Subsequently, he undertook more detailed studies on the phenomenon of the unequal distribution of goods (the issue was topical as it was at the heart of newly created Marxism) and confirmed its fundamental existence in all societies during human history, developing a complex mathematical model to describe it.
Nonetheless, we must thank Joseph Juran, the founder of the modern theory of Quality Management, for recognising the Pareto principle’s universal validity, applicable to business organisations and, more generally, to the physical and biological world.
Juran’s intuition derived from a series of studies conducted in the Thirties on the distribution of salaries among workers at General Motors, during which he confirmed that this distribution followed, with surprising accuracy, the mathematical models developed by Pareto.
In 1951, with the first edition of his “Quality Control Handbook” (Ref. 1), Juran recorded in graphs numerous examples of statistical distributions of quality losses, comparing them to Pareto models on the distribution of wealth. The footnote in the text read: “the Pareto principle of unequal distribution applied to the distribution of wealth and the distribution of losses”.
In a subsequent article (Ref. 2) Juran also used for the first time the expression “Vital few and trivial many” in his list of “universal” principles underpinning the theory of “management”.
Vilfredo Pareto: engineer, economist, and sociologist
The due attribution to J. Juran of the 80/20 rule does not detract in the slightest from the creative originality of Pareto’s work, but rather it confirms its modernity and its prophetic foreshadowing of many of the latest economic and sociological theories.
This observation has a point if we consider the not always sufficient level of attention paid to Pareto’s scientific work, above all in Italy. In that Italy where some like to play the snob by giving a French pronunciation to the “o” in Pareto, ignoring the fact that he was in fact Italian and certainly had an Italian surname.
Vilfredo Pareto was born in Paris in 1848, the son of the Genovese Marquis Raffaele Pareto, a civil engineer, and a French mother. The family settled in Italy in 1852, first in Genoa and then in Casal Monferrato. Vilfredo, like his father, studied engineering at Turin University and graduated in 1870. Between 1870 and 1893 he worked as an engineer and lived in Florence.
In sophisticated Florence, which had just experienced the fleeting dream of being the capital of Italy, Pareto studied philosophy and economics in those years and wrote numerous articles in which he first proposed to analyse economic problems through mathematics.
In 1893, Pareto was chosen to take over from Léon Walras (known to the history of economics for his theory on economic equilibrium and for the law which takes it name from him) in the prestigious chair of political economics at Lausanne University in Switzerland. Among his students it is worth recalling a young Italian emigrant who was unknown at the time, but who would soon make a name for himself: Benito Mussolini.
Pareto lived in Switzerland until his death in 1923 at Céligny, in the Canton of Geneva.
Vilfredo Pareto was thus an engineer, economist and sociologist. A renaissance man with an eclectic spirit, an authentic pioneer in the modern theory of systems, with his application of mathematics to economic analysis and the introduction of the mathematical model concept to represent economic and social phenomena, Pareto fully deserves a place in the history of human knowledge.
Increasing productivity is possible
Returning to what we should now perhaps call the Pareto-Juran principle, its application to business organisations leads us to the conclusion, confirmed by statistics and even more so by everyday experience, that only a minority of people (twenty percent or whatever, it is not the precise percentage which is important) are actively and creatively involved in resolving most problems and thus really contribute to increasing productivity; most of the organisation, on the other hand, is rather victim to these problems and dissipates its efforts by fighting against the manifold obstacles of an omnipresent bureaucracy.
At this stage it is worth pointing out that the phenomenon is only partly due to a different level of professional motivation at an individual level; often in fact the opposite is true, i.e. that work motivation is low for those who feel in some way excluded from the most efficient part of the organisation and who sometimes think they are wasting their time.
The phenomenon is in reality more complex and can perhaps be best understood by means of a “thermodynamic” parallel. Thus it would seem that the organisations, just like thermodynamic systems, tend by the laws of nature to see their internal “disorder” grow (this is the well-known concept of entropy); even if wishing to act from within to re-establish the lost order, climbing back, as it were, to the top and fighting against the natural tendency, the success of the effort is destined to be partial and limited (this is the second principle of thermodynamics which defines the maximum efficiency of a thermal machine and shows that it is always well below 100 percent).
It should be noted that in this, perhaps forced, parallel bureaucracy, resistance to change, lack of responsibility and lack of motivation represent in the organisation what attrition represents in the physical world: a force which always opposes, which produces heat, i.e. disorder, inefficiency.
At this point the scenario would seem to paint a bleak picture of impotent pessimism, given the apparent ineluctability of the mechanism described.
And here is a good point at which to abandon the analogy with the world of inanimate objects and to remember that organisations, even the largest and most bureaucratic of them, are in any case always made up of human beings, i.e. individuals endowed (to a greater or lesser extent) with intellect and will.
Using the metaphor of the glass being half full or half empty, the Pareto principle leads us to state that, with the right strategies, productivity and efficiency can and must increase. A few simple lines of arithmetic would enable us to support this conclusion as well as to demonstrate that the margins for potential improvement are surprisingly wide.
Great ambitions, small changes
As we have already stated, productivity and efficiency, therefore, can and must improve. And the awareness of the possible improvement must lead us, beyond pointless and impromptu euphoria, to be ambitious.
It is, moreover, a well-known empirical rule of human psychology that great ambitions can be achieved more readily than small ones. However, great ambitions and great challenges require magnanimous managers who are capable of entertaining them. In fact it is a characteristic of real leaders to be able to conceive of almost unreachable goals, as Bill Hewlett (co-founder of Hewlett-Packard) did when he conceived and obtained in a short period an improvement in overall performance of 50 percent.
Every improvement requires transformation and change. Great improvements will require substantial, sometimes even radical, changes, but, it is worth stressing, not necessarily sudden ones.
It is typical of the Western mentality to associate the concept of innovation with an almost instant change, a great leap forward.
Until a decade ago, Japan was the model to follow in terms of production methods and business management. Today that trend has ended, but it is perhaps wrong to transform into negatives, from the highly-praised positives that they were, all the principles of Japanese managerial culture.
Of these the Eastern concept of “kaizen”, i.e. continuous improvement, is still valid.
The great battle against organisational ”entropy”, against the chaotic and Brownian motion of bureaucracy, against the “attrition” of intellectual schematics, will probably be won by sowing and planting in the organisation a culture based on the concepts of quality, excellence, readiness for change and continuous learning, and, why not, on some essential work ethics.
Pareto perhaps could not imagine how far his studies would have brought us.
References
1. Juran, J.M., Editor, Quality Control Handbook, First Edition, McGraw-Hill Company, New York, 1951, pages 37-41.
2. Juran, J.M., “Universals in Management Planning and Controlling”, The Management Review, November 1954.
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