The Pareto Principle redefined
If you are reading this article, you probably know the idea of Pareto principle, commonly referred to as 80/20 rule (Pareto principle on Wikipedia). The general idea is that in many areas we can observer a pattern, that things are split up between each other in an 80% to 20% ratio. For example, 20% of employees generate 80% of outcome at a given company. One stock in your portfolio brings most of the value. Etc.
Although the rule may be true on paper, and we can observe this distribution in reality, I claim that we should redefine the way we ourselves think about the 80/20 rule.
The truth is that one person/one department/one asset brings 80% of value in a given context (unless you have two people doing exactly the same work and one is much worse — which I will cover later).
Let me explain on a few simple examples. Consider a football team. Messi, Lewandowski or Ronaldo may score 80% of the goals in the season. The Pareto principle works. However, the coaching staff (not the coach alone!) does 80% of the tactical work. Then physiotherapists do 80% of the regeneration work. If you placed Messi, Ronaldo and Lewandowski on the same position, then… wait, nobody does that. Why, if they are the best? Because the Pareto principle would magically apply itself and only one of them would score 80% of goals? No, simply because there is no need for 3 people to do 1 job. Even if you place 3 top players at the offense, each has a different task to do. In most cases, there is no need for 2 people to push the same button. If that is the case and that is how you organized your team, then the 80/20 rule would probably apply. Imagine that Magnus Carlsen plays chess with lower ranked players in the same team. Then possibly Magnus would do most of the work. Simply because this is a job for one person — and one person does it better.
As you see, if you zoom in strongly enough (and lose the context) the Pareto principle works like a charm. But it doesn’t work that well when you zoom out and consider a broader picture.
When it comes to management, that is the reason why you should be building teams of exceptional people, who overlap with skills. This may also be the answer to the question — which department is the most important at your company? The answer is all of them. Because when you recruit people, HR is your 20% who does 80%. When you are selling a product, and you don’t need to expand the team, the Sales might provide 80% of the value. When you are building the product, the software team will add 80% of the value (at a given moment). The problem is that you do not know when you will need each team more. In reality, the time when you need some team members more than others overlaps and fluctuates.
That is why we have to consider a broader context when applying the Pareto principle. If you split the tasks, you can always say that somebody does 80% of the work in some part. But even if he reaches 100% in his area, there are other areas which may be hard to cover by him at some other time, and then he will provide 20% (or lower) value.
Obviously my point is not that when we see the pattern we should ignore it. For example, if someone is performing lower than the rest of the team, we shouldn’t be fine with this. We should consider 3 options:
1. the person is performing lower and should improve
2. we organized the team incorrectly, and we need to change the strategy
3. the person might have other talents which are worth utilizing better and are not utilized now (goalkeeper vs offense player, backend developer vs UI designer, heart surgeon vs plastic surgeon).
I see the tendency in our minds to only think about point 1 and forget about points 2 and 3.
To summarize, this article was written by one person who did 100% of the work. You are reading it because someone created the internet.
Please share your thoughts about the topic in the comments! Maybe there are some blind spots in my logic which I will gladly consider.
Have a good day.
