Pareto’s Disciple

The 80/20 Principle by Richard Koch, 2008 Doubleday

    
By Anthony O. Alcantara

If it weren’t for economist Vilfredo Pareto, Richard Koch would likely not be as popular as he is today.    

In his book The 80/20 Principle, Koch says St. Paul was a great marketing genius who helped spread Jesus’s ideas, and thereby turned Christianity into a behemoth of more than 2 billion souls today. In the same way, Koch is a great marketing genius for Pareto’s ideas.    

Pareto, an Italian economist who made a hobby out of asking how much people earn, discovered in 1897 some intriguing patterns in wealth and income in England. He discovered a consistent mathematical relationship where a certain proportion of people earned a certain percentage of income and wealth.    

For example, 20 percent of the population earned 80 percent of the wealth, and 10 percent of the population had 65 percent of the wealth, and so on. Pareto discovered that the same pattern holds true in different time periods and countries.    

That’s the germ of the idea in The 80/20 Principle. Koch defines it as a pattern where “a minority of causes, inputs or effort usually lead to a majority of the results, outputs, or rewards.”    

Imbalance    

It is based on an assumption that “there is an inbuilt imbalance between causes and results, inputs and outputs, and effort and reward.”    

The idea is simple enough. But the applications in most areas in life and business have interesting and useful ramifications.    

For instance, reading books. You can get 80 percent of the value of the book from only 20 percent of the pages or words. Of course, you only read everything for pleasure. But for most books, it may be a good idea to look for the 20 percent that gives 80 percent of the value.    

In work, you produce 80 percent of your output from only 20 percent of the hours worked. In selling products, you get 80 percent of your revenues from only 20 percent of your customers. In investments, you get 80 percent of your wealth from only 20 percent of your portfolio. In your relationships with people, you get 80 percent of your enjoyment from 20 percent of your friends.    

Think 80/20    

The proportion may not always be 80/20 but the imbalance is there. That’s the reality for most people. Koch tells us about 80/20 Analysis and 80/20 Thinking, two ways of coping with this imbalance.    

He also has a few chapters on the application of his 80/20 principle in business that may be useful to the corporate types. But you can actually skip this part and still get 80 percent of the value of the book.    

From investments, relationships, career success and even happiness, Koch applies the 80/20 principle with gusto. His idea is to even out this built-in imbalance in our lives and in society.    

I believe the idea of relentless focus is relevant here, too. So it’s a skewed world we live in. We see this in our superstars in business, sports, arts, sciences, etc. Ever wonder why a singer who is only marginally better than another diva counts four more place numerical values in her paycheck?    

I’m reminded of one of my favorite Bible passages, Ecclesiastes 9:11: “the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happeneth to them all.”    

Koch’s book may help us adapt to this reality better.    

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