The 80/20 Principle asserts that a minority of causes, inputs or effort usually lead to a majority of the results outputs or rewards. For example, 80 percent of what you achieve in your job comes from 20 percent of the time spent. For all practical purposes then, four-fifths of the effort- a dominant part of it—is largely irrelevant. This is contrary to what people normally expect. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.

The 80/20 Principle states that there is an inbuilt imbalance between causes and results, inputs and outputs and effort and reward. A good benchmark for this imbalance is provided by the 80/20 relationship: a typical pattern will show that 80 percent of outputs result from 20 percent of inputs; that 80 percent of results come from 20 percent of effort.

In business, many examples of the 80/20 Principle have been validated. Twenty percent of products usually account for about 80 percent of an organization’s profits. In society, 20 percent of criminals account for 80 percent of the value of all crime. Juran identified 20 percent of the defects caused 80 percent of the problems. Twenty percent of motorists cause 80 percent of accidents, and so on.

Vilfredo Pareto also discovered two other facts that he thought were highly significant. One was that there was a consistent mathematical relationship between the proportion of people and the amount of income or wealth that this group enjoyed. To simplify, if 20 percent of the population enjoyed 80 percent of the wealth, then you could reliably predict that 10 percent would have say, 65 percent of the wealth, and 5 percent would have 50 percent. The key point is not the percentages, but the fact that the distribution of wealth across the population was predictably unbalanced.

The other pattern Pareto found was that this pattern of imbalance was repeated consistently whenever he looked at data referring to different time periods or different countries. Whether he looked at England in earlier times or Spain in current times, he found the same pattern repeating itself with mathematical precision.

IBM was one of the earliest and most successful corporations to spot and use the 80/20 Principle. In 1963, the company discovered that about 80 percent of a computer’s time is spent executing about 20 percent of the operating code. The company immediately rewrote its operating software to make the most-used 20 percent very accessible and user friendly. The computers were therefore more efficient and faster than competitors’ machines for the majority of applications.

Those who developed the personal computer and its software in the next generation, such as Apple, Lotus, and Microsoft applied the 80/20 Principle with even more gusto to make their machines cheaper and easier to use for a new generation of customers.

The reason the 80/20 Principle is so valuable is that it is counter-intuitive. We tend to expect that all causes will have roughly the same significance, all customers have equal value and all employees in a particular category will have the same performance levels.

However, once we know the true relationship, we are likely to be surprised at how unbalanced it is. Whether you realize it or not, the principle applies to your life, to your social world and to the place where you work. Understanding the 80/20 will enhance your ability to guide the performance of your company and maximize its profitability.

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Of course, what was true for the ancient Israelites is also true today.  Planning is the key for any business owner who wishes to build a company that has a solid foundation for future growth and development.  Yet, less than 15% of small business owners surveyed admit that they are doing an adequate job of planning for the future of their business.  In fact, managers rarely fall short of their real potential for lack of technical competence.  Of all the organizations and businesses I have consulted in the last 30 years, the one principle cause for failure is the inability or unwillingness of the executive staff to logically and consistently plan for the allocation of limited resources – labor, money and time – toward all the viable opportunities that exist.

While strategic planning is an integral part of maintaining the growth cycle of a large corporation it is even more critical to smaller organizations because they, typically, lack the resources necessary to absorb the cost of mistakes, errors in judgment, or failure to foresee change.  The planning process allows management to evaluate the future where they want to be and how to get there.  It helps them establish goals and then gives them a performance standard by which to measure themselves.  Better yet, planning allows them a process to identify and resolve problems before they become crises.

Before gathering your staff together – either formally or informally – to begin the planning process for the future growth and development of your company, it’s important to understand exactly what this vital activity will accomplish:

1. Planning formulates the future. The planning process allows the people in your organization to anticipate and, therefore, shape the future.

2. Planning motivates people. Everyone wants to have a part in determining their future.  The greater the feeling of ownership each individual has in determining the objectives of the organization, the more committed they will be to making sure those objectives will be achieved.

3. Planning establishes the organizational structure of a company.  The planning process will clarify what structural issues need to be resolved in a company.  This will determine what organizational model needs to be implemented to address these issues.

4. Planning directs delegation. The key to effective delegation is understanding what assets and liabilities a company has in terms of its human resources.  By determining who is best suited to handle a particular role, the entire organization should be able to live up to its maximum potential. (Tim Collins – Good To Great).

5. Planning promotes communications. The planning process affects each division of a company, including the finance, marketing, sales and operations divisions.  Thus, for each area of a company to achieve their respective goals, they must cooperate and communicate with divisions that they normally don’t communicate with.

6. Planning fosters the process of monitoring.  The planning process establishes standards or goals that an organization must achieve to accomplish their overall objectives.  Without a monitoring system, management will not be able to assess how well these goals are being achieved.

Planning is essential for the survival of the company. If the organization does not have the time or manpower to do adequate planning, then the company should utilize outside resources to help them set, monitor and achieve their goals.  Time spent on planning is time well spent, and money spent on planning is money well spent when the plan is utilized.