Monday, April 25, 2022

Vital Few, Trivial Many or Vital Few, Useful Many

 Recently, a reprinted article by the National Center for Employee Ownership caught my attention with the promotion of the “rise—and hopefully fall—of a pernicious idea”. The pernicious idea: the 80/20 as applied to employee effort. It was attributed to Dr. Joseph Juran, a 20th century management guru, and contemporary of William Deming—both working in quality management. The NCEO article had two errors: 1) it described Dr. Juran as a UK management expert—Juran was born in Romania but lived, studied and worked in the US—a graduate of the University of Minnesota; 2) the Pareto Principle is summarized as 20% of the people achieve 80% of the results.

Having studied under Juran for a short time, I never heard him describe the 80/20 rule in that way. Even now, the Juran Institute does not have the employee contribution example as their use of the 80/20 rule. The 80/20 rule is that 80% of the problems can be attributed to very few causes, or 1/5 problems with a process contribute to 80% the problems, defects, rejects, warranty claims, rework, customer complaints, etc. The only employee-related example given is related to an attendance issue (problem), not to results or achievements. That 20% of the products/services might account for 80% of total sales has nothing to do with sales force efforts, presuming that all sales people see a similar breakdown of such sales categories. 

As the NCEO article may correctly state, many people have ascribed the 80/20 rule as 20% of the people achieve 80% of the results to justify bonuses and other financial rewards, performance appraisal prescriptions and so on. If others have done so, then Corey Rosen is correct in calling for the 80/20 rule to be ignored. However, the 80/20 rule is helpful in focusing our attention on the vital few causes of a problem, or the vital few product/service categories that contribute to the majority of sales and profits. So let’s not totally ignore the Pareto Principle.

In contrast, Eli Goldratt amended the Pareto Principle to say that it applies to independent events, but since company achievements are the result of many interconnected processes (such as customers’ budgets limiting them to only buying some products/services and not the whole shebang), then 80/20 turns into 99/1 meaning one percent of the critical systemic elements create 99% of the results or problems.

No comments:

Post a Comment