I heard a story once about a consultant that was called in to help a team of top executives be more productive. After observing the executives, the consultant suggested that each executive write a list of things to do the next day before leaving the office. The executives scoffed at the idea not imagining what value the practice would be and stated, “This is what we’re paying you for?” The consultant simply told them to try it for a month and then they could pay him what they thought the practice was worth to them. One month later the CEO gave the consultant a check for $50,000. A small change, but it produced big results.

There’s a name for this phenomena: the Pareto Principle. Vilfredo Federico Damaso Pareto is a mouthful of a name – but to those who practice quality, the Pareto principle is a lifeline when you’re drowning in crisis. Joseph M. Juran would take Pareto’s miraculous 1906 observation – that twenty percent of the population owned eighty percent of the property in Italy – and generalize it into the Pareto principle (also termed the 80-20 rule).

What the Pareto Principle says is that 80% of anything is caused or controlled by 20% of those involved. 

 Applications of the principle say that:

80% of the problems are caused by 20% of the people in an organization
80% of the problems are caused by Management
80% of the cost is caused by 20% of the project
80% of the revenue comes from 20% of our customers

The number itself isn’t important. The ratio could be 80-10, or 90-5 – but the principle is the same. The majority of the problems are caused by only a small minority of those involved. Juran called this “the vital few” and “the trivial many.” 

And this is as far as most applications of the Pareto principle go.

However, what happens when you apply the Pareto Principle within the Pareto Principle?

80% of 80% is 64% 

20% of 20% is 4%

Or in other words, using the examples above:

64% of the problems are caused by 4% of the people
64% of the problems are caused by top Management
64% of the cost is caused by 4% of the project
64% of the revenue comes from 4% of our customers

Identify the 4% and you have located the cause of 64% of your problems or revenue! The 4% are called Golden Nuggets – they are the little rocks that are worth the most – and they are only a small fraction of the total.

But let’s apply the Pareto Principle again:

80% of 64% is 51%
 20% of 4% is 0.8%

Or you can say:

50% of the problems are caused by less than 1% of the people
50% of the problems are (probably) caused by the Chief Executive
50% of the cost is caused by less than 1% of the project
50% of the revenue comes from less than 1% of our customers

The 1% are the diamonds – you have to dig through a lot of dirt to find them, but they are the most valuable.  And I mean a lot of dirt. At the “Big Hole” of the Kimberley Mine in South Africa, workers had to dig by hand through over 1.5 tons of dirt to get just one 1 carat of diamonds. That’s about 0.2 grams – about half the weight of a paper clip! But diamonds are valuable enough to make them worth the effort,

This is an illustration of one of Peter Senge’s Laws of the Fifth Discipline:

Small changes can produce big results – but the areas of highest leverage are often the least obvious.

This requires that you learn to spot the diamonds in the situation, which is not easy. But once you do identify the diamonds, then you can produce BIG results with small changes – after all, you’re changing only 1%!

Meredith recently worked with a client who was completely overwhelmed by her work. After a few hours, Meredith figured out that the majority of her stress was coming from how she managed her email and how she labeled filed on her computer. She was losing information from clients because it was buried in her inbox or because she couldn’t remember where she’d filed the most recent version of a project on her hard drive. And those tasks were directly affecting her ability to do work and make a profit – but also her stress level, family life, and her passion for her work. Hours, weeks, and months of stress could be alleviated by just changing how she checked her email and creating a standardized system for naming her files. That’s it.  And it wouldn’t matter how many changes she made or how much work she tried to outsource – none of that would have made a significant difference if she didn’t fix those two little problems first. Labeling and saving files takes up less than 1% of your time – but it has a huge impact on the rest of your work. It’s a diamond.

This concept was recognize in medieval England with the story of Cap O’ Rushes – a princess is asked how much she loves her father and she says “I love you as fresh meat loves salt.” Her father takes offense and drives her from his sight. She eventually marries the son of a great man and at the wedding feast her father is served dishes with no salt added – dishes which are tasteless because of the missing small amount of salt. Only then does her father realize the true depth of his daughter’s love for him.

Find the diamonds in your situation – it’s hard work, but it’s got a high return on investment.

A physicist by trade, author by choice, a born teacher, a retired veteran, and an adamant problem solver, Frank has helped the White House, federal agencies, military offices, historical museums, manufacturers, and over 250 technology startups get stuff done, communicate effectively, and find practical solutions that work for them. In his spare time, he makes sawdust and watches Godzilla movies.