The Pareto Principle – What (or Who) is Worth the Effort?

As promised, this week’s is just a short one. It’s also more conceptual and less scientific, so a little lighter on experimental research (maybe I’m taking something from this post) – it’s a look at the Pareto Principle and how we can use it to be more efficient.

Vilfredo ParetoThe Pareto principle is named after Vilfredo Pareto, an economist who showed that 80% of the land in Italy was owned by 20% of the population. It turned out that this wasn’t the only thing that followed the 80:20 pattern; a wide range of phenomena showed that around 80% of the effects were related to approximately 20% of the causes (including, so the story goes, that 80% of peas came from 20% of pods).

Given how widespread this distribution seemed to be, Joseph Juran, a management consultant, proposed that this was a generalizable concept. He saw a huge number of possible applications for the principle – and it’s come to be known by a number of names, including the 80-20 rule, the law of the critical few and the principle of factor sparsity (because there are a limited number of factors that have a substantial effect on the outcome).

In reality, it’s unlikely that the ratio will be exactly 80-20. For example, the UNU-WIDER 2008 report on global inequality showed that (based on 2000 data), globally, the wealthiest 10% owned 85.2% of the wealth. The general principle, however, holds – the critical few things, people, events etc. can deliver the majority of your results, cost you the majority of your time and/or determine your success.

Wealth in the US
Wealth distribution in the US – the reality, what Americans think it is and what they’d like

In the 4-hour Workweek, one of the big steps Timothy Ferriss took to reduce his working week was follow the Pareto principle. His sport nutrition firm, BrainQUICKEN, regularly served about 120 customers and Ferriss was working 14 hours a day, 7 days a week.

He had enough, so decided to analyse what he was getting from his customers. He found 5 of those customers accounted for 95% of the firm’s revenues, so he honed in on that part of his business – quartering his hours while doubling his revenues.

But he didn’t save all that time just be focusing on the “good” customers; he also identified and then stopped serving the “bad” customers. They delivered very little revenue, but took up a lot of time in unnecessary (from Ferriss’ perspective) contact and required lots of “urgent” attention.

brainquickenTo me, that was where Ferriss stepped off the well-trodden path. Most small or growing businesses become so desperate for customers that they’ll take on any client. They think that it’s a failure to be unable to deliver what every customer wants, but, as BrainQUICKEN showed, there are some customers it’s just not worth having.

The Pareto principle is often spoken about, as I’ve done above, in relation to businesses (partly because there’s more funding for research on this and partly because there are genuinely loads of applications, e.g. it’s also relevant to a workforce – your top 20% need to be looked after and your low delivery, resource intensive 20% moved on) and external/global factors (like distribution of wealth). I think it’s even more important to us as individuals – and not just in relation to work.

We spend huge amounts of time on tasks that don’t add much value to us (where I’m defining value as anything that we desire – happiness, wealth, power, love etc). We do this in a couple of ways: 1) we do things that deliver very little benefit; and 2) we speQuote on Prioritisationnd too much time/effort/money on doing things that are worthwhile, but the marginal gain of spending that extra resource is negligible. I can’t cover all the reasons people do that here, given there are hundreds of textbooks on that, but it’s fair to say we’d be better off if we did less of it.

By looking at the things we do through the lens of the value those actions deliver, we can start to work out which actions deliver our 80% of positive outcomes and which actions take up our 80% of effort. This allows us to become more and more efficient – whatever you want to achieve.

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Who’s in Control? – How your Locus of Control Affects You

Dr SeussIn my last post, about Attainable Greatness, I looked at how we evaluate both ourselves and other people. When it comes down to evaluating yourself through that lens, then it really comes down to whether you believe in yourself and whether you have control over events; is everything random or do you have a decisive role to play? This is what we mean by ‘locus of control’ – how much influence does someone believe they have over events that affect them. In that previous post, I spoke colloquially about some of the benefits of being internally referenced – here I’ll try to put some evidence on those bones, make it clear it’s not a one-sided thing and put in a few more practical tips.

Locus of Control – Internals and Externals

Julian Rotter first wrote about locus of copower-plantntrol more than 60 years ago, as part of his work on social learning theory. Everyone’s belief about where control lies sits somewhere on the spectrum from extremely internal – where the belief is that one’s own abilities and performance determine all outcomes – to extremely external – where the belief is that factors outside one’s own control determine all outcomes.

While people will tend towards a certain position on this continuum, they will, under certain circumstances, sometimes behave differently. This can be due to their personal history, where people have come to learn that they do or do not have some control in specific circumstances. As with everything else, a person’s behaviour is a combination of their personality and the environment. That’s not to imply that someone’s locus of control can’t change over time, as well as across environments – otherwise this article wouldn’t exist!

Happiness

This is the first reason why locus of control matters – feeling in control of your life is a strong predictor of happiness. Ronald Fischer and Diana Boer conducted a meta-analysis of 420,599 people from 63 countries to explore the drivers of well-being. This looked at whether wealth or autonomy (i.e. the level of control you believe you have over what is happening) was more important to well-being. There was no direct relationship between well-being and wealth, but there was a strong link between well-being and autonomy (there was a link between wealth and well-being where wealth enabled autonomy). Strickland looked specifically at the relationship between locus of control and happiness, as well as creativity, and also found a positive relationship between being internally focused and feeling good about things.

stockvault-wedding147358
An exception that proves the rule

The logic behind these findings is fairly straightforward – if you believe that you have control over your life then there’s a point in doing stuff, whilst if you feel like you have no control then you might as well be anyone else or do nothing at all. This logic is supported by the two exceptions to this control-happiness relationship; Verme identified religious belief and marriage as correlated with both increased well-being and reduced control. That is as you’d expect – those with a strong religious belief derive purpose in serving God, even while God is determining their fate, while marriage also provides a joint purpose and related loss in personal freedom.

Health

No SmokingLocus of control has also repeatedly been shown to have an impact on health, across a range of different areas. Weiss and Larsen showed that, when combined with a high interest in your health having an internal focus makes people engage in more health protective behaviours (it is worth keeping in mind the value facilitator as a risk of being too internally focused – if you don’t value something yourself then you’re unlikely to do anything about it, whatever other people say). More specifically, Balch and Ross found that “internals” had more success losing weight, while Shipley found a positive relationship with success at giving up smoking.

Interestingly, Cross, March and Lapsley found not only that an internal locus of control led to an improved health outcome for those with arthritis, but also led to lower arthritis-related costs. Internals were both delivering a more effective and more efficient outcome. The reasoning here is even more straightforward – internals take action to improve their health and they look into what is most likely to work. because they genuinely think it’ll help.

Leadership

Bringing this back in line with my normal focus, there’s also a relationship between locus of control and leadership. Anderson and Schneier found that:

  • Leaders are more likely to be internals than externals
  • Superior performance was achieved by both internal leaders individually and groups led by internals as a whole
  • Internals showed an instrumental, task-oriented approach, while externals showed a more socio-emotional style

This is also pretty understandable – I’d rather have a leader who believed that we had a chance of influencing things than one who didn’t!

Challenges

While there is a weight of evidence showing that locus of control has an impact, there are also some questions about how strong that impact is and whether there are other factors that divide internals and externals into more sub-groups.

There are clearly situations where being an internal isn’t positive. If you view your outcomes as negative and feel that you control outcomes, then it’s likely that you’ll blame yourself – and if that remains your thought process it’s very easy to get into a depressive mindset (it’s my fault, it will always be my fault and whatever I do it’ll still go wrong). Some things are out of our control, however much we try to influence them. So internals with a negative self image are unlikely to see the same benefits as those with a healthier view of themselves.

king-canuteAt a less clinical level, people with an internal locus of control can come across as very arrogant to those who don’t think in the same way due to their belief that they dictate outcomes – they can have a King Canute holding-back-the-tide style (I’m sticking with the myth here; the link is so I feel I’ve given King Canute a fair shake). You might also come across as arrogant because you genuinely have a distorted view of yourself (i.e. the opposite of the risk of becoming depressed).

We mentioned another risk earlier (in relation to health) – if you’re very internally focused with an internal locus of control and don’t deem something important, then you’re likely to neglect it, whatever everyone else thinks. This can further distance you from others due to your absence of interest in their views.

There is also some research that suggests the happiest people are actually those who are bi-local – those with a balance of external and internal loci of control. They can brush off things that go wrong as out of their control, but feel responsible for things that go well (while this might make you happy, it’s not necessarily recommended for realism).

How to Become More Internal

Despite these question marks, most people are still more external than research suggests is good for them (both at work and in broader life). The hard bit, however, is trying to make that shift. Below are three ways that we can make that change.

Setting Goals

Gaa lmap-34524_1280ooked at whether having weekly goal-setting conferences had a positive effect on academic performance. To separate out the effect of goal-setting from having weekly discussions, he also had one group of students have weekly chats without goal setting and a final group with neither. He found goal-setting had two impacts: 1) it led to better academic performance; 2) it appeared to move people towards having a more internal locus of control.

So by setting ourselves “good” goals we can shift ourselves to thinking in a more internal way. Goal-setting is a huge topic, and not one that I’m going to cover in depth in this blog. There’s a lot of stuff online (e.g. this), but I’ve recently been reading ‘Great by Choice’ by Jim Collins and Morten T. Hansen, where one of the consistent themes is organisational goal-setting. Collins and Hansen describe it as ‘the twenty mile march’, but the concept is this – organisations (and presumably people) who perform best are those that set a consistent target and deliver against it. If the environment is with them, then the organisations held back and built up reserves during the good times, while in a bad environment they pushed on and still met their target. This is transferrable to individuals; we need to set ourselves targets that we can achieve in good times and bad, so that achievement really is within our control.

I believe that goal setting plays a role in a couple of ways. Firstly, the process of considering your goals forces you to think about what is achievable and what you control, and secondly, achievement of those goals “proves” to yourself that you do have control.

Think Through Your Options

Either by yourself or with a few trusted people think about a situation in which you feel that you have no options (or, if that’s too personal or tough, then think about a situation that might occur in future). Then write down the full list of options that you have/had – don’t rule out anything as too wild or wacky; we’re looking for as many options as possible. When you have that list think about whether the options would have (or will) change the outcome in any way, however small or indirect the impact is.

When the time comes that you’re faced with an out-of-your-control feeling, use the same process – think about all the options that exist, think about the consequences of choosing them and then make an informed decision about which one to take. By repeating this process on multiple occasions it’ll gradually become automatic to think about your options – and you’ll begin to realise that you have at least some control.

Monitor Self-Talk

We all have thoughts that pop into our mind from time-to-time. Sometimes they’re useful (e.g. a reminder about something that we thought we’d forgotten), sometimes they’re positive (e.g. noticing that you’ve just done something great or having a spontaneous idea), but for most people a significant chunk are negative. They might tell you that what you just did was really, really stupid or bring you back to a moment of humiliation, embarrassment or failure from years ago.

face-535774_1280As you most likely know from experience, just telling yourself to stop thinking those negative thoughts doesn’t work – in fact it has the opposite effect. So don’t try to stop the thoughts, but merely observe them. Be aware of your self-talk and consciously note it. Keep doing this over time and you’ll start to listen to the self-talk, but consider it like any other external stimuli – you’ll begin to separate your conscious from these spontaneous thoughts rather than identifying those spontaneous thoughts as “you”. In that way you can respond to any negative self-talk from a position of distance, and therefore more logically.

This is useful as a general tool, but in this context it gives you the opportunity to address the negative self-talk which says “I have no choice” or “what I do really doesn’t matter” – another chance for you to take control.

Over to You – Do any of you have any tips or ideas on how to feel more in control?