Thursday, March 10, 2011

The Pareto Principle

(Originally published in The Casey County News in February 2011):

In 1906, Italian economist Vilfredo Pareto noted that 80% of the land in Italy was owned by only 20% of the population. Over the years, his initial observation morphed into what has become known as “the Pareto Principle”, or what is more commonly referred to today as the “80/20 Rule”.

The 80/20 Rule can be – and is – frequently applied to just about anything that can be measured; 20% of the population controls 80% of the wealth, 20% of the workers perform 80% of the work, 20% of the inventory takes up 80% of the stockroom space, and on and on.

In short, the 80/20 Rule states that – regarding pretty much anything – 20 percent is vital while the remaining 80 percent is relatively trivial, and while anything that is “measured” by the 80/20 Rule is obviously a generalization, it is also a generalization that has been repeatedly shown over the years to be surprisingly accurate.

The 80/20 Rule is well known in the business world because, by its principle, 80% of a company’s profits are generated by only 20% of its customers. Corporate America knows this very well, and dedicates their efforts toward making that elite 20% very, very happy, since they constitute the core of their entire business.

And what about the remaining 80% of customers who generate the other 20% of their profits? Well, to be brutally honest, it just isn’t worth it for big companies to spend much time on that segment of their business. Not enough “bang for the buck”.

I know this is true because I worked for years at one of those big “global” companies, and that is exactly what we were instructed to do; get rid of the “little guys” as fast as possible so that we had time to create & nurture “personal” relationships with the “whales” (i.e., the big spenders).

For the people in that upper 20%, this system works out pretty good; they have direct access to real people, their phone calls are returned quickly, and things actually happen if & when they complain.

But for the rest of us – the average consumers that make up the other 80% – it’s not so much fun. We have to call 800 numbers, navigate phone trees, wait on hold for minutes or even hours, and, in many cases, simply get pushed to conduct all of our inquiries through a cold, impersonal on-line interface.

If it sometimes feels like no one really wants to help us, it’s because no one really does.

Looking at all of this from a strict business perspective, it does make sense. However, there is an extremely important element that gets overlooked when business is conducted in this manner: the human element.

What I mean is that there is a certain human dignity that each and every one of us deserves to have, and by submitting ourselves to companies who view us as no more than an account number, credit card swipe, or line item on a spreadsheet, we deny ourselves the privilege of that most basic right: to be treated like a human being.

When dealing with a large business, it’s hard to get around that. But when dealing with a small business – a local business – it becomes a whole lot easier.

If I have a question about my insurance, for instance, I don’t have to dial an 800 number and follow the directions of an automated attendant. I know my insurance agent personally; he lives and works here in Liberty. I can call him up directly, stop in to speak with him face to face, or even walk down the street and knock on the front door of his house.

The local grocery store down the street from my home started carrying Altoids 5 years ago simply because I told them I would buy them if they did (I've been a loyal customer ever since).

Doing business locally has a different feeling, and it’s a good one.

I like the way it makes me feel when I walk into a local business and everyone there knows me personally. I appreciate the fact that when local business owners ask me a question, they really want to know the answer. And there’s something genuinely pleasing about seeing people that I do business with everyday also attending church with me on Sunday mornings.

They’re my neighbors. They’re my friends.

I understand that in the grand scheme of things I am not that important, and I also realize that I will probably never be a “whale” on any business’ top “20 percent” list. But I also know that when I do business locally with people I know and trust, they never treat me as if I were something trivial.

I’m important to them, and that’s important to me.

So treat yourself to some human dignity this week; Shop local. Be local.

3 comments:

Franklyn said...

Take your liberty seriously.

Anonymous said...

Don't know if you knew this or not but there is another book titled What So Proudly We Hailed by James Howard. It was released last year. I happened to see a Amazon link from a blog I was reading and was surprised to see the author was not you.

By the way, my 12 year old daughter read your book (title above) and thought it was great. She is a mature for her age and grasp things that some 20 year olds don't. She is reading about Hitler lately. She says she wants to understand how a man can be so evil.

OG

Blaine Staat said...

I saw that too; it's a good title though, so it's not really a surprise.

Thanks for the feedback and glad your daughter enjoyed the book! In addition to people that are just born to do bad things (Hitler, et al.,), I hope it gave some insight on how even a "good" person can wind up doing the same thing if they allow the end to justify the means.

- Blaine