The Pareto Problem

The world, according to Vilfredo Pareto:

 At the bottom of the wealth curve, men and women starve and children die young. In the broad middle of the curve all is turmoil and motion: people rising and falling, climbing by talent or luck and falling by alcoholism, tuberculosis and other kinds of unfitness. At the very top sit the elite of the elite, who control wealth and power for a time – until they are unseated through revolution or upheaval by a new aristocratic class. There is no progress in human history. Democracy is a fraud. Human nature is primitive, emotional, unyielding. The smarter, abler, stronger, and shrewder take the lion’s share. The weak starve, lest society become degenerate: One can compare the social body to the human body, which will promptly perish if prevented from eliminating toxins.

Mr. Pareto was many things: an engineer, a sociologist, a political scientist, an economist, a philosopher, a mathematician and an all-around mega-mind.  However, an optimist he was not.  His scathing observations on the unequal distribution of wealth and power throughout human history would fuel the emergence of the Fascist party, inspiring would-be dictator Benito Mussolini on his rise to power in Italy.

Pareto is perhaps best known in today’s world for his association with the 80-20 Rule.  Near the dawn of the 20^th century, Pareto developed a mathematical formula based on the observation that, throughout human history, about 20% of the people tended to control 80% of the total wealth.  In the late 1940’s, business management consultant Dr. Joseph Juran discovered Pareto’s work and used it to evangelize a strategy for quality improvement based on his observation that 80% of defects  tend to come from only 20% the sources.  He would name his idea the Pareto Principle.

Today, Pareto Principle, has evolved from a simple quality improvement strategy to a popular and widely-adopted philosophy for the conduct of business and even for life. Pareto thinking dictates that by focusing our efforts on the critical few inputs (the 20%), we maximize the impact of our efforts by generating – or eliminating – the majority of the outputs (the other 80%).  Ironically, in stark contrast to its namesake, it’s an idea that has endured because of the optimism it creates, and not because of its effectiveness as a management philosophy.

In the world of continuous improvement, the Pareto Principle is pervasive, as is evidenced by the widespread use of its graphical representation, the Pareto Chart.  While it’s certainly appealing to hope for the existence of, in Juran’s words, the “critical few and the trivial many”, it is simply not an effective or desirable strategy for sustainable improvement.  Here are three ways in which Pareto thinking may be undermining your improvement efforts:

 Pareto Promotes Paralysis

There’s a little-known corollary to the Pareto Principle, which I have dubbed the Pareto Chart Principle based on my real world observations on how we tend to apply Pareto thinking.  Please refer to the figure below.

The Pareto Chart Principle states that, when creating a Pareto Chart to assist in solving a problem, we spend:

• 80% of our time making the graph
• 10% of our time analyzing the results
• 5% of our time denying that the bars could all be the same height
• 3% of our time cursing the damn bars for all being the same height
• 1.5% of our time making the case that the data were meaningless to begin with.

And after all of that, the remaining time is what we typically devote to taking action to improve the situation.  For your convenience, I have colored the bars in Figure 1: red indicates non-value added work and green indicates value-added work.  Please don’t strain yourself looking for the value-added work.

In my experience, it is not uncommon to see organizations take weeks or even months to collect and analyze the data required to construct a meaningful Pareto analysis.  Why do we invest so much time?  We do it to make sure that we are only working on the critical few inputs – those that are creating 80% of the problems.  In other words, we try to save time by wasting time.

But here’s the catch.  If the Pareto problem is indeed true, there’s an 80% chance that any problem we address will be caused by the critical few that we seek.  Why waste weeks or months performing an analysis that would only tell us what we would be highly likely – 80% to be exact – to discover by taking action at the onset of a problem?  And even if we would spend time working on lower priority problems, that time is still value-added and contributes to our learning and the development of our people.

Unless the analysis can be done on the gemba in real-time, ditch the Pareto chart. Save time and add value by maintaining a bias toward action.

Pareto Tells Us Only What Used to Be

As Mr. Shigeo Shingo wrote, when solving problems,

All things, problems and processes included, change with time.  Problems do not exist in isolation, waiting to be picked off one-by-one.  Problems are connected, interdependent and layered; when we solve one problem we uncover new ones and the effects produce new and different outcomes.

Remember that a Pareto analysis provides only a snapshot in time.  For all intents and purposes, it presents a view of the world that no longer exists.  And the longer that it has been since the data were captured, the less accurate the image becomes.

Although some processes change faster than others, remember that the only truly accurate view of reality is now.  Focus on solving today’s problem, because there is no guarantee that yesterday’s problems will be tomorrow’s problems.

Pareto Thinking is Myopic

Perhaps the greatest flaw in Pareto thinking is its tendency to make us short-sighted.  All too often, in seeking the critical few, what we are actually looking for are the quick-wins and the low-hanging fruit.  We chase the biggest bang for our buck, but we fail to realize that the fruit will eventually be picked clean, and the quick wins won’t always be so quick.  This approach to improvement only works in the short-term.  To fight clichés with cliché, what happens when the going gets tough?  Unfortunately, the tough and the not-so-tough alike all get going.  And not in a good way.

What inevitably occurs is the downfall of short-term continuous improvement strategies, and the pattern is very predictable.

Because we fail to develop the requisite skills in our people to address increasingly more complex problems, the initial results generated by quick wins are not sustainable.  And in the absence of a long-term management commitment, the pattern continues until the very program itself is questioned and ultimately follows suit.

We often fail to realize that Lean is about the people and the journey more than it is the results.  Along the way, it is the concept of True North that provides direction for our actions.  Long-term commitment to continuous improvement requires the endless the pursuit of our True North ideals.  On the path to True North, all problems must eventually be solved.  Do not waste time going around problems to figure out which one to solve first; take the long-term view of addressing each problem as it is encountered, learning from it, and moving on to the next.

Conclusion

Think twice the next time you have the urge to create a Pareto chart to address your problems.  Pareto thinking prevents us from taking action by telling us what we would have been likely to discover by taking action in the first place; it keeps us looking backwards, rather than looking to the future and staying ahead of our problems.  And it contributes to the short-term thinking that hinders our learning and the development of our people.

Perhaps the greatest condemnation of the Pareto Principle came from Dr. Juran himself.  Citing the tendency for organizations to ignore the other 80% of causes, Juran actually changed his terminology from “the vital few and the trivial many” to “the vital few and the useful many”.  Indeed the other 80% is useful, as it represents our level of commitment towards improvement. Only when we commit to addressing the whole of our problems over a long time horizon do we truly commit to continuous improvement.

P.S. My very LEANable Wife recently started a blog, asimplyenchantinglife.com where she will be linking to some of the posts that I write here at The KaiZone in order to put her own spin on how they can be applied within the home.  Read her take on the Pareto Problem here.  And do subscribe to her blog for more great Lean @ Home content.