Basic Principles – The Privatization Law
There are few simple principles in management, whose informed use can make a huge contribution to us in the challenging business world.
Among these principles is a place of respect for the “Privatization Law”, which is one of the most important principles in management.
What is the principle of privatization? And where does it come from?
Wilfredo Pareto was an English economist who lived from 1848 to 1923, and during his work in economics he found that 20% of the population holds 80% of the world’s wealth. Proudly, they named after him the aforementioned economic principle that makes that every more than once.
Some call this law/ principle also in the name of the “20/80 rule”, or “principle of the few that matter“. The Law of The Pareto is not an exact science, by definition – it is a rule of thumb only that indicates a phenomenon of accumulation of factors. Sometimes different companies or entities adjust proportions, which is suitable for their company. Such as: (30-70, 90-10, etc.), but the essence of the principle is preserved. Many phenomena in the world of management behave according to the law of Pretoro.
About: “Wilfredo Pareto”-Wikipedia.
For example
- About 20% of a company’s projects account for 80% of the revenue.
- A total of 20% of the fault types are responsible for 80% of the number of faults.
- About 20% of customers generate 80% of the company’s revenue.
- A total of 20% of the company’s salespeople are responsible for 80% of the revenue.
An example of the implementation of the principle
When we are engaged in customer retention, we will devote an especially great effort to preserving the customers who are in the 20% largest customer group. Success in this effort means preserving 80% of revenue.
