Book Review and Summary: The 80/20 Principle by Richard Koch: The Secret to Achieving More with Less.
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Updated: 16/12/2022
The 80/20 principle has been widely used for decades, and many people use this principle to learn the best combination of the two essential factors: ” Work hard and work smart” to help them achieve what they want in life.
The 80/20 Principle by Richard Koch will teach you a better way to increase your productivity and achieve a higher return on investment. For example, they implement the 80/20 rule in different areas such as relationship management and become happier.
In other words, the 20% work effort yields a better result of up to 80% as a return on investment. It seems to be impossible to achieve, but several people have achieved their life goals by following this rule.
Key Takeaways
Table of Contents
- The 80/20 Principle by Richard Koch will teach you a better way to increase your productivity.
- It is one of the best business books for entrepreneurs to learn and apply knowledge in the real world.
- Richard Koch also emphasizes the importance of analytical and creative thinking skills in making better decisions.
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1. What is the 80/20 principle?
The 80/20 rule is the concept that emphasizes a higher return on investment in any field, where you combine work smart and work hard to achieve a better result of up to 80% based on the 20% work effort that you spend. For this reason, it’s called a principle of imbalance.
For example, the author mentions in the book that many business owners use this rule to increase revenue by spending 20% as an initial investment for production.
The economist-Vilfredo Pareto is the founding father of the 80/20 rule during the industrial revolution in England. In particular, He found that a small percentage of the population are rich people whose capital and asset value are around 80% compared to the rest of the country.
Based on his research experience, Pareto discovered this principle of imbalance as it happens predictably and logically.
Until recent times, IBM is one of the successful examples that implement the 80/20 rule in business operations as it helps the firm’s computers run faster and more efficiently.
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2. Why the 80/20 rule is important
Before starting any business journey, we must change our mindset to achieve a better result and expand it even further. It’s important to implement the 80/20 rule effectively by working to improve your creative thinking and analytical skill.
The author suggests following the rule that helps you to make smarter decisions and achieve bigger goals in your life. For this reason, many rich are getting richer because they apply the 80/20 rule to make an informed decision over investment.
For example, the author highlights that 80% of the world’s asset belongs to a small percentage of the world population, where they have multi-billion dollars as asset value.
Richard Koch also emphasizes the importance of analytical and creative thinking skills in this business book, which requires members to make analyses before coming to a final conclusion. In particular, they need to investigate and collect all the essential data to support making an informed decision.
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The author also uses his personal experience as an example of using the 80/20 rule, which the professor at Oxford University taught him how to read the book in an effective way. Specifically, the professor suggested Richard read the conclusion before reading the whole book as it allows him to find 80% of the valuable information in the book by just reading 20% of the conclusion.
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3. Why do you need to include the 80/20 rule in the business strategy
It’s important to include the 80/20 rule in the strategy because it helps to determine the potential improvement in areas of products, customer segments, and business landscape.
For example, analyzing the customer segments, allows the business to identify the most valuable group of customers who spend almost up to 80% of revenue. Hence, the board of management of the firm can design an effective strategy to make a small percentage of those customers happy based on the 80/20 rule.
In addition, the author also highlights that the super important point in this business book is to concentrate on making things simple. It’s because it saves the cost of operation and human resources for businesses.
In particular, many large entities execute the 80/20 rule by following cost-effectiveness and simplifying the operation. Hence, it allows them to pay more attention to important areas such as customer satisfaction.
4. The top 10 applicable ways of the 80/20 rule
It’s true that the 80/20 rule can be applied in any field of our life. In particular, individuals implement the rule to improve their financial status by creating different ways to make money as side hustles.
The following are the top 10 applicable ways individuals or small business owners may consider including in their business strategy:
- Make informed decisions based on using analytical skills. In this case, you should collect all the essential data and evidence before making any decisions.
- Warehouse management is another great area for applying the 80/20 rule. The business uses popular products as it marks up 20% of total warehouse items to release to the market and allows it to earn 80% of revenue.
- Product and service quality. They will pay more attention to improving the core product or services to satisfy customer requirements.
- Project management: pay attention to several important tasks, which have a positive impact on the result.
- In terms of negotiation, set 20% of the negotiation goals as your main priority before coming to the negotiation table.
There are other fields that can be used for the 80/20 rule as part of your tactic, but I don’t mention all of them here. You should continue to find out relevant information in the book if it’s interesting to you.
In addition, the author mentions the super importance of building great relationships with friends and colleagues because those people will come across to give you a hand in terms of building a great business or sharing meaningful life experiences.
Moreover, this business book also highlights the essential way to get rid of unnecessary activities that allow you to manage your time better and stay focused on important activities that yield better results.
5. Conclusion
The 80/20 rule by Richard Koch provides stunning information on how to understand the rule and the way you can use the 80/20 rule to apply it in your real-world scenario. In particular, the author also highlights the top 10 applicable ways of the 80/20 rule that you should consider to implement and improve productivity if you are in one of those fields.
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By Jiro Nguyen.
The content is only based on the author’s personal opinion and experience. It is for informational purposes only, and it does not rely on as a comprehensive or a substitute for professional advice.
FAQ Section:
Why the 80/20 principle is important
The 80/20 rule is important because it can be used in any field of our life. Individuals can use this rule to improve their relationships.
What is 80/20 rule in studying?
Based on the Pareto principle, the 80/20 rule emphasizes the importance of reading conclusions or tables of content, which allow you to find the vital chapter in the book and yield up to 80% of understanding key points.
80/20 rule examples
The following are Pareto 80/20 rule examples: 1. 20% of consumers provide 80% of business revenue. 2. 20% of core products deliver up to 80% of business revenue. 3. 20% of drivers cause 80% of traffic accidents. 4. 20% of students hold 80% of University degrees.