How to Deal With Pareto in the Collaborative Age

The Pareto principle, also called the 80-20 principle is a characteristic of complex systems: a small part of the system accounts for 80% of its effects, sales or whatever is being considered. However the way it will be used needs to be considered carefully.

There are some considerations in serious papers like the Harvard Business Review that ‘AI Is Going to Change the 80/20 Rule‘. The paper explains that Big Data can be used to better understand where the Pareto distributions are and help change marketing or production parameters accordingly.

Of course if one finds that 80% of the value or profit is generated by 20% of the sales, the tendency will be to slash the 80% of unprofitable sales and concentrate on the high value ones. But that is not necessarily the most clever decision to take.

For example, new products and innovative services will not be part of the top profitable sales. Is it a good idea to slash them if they represent the future? Also, clients that currently belong to the long tail may suddenly become part of the core business.

Therefore the trick is not just to identify what creates most value, but to know how to manage the long tail of the 80% not-so-profitable business. This part might still be indispensable to the entire setup. Don’t slash it out without thinking!

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