Wednesday, January 12, 2011

The 80-20 rule: Can we explain this using physical phenomenon

We have all experienced the 80 20 rule. I am reading the book by Richard Koch - 80/20 principle and wondered, while there is a lot of merit in 20% causes resulting in 80% of the results, can we explain this relatively statistical empirical phenomenon.

We have always known that nature is balanced to a point of equilibrium by a minimum (simplified) natural forces. There are countless examples - Yin and yang, Demand and Supply curves and so on.

In business too, we are familiar with matrices that we use to balance and prioritise. Examples, effort Vs return matrix, marketshare vs. customers. As one guru once said, any matrix is useful if one of the axis is a representation of necessity and the other axis is a representation of achievability.

This is where my theory comes in to say that result is always at minimum a quadratic ,and where there are more than 2 forces a multi-variate. This explains the non-linearity and the 80-20 principle or the 4-64 principles.

While post-facto this physical explanation of the 80-20 principle seems simplistic, I see it explaining the reason to use the 80-20 with care especially in identifying relationships and underlying causal forces

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