This paper examines the role of the Pareto Principle in Total Quality Management (TQM), explaining how the 80/20 rule helps managers prioritize problems and focus on the factors that produce the greatest results. Using fast food industry examples, the paper illustrates how companies maximize core market strengths rather than diversifying unnecessarily. The paper also considers Toyota's rise as a TQM pioneer — built on its Kaizen philosophy of waste elimination and continuous improvement — and analyzes how overextension of those same principles may have contributed to the company's high-profile product recalls. The paper concludes that Toyota's experience offers valuable lessons for all organizations pursuing quality management.
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According to the Pareto Principle, a manager should "focus on the 20% that matters. Of the things you do during your day, only 20% really matter. Those 20% produce 80% of your results" (Reh, 2010). The philosophy behind Pareto analysis is that problems can have a multitude of causes. However, by examining the most important contributing factors or most salient features of a problem, the best possible solution can be determined. Conversely, the quality of what a company does well can be improved by focusing on its key strengths. One frequently repeated observation consistent with the Pareto Principle is that "80% of a company's business comes from 20% of its customers" (Setting priorities, 2010, Pareto toolkit). A business that is experiencing losses should therefore focus on how to improve service for its core 20%, rather than attempt to please everyone.
In terms of Total Quality Management, "Pareto charts are used to graphically display the relative importance of groups or segments of data. This makes it easier to identify which problems are most important. Typically, the data groups in a Pareto chart are displayed as a histogram or vertical bar chart, in descending order of significance" (Reh, 2010). By visually ranking contributing factors from most to least significant, Pareto charts give managers a clear framework for allocating attention and resources where they will have the greatest impact.
A good example of the Pareto Principle in action can be found in the fast food industry. When health concerns about fast food were widely reported in the mass media, some chains began to create healthier menu options or incorporate salads into their offerings. However, it was soon discovered that health-conscious consumers typically dine elsewhere, while the core demographic of fast food consumers generally wants a burger. This is why McDonald's, Burger King, and Wendy's have developed larger burgers, bacon-laden burgers, and dollar menus filled with staple items, rather than diversifying their array of healthy products in recent years. These companies have maximized their core market strengths and enhanced the menu features that appeal to their core demographic: beef, bacon, and low cost.
"Toyota's Kaizen philosophy and TQM leadership"
"How lean principles may have caused Toyota's failures"
Heller, R. (2005). Japanese managers. Thinking Managers. Retrieved March 20, 2010, from
Reh, F. J. (2010). Pareto Principle: The 80-20 rule. About.com. Retrieved March 10, 2010, from
Setting priorities for action. (2010). Pareto toolkit. About.com. Retrieved March 20, 2010, from
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