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Theories on productivity

By Lee Sun-ho

While we are living our incredible hectic, destined finite lives, there is no denying that we must be sure to use our time efficiently and effectively. Virtually, our actions must be directed intelligently for accompanying goals with purpose. In this regard, it is amusing to ponder two comparative theories initiated by world-renowned thinkers related to productivity as we advance toward the fourth industrial revolution.

The 20/80 rule, known as the Pareto principle, named after Italian genius micro-economist Vilfredo Pareto (1848-1923). It states that for many events, roughly 80 percent of the effects come from 20 percent of the causes. It was rooted on his famous observation that 20 percent of the population owned 80 percent of the property in Italy. It is a common rule of thumb in business, say, 80 percent of our sales come from 20 percent of our clients. Pragmatically, the 20/80 rule is roughly followed by a power law distribution (known as Pareto distribution) for a particular set of parameters, and many natural phenomena have been shown empirically to exhibit such a distribution. The Pareto principle is only tangentially related to Pareto efficiency. Pareto developed both concepts in the context of the sharing of income and wealth among the population.

In contrast, the long-tail feature has found some ground for application, research, and experimentation. Our culture as well as economy is increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of demand curve and toward a huge number of niches in the tail. The notion of looking at the tail itself as a new market of consumers was first coined by Chris Anderson (born 1961), the British-American author of the article entitled “The Long Tail” as the editor-in-chief of Wired Magazine in October 2004.Anderson described the effects of the long tail on current and future business models. Conventional retail economics dictate that stores only stock the likely hits, because shelf space is expensive. But online retailers (like Amazon) can stock virtually everything, and the number of available niche products outnumbers the hits by several orders of magnitude. The shift from hits to niches is a rich scar, manifest in all sorts of surprising places. The long tail is a potential market and, the distribution and sales channel opportunities created by the Internet often enable businesses to tap that market successfully. The primary value of the Internet to consumers comes from releasing new sources of value by providing access to products in the long tail.

The above-mentioned two theories advocated by both Pareto and Anderson, respectively, are working reasonably well in many aspects of human lives, no doubt. However, they cannot be practically generalized with sweeping applications across mankind activities. Then such criteria should be thoroughly adapted to different spheres of industries on a case-by-case basis, with respect to the specific characteristics of each business, leaving open the possibility of innovation and environmental changes having a large impact on the future, which could produce as new way of analyzing trends and businesses. Who knows? Maybe this is how we have been looking at things all along.

The writer is an ombudsman columnist for The Korea Times in Seoul. Contact him at kexim2 @unitel.co.kr.


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