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Engineers design systems with operating margins. So why don’t businesses?
Every engineered system is designed with tolerances. Bridges accommodate wind loading. Buildings are designed to withstand abnormal forces. Aircraft incorporate redundant systems because engineers understand that complex systems encounter unpredictable stresses throughout their operational life.
Businesses, however, have spent decades trying to eliminate those same margins.
Modern management has become remarkably good at removing waste. Lean operations, just-in-time supply chains, maximum utilisation and smaller teams have become hallmarks of successful organisations. Every unnecessary cost has been scrutinised. Every idle hour questioned. Every underutilised resource marked for optimisation.
Under normal operating conditions, the results would be impressive. The difficulty is that businesses are not static structures operating within controlled environments. They are complex systems, constantly responding to external forces that cannot always be accurately forecast. The pursuit of maximum efficiency has improved performance under predictable conditions, but it has also reduced the system’s tolerance when those conditions inevitably change.
When Systems Come Under Load
Engineers understand that the true test of a structure begins when external forces start acting upon it…
Businesses experience precisely the same phenomenon. A supplier misses a delivery. A transport strike disrupts logistics. A key employee resigns unexpectedly. Consumer demand shifts without warning. A product suddenly goes viral.
These events differ in their causes, but from a systems perspective they perform the same function: they apply stress. The important question is not the specific nature of that stress, but whether the business has been designed with sufficient operating margin to withstand it without performance deteriorating elsewhere.
Businesses rarely fail because of a single disturbance. They fail when several ordinary pressures arrive at the same time
The Hidden Cost of Optimisation
Efficiency is comparatively easy to measure. Labour utilisation, operating costs, inventory levels and productivity all fit neatly into management reporting.
Organisational resilience is different. There is no straightforward metric that captures whether a business can absorb the temporary loss of specialist knowledge, a sudden increase in demand or disruption within its supply chain. Yet the absence of that capacity becomes immediately obvious once the system comes under pressure.
This is one of the less visible consequences of relentless optimisation. Activities that strengthen resilience rarely appear productive in the short term. Documenting knowledge, cross-training colleagues, maintaining relationships with seasonal workers and giving experienced staff time to transfer knowledge before it becomes critical.
Viewed purely through the lens of efficiency, these can look like unnecessary overheads. Considered as elements within a complex system, they are operating margins.
Engineers understand that margins are not evidence of poor design. They are what prevent small disturbances from becoming systemic failures.
Seasonality as a Stress Test
Seasonal ecommerce demonstrates this well. Retailers selling outdoor living, garden and home improvement products generate a significant proportion of their annual revenue within a relatively short trading window. The timing of that demand, however, is influenced by forces well beyond their control. Weather patterns shift purchasing behaviour by weeks. Consumer trends accelerate unexpectedly. Marketing campaigns outperform expectations. Competitor activity changes overnight.
The instinctive response is recruitment. Increase headcount ahead of peak demand, then reduce costs once the season has passed. Entirely logical on paper, but much less so in practice.
New employees do not immediately increase productive capacity. They first consume it. Experienced staff divide their attention between serving customers and transferring years of accumulated knowledge. Systems that normally operate efficiently slow while new colleagues learn unfamiliar processes. Headcount rises immediately, but organisational capability develops much more gradually.
The challenge is particularly acute within smaller businesses, where individual employees routinely span customer service, purchasing, supplier relationships, stock management and fulfilment. When demand arrives earlier than expected, there are often very few alternative pathways through which additional work can flow.
The system has reached its operating limit.
Designing for Resilience
Some businesses absorb these pressures remarkably well despite operating within exactly the same markets.
The difference is rarely that they employ significantly more people. More often, they have designed resilience into their organisation long before it is required. Knowledge is documented rather than retained by individuals. Systems are intuitive enough for temporary staff to become productive quickly. Relationships with seasonal workers are maintained from one year to the next. Responsibility is distributed rather than concentrated around a handful of key employees.
None of these decisions will maximise efficiency in the short term, but they will increase tolerance in the long term.
Perhaps that is the difference between optimising individual processes and optimising an entire system. Engineers have long understood that complex systems are judged only by their performance under less-than-ideal conditions.
Businesses may increasingly need to adopt the same philosophy. Don’t aim to build organisations that never come under pressure. Build them so that they don’t break when they do.
Allan Jeffrey, founder and CEO of Ultra Decking
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Image source: elements.envato.com
