One of the most interesting metaphors derived from Software Development into organisation design is Debt. The concept of Technical Debt was first introduced by Ward Cunningham in 1992 when he stated that shipping first time code is like going into debt (Cunningham, 1992). He essentially referred to the fact that programmers, as they code, sometimes take shortcuts and don’t produce a “clean code” to respect deadlines. This creates a debt that needs to be considered, making code more difficult to manage over time. This concept has resonated a lot, up to the point that Ward made a YouTube video in 2009 to explain how many people got his metaphor wrong. Let me pick two key concepts from that video when he states Technical Debt:
Technical Debt is fixed by refactoring code, which essentially means cleaning it; it does not add features visible to the users but makes the code more stable and understandable.
In 2015 Steve Blank famously associated this same metaphor with start-ups (Blank, 2015), providing the first definition:
Organizational debt is all the people/culture compromises made to “just get it done” in the early stages of a startup.Steve Blank
The basic idea is that as startups focus on speed, especially in their early stages, they compromise on code features and many aspects of their organisation design. If the product is successful and the company grows, however, the scale of the organisational debt can quickly become problematic. So companies need to move away from the “we’re too small to need that” mindset and start refactoring their organisational debt.
Blanks looked especially at elements of Corporate Culture and Communication.
In reality, in 2012, Ben Horowitz had written an article on Management Debt, an idea that he credited to Joanne Bradford (Horowitz, 2012).
Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence.Ben Horowitz
He also refers particularly to startups and looks at a few examples of short-term decisions that can create issues in the long run, such as not clarifying role boundaries, overcompensating some employees or not creating a performance management process.
Everyone knows that pressure to ‘just get it done’ is the origin of the problem (Starrenburg, 2021). This is why there is also a key leadership component in this concept, well captured by the definition of Scott Belsky, author of The Messy Middle where he dedicates a chapter to the concept (Belsky, 2017).
the accumulation of changes and decisions leaders should have made but didn’t.Scott Belsky
Aaron Dignan observes, however, that Organisational Debt is not a feature of startups only. In fact, he believes that it will turn out to be one of the most important concepts in the future of work (Dignan, 2019).
He defines Organisational Debt as:
The interest companies pay when their structure and policies stay fixed and/or accumulate as the world changes.Aaron Dignan
Essentially the idea is that as time passes, organisations build roles, rules, structures, policies, procedures that become rigid and fixed by design.
The “interest” comes in the form of reduced speed, capacity, engagement, flexibility, and innovation that ultimately undermine the macro objectives of the firm: to survive, thrive, and achieve its purpose.Aaron Dignan
He also specifically identifies two ways where Debt manifests itself:
It’s easy to see this phenomenon happening in any of our organisations. But there are many different sources of debt (Parker Gates, 2017). Let’s see some:
If you look yourself around in your organisation, you will for sure find traces of Organisational Debt. Unfortunately, we don’t have today an organisational “p&l” that allows us to monitor the exact levels of debt. Yet, we can analyse and investigate our debt levels in some easy ways.
For example, just scanning an org chart, it is possible to spot several issues (Ben-Yosef, 2020), such as:
Reading policies and procedures can give more insights and run through compliance reports. Likewise, the same analysis of Employee Satisfaction surveys (or similar) can provide a minefield of clues.
The idea is to run some debugging ahead of refactoring, for example, by running a “kill” list (Bauer, 2019).
The issue is that very often Organisational Debt is already out of control. There’s no awareness about its impact until market conditions make it evident that the organisation cannot repay the interests.
Organizations may intentionally or unintentionally incur organizational debt through management actions, governance process changes, internal process changes, or large-scale organizational changes when short-term advantages are sought at the expense of “doing things right.”Linda Parker Gates
So is it possible to intentionally manage organisational debt?
Exactly like when you take Debt to finance your business, you need to be careful when taking Organisational Debt.
First of all, it is important to consider the Total Cost of debt (the sum of the capital plus the interests). This is because interests grow with the increase of risk for the lender, which is why if you ask for a second or third loan, these might come at a higher interest rate.
The second aspect to consider is that repayment needs to be done independently of business results. This is an important aspect because Debt is taken in anticipation of certain business results, which might not concretise.
Therefore Taking Debt needs to be an act of Intentional Design. You need to clearly analyse alternatives and make sure you commit to a sustainable level of debt.
I believe it boils down, again, to the concept of consistency. In most cases, Organisational Debt will result from not taking decisions. We need to ensure this is intentional and not just done to avoid consequences. A critical example is the nature of too many procedures in our organisations, often implemented as an escape door from taking action (Belsky, 2017).
unmanaged organizational debt can bring disastrous results, and managing debt is more sophisticated even than managing change. If an organization isn’t managing change, it probably can’t manage debt.Linda Parker Gates
So is your organisation capable of managing change today? The above made me immediately think about the key fuel for making change happen in organisations: Trust.
The only way to manage Organisational Debt is to ensure that your organisation has adequate internal trust levels. Only this way you will be able to support the necessary pressure to “fix” all the organisational issues we have mentioned, conducive to debt.
Nurturing Trust is akin to setting aside the resources to repay Organisational Debt when needed. With Trust we can pay forward our Debt.
Here is where things do often go severely wrong. In many cases, Organisational Debt can be seen especially in excessive policies, duplication of roles, control mechanisms. All elements decrease the level of trust within an organisation.
We all know the example of a new Travel Policy created simply because a colleague had abused good faith. The issue is that in too many cases, procedures are created instead of giving feedback. This way, policies become codified overreactions to situations that are unlikely to happen again (Fried, 2016). But have the immediate effect of lowering Trust across the people in the organisation.
Building Trust enables running large transformation programs (that might offset the big sources of Organisational Debt we have seen above). Still, it should also allow the implementation of mechanisms that continuously monitor the level of debts and address issues as they form.
Organisational Debt is a major issue to be considered at the level of an individual organisation and systematically. Similarly to private Debt, the total amount of Debt within a System is an indicator of its health. We all know what happens with countries that have too much Debt. It’s not just the risk of default that looms, but the risk of having to act drastically to convey the necessary changes to repay the debt. Parts of this Debt can also be seen as the result of Conway’s Law effects that we have recently seen, as for example, that model is one of the main causes of service and product quality (Caglayan et al., 2015).
Joined with the epochal change on the Meaning of Work, I see this topic is vital to be understood by all organisations.
Carefully managing your Organisational Debt levels becomes a critical driver for the Intentional Design of your organisation. It allows to prioritise resources in your architecture, and effort along the way. What is important is building this as part of your Organisational Awareness journey, so that all knots are tied in when necessary.
What do you think?
Bauer, D. (2019, October 7). On the importance of reducing organisational debt—And how we did it. NZZ Open. https://medium.com/nzz-open/on-the-importance-of-reducing-organisational-debt-and-how-we-did-it-7117b4c03f72
Belsky, S. (2017, January 21). Avoiding Organizational Debt. Positive Slope. https://medium.com/positiveslope/avoiding-organizational-debt-3e47760803a0
Belsky, S. (2018). The messy middle: Finding your way through the hardest and most crucial part of any bold venture. Portfolio/Penguin.
Ben-Yosef, A. (2020, October 9). Lowering Org Debt: Spotting Org Smells. Medium. https://avivby.medium.com/lowering-org-debt-spotting-org-smells-8703fa1ef788
Blank, S. (2015, May 18). Organizational Debt Is Like Technical Debt—But Worse. Forbes. https://www.forbes.com/sites/steveblank/2015/05/18/organizational-debt-is-like-technical-debt-but-worse-2/
Caglayan, B., Turhan, B., Bener, A., Habayeb, M., Miransky, A., & Cialini, E. (2015). Merits of Organizational Metrics in Defect Prediction: An Industrial Replication. 2015 IEEE/ACM 37th IEEE International Conference on Software Engineering, 89–98. https://doi.org/10.1109/ICSE.2015.138
Casasola, T. (2016, July 24). The Unexpected Psychology of Organizational Debt. The Ready. https://medium.com/the-ready/the-unexpected-psychology-of-organizational-debt-61ac89b4795b
Cunningham, W. (1992, March 26). The WyCash Portfolio Management System. OOPSLA 92 Experience Report. http://c2.com/doc/oopsla92.html
Dignan, A. (2019, March 6). How To Eliminate Organizational Debt. The Ready. https://medium.com/the-ready/how-to-eliminate-organizational-debt-8a949c06b61b
Duagi, B. (2019, June 10). It’s time to start tackling organizational debt. Linkedin. https://www.linkedin.com/pulse/its-time-start-tackling-organizational-debt-b%C3%BClent-duagi/
Fried, J. (2016, June 23). Don’t scar on the first cut. Signal v. Noise. https://m.signalvnoise.com/dont-scar-on-the-first-cut/
Goulet, A. (2020, February 12). Technical Debt Isn’t Just Technical. CorgiBytes. https://corgibytes.com/blog/2020/02/12/technical-debt-isnt-just-technical/
Horowitz, B. (2012, January 20). Management Debt. Andreessen Horowitz. https://a16z.com/2012/01/19/management-debt/
Lilleaas, A. (2019, December 18). The #1 bug predictor is not technical, it’s organizational complexity. Me, Me, Me. https://augustl.com/blog/2019/best_bug_predictor_is_organizational_complexity/
Parker Gates, L. (2017, February 16). Are We Creating Organizational Debt? SEI Blog. https://insights.sei.cmu.edu/blog/are-we-creating-organizational-debt/
Starrenburg, S. (2021, December 1). Why ‘Organizational Debt’ is Such a Powerful Concept. https://adeliberatelife.org/organizational-debt-powerful-concept/
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