August 3, 2020

Market Analysis

The Rising Threat of the Enterprise Debt Crisis

Originally published on

In enterprises around the world, there is a looming crisis that will dramatically impact their ability to compete and transform.

It’s the enterprise debt crisis.

As this crisis continues to worsen, it is hardening organizations and creating evermore rigid structures that are antithetical to the speed and agility they so desperately need in this period of continuous disruption.

But this debt crisis has nothing to do with finances or even capital. If you’re thinking that I’m talking about so-called technical debt, well, you’re only partially right.

The debt crisis threatening the enterprise includes the well-documented technical debt hanging around the neck of organizations, but it also includes two lesser-discussed and much more insidious forms of debt.

And the bill is coming due.

The Technical Debt Crisis is Crescendoing

Before I get into the other two forms of enterprise debt looming on the horizon, I don’t want to gloss over the genuine challenges that technical debt presents.

In fact, I would say that the enterprise debt crisis is crescendoing into an issue that leaders can avoid no longer.

As evidence of just how precarious the situation has become, The Economist — hardly an IT insider’s publication — recently published an article entitled, Why Companies Struggle with Recalcitrant IT.

Let’s face it, when The Economist is writing about technical debt, you know this is getting real.

The article gave examples such as Volkswagon’s software-induced delay of its all-new, all-electric car, the ID.3, and Boeing’s well-publicized software challenges with the 737 Max to demonstrate that technical debt challenges are spilling over into direct customer-impacting situations.

And you and I know that those are just the proverbial tip of the iceberg.

The challenges of technical debt can be found in nearly every nook and cranny of the enterprise tech stack — even in newer, so-called greenfield efforts that are only a year or two old. As the article so poetically put it, “shiny new IT systems can rapidly devolve into rickety, half-understood contraptions held together with gaffer tape and a prayer.”

Multiply this across the mind-blowing rate of change and development that the modern IT organization must cope with, and the picture becomes bleak.

As an analyst, I talk to both enterprise leaders grappling with these challenges, and with tech company executives trying to deliver solutions to help those leaders address them — but both sides often come away frustrated and little better than when they started.

Organizations struggle with addressing the tech debt challenge because the other forms of enterprise debt create problems that are even bigger and tougher to solve.

The Other Two Debts Accruing on the Enterprise Balance Sheet

If technical debt is so potentially debilitating to enterprise ambitions, you’re probably wondering, “What could be worse?”

Technical debt’s advantage, if you want to call it that, is its visibility.

The impact of past technology decisions becomes pretty apparent, pretty quickly. It is merely the complexity, cost, and annoyance factor that causes enterprise leaders to kick the tech debt problem down the road.

What makes the other two enterprise debts so insidious is their relative invisibility even as they silently accrue piles of interest. The villains of this story: organizational and cultural debt.

Organizational (aka structural) debt is the hardened policies, organizational structures, and governance artifices that the organization created years or decades ago and which have remained in place and intact even as the world around them has changed dramatically.

Cultural debt is the set of behavioral norms that have become engrained within the organization’s way of operating. Much like the hardened policies and structures of organizational debt, many of these behavioral norms evolved to respond to circumstances and situations years or decades ago — a cultural response to an environment that almost always no longer exists.

There are two reasons, however, that these two types of debt are more crushing to the enterprise’s ability to adapt and transform. First, these very cultural practices and organizational norms are most susceptible to the underlying and often unstated creed that “this is how we’ve always done it.” While we’re used to technology changing rapidly, many people within an organization will openly resist changes to these foundational behaviors, policies, and structures.

The second reason, however, may be even more daunting. Organizations have built much their technology debt upon these very structures, policies, procedures, processes, and behavioral norms. In fact, enterprises have most often used technology to lock in this organizational and cultural debt, usually in the name of operational efficiency.

All of these factors explain why there is often so much resistance to eliminating technical debt, and why you are so likely to have history repeat itself.

Therefore, the question hanging in the air is how to break the cycle and retire enterprise debt once and for all?

Scaling Excellence

As you’ve probably guessed, the answer to this riddle is that you’re going to have to do the hard work of retiring your organizational, cultural, and financial debt at the same time. They are too intertwined to do anything different.

Once you come to this realization, you will recognize that what you really need to do is to scale your transformational effort across all three of these dimensions, and across the organization, simultaneously.

But if you’re going to attempt to do so, you’ll need some way of controlling the transformational process to keep all the pieces together.

In a recent episode of the IDEO University podcast, Bob Sutton, author of Scaling Up Excellence and a Stanford professor of organizational psychology, explained how to strike this balance. “Find a way to make progress on tangible goals while also spreading a mindset that changes people’s behavior.”

He shared that to accomplish this balancing act, you must alternate between going fast and going slow, and between being optimistic and pessimistic. He went on to explain that most organizations go with one approach or the other, and are, therefore, unable to sustain the effort long enough to realize the change.

It’s a tricky balance. On the one hand, you want to move fast enough to affect change and get things done, but also go slow enough to make sure that things work and that you keep everyone on board.

Likewise, the balance between optimism and pessimism is essential. “At the beginning of a new effort, you want optimism, you want to leave space for failure and experimentation,” Sutton shared. “But when it’s time to implement, you need pessimism to help you focus on the details and get things done the right way.”

The big takeaway here is that you need to acknowledge and address your organizational and cultural debt, and the role they play in keeping your technical debt well-ensconced. Once you identify the structural and behavioral changes you need to make to retire the debt, you can use Sutton’s approaches and controls to make real and lasting progress.

The Intellyx Take: It All Comes Down to Transformation

Dealing with technical debt is right up there with going to the dentist and filing your taxes — you know you need to do it, but you’ll do anything you can to avoid it.

Nevertheless, even the most ardent kicker-of-the-can can tell that time is running short.

The costs and limitations that technical debt accrue are becoming more than an enterprise can bear. But while most organizations have attempted to deal with technical debt from a purely technical perspective, the real answer lies in dealing with the full debt package.

And the only way to address your organizational, cultural, and technical debt as one is to transform the mindset and structural elements that underpin everything else.

Your debt continues to grow. The bill will come due — and the due date is probably closer than you think. The time to tackle this once and for all is now.

© 2020, Intellyx, LLC. Intellyx publishes the weekly Cortex and Brain Candy newsletters, and advises business leaders and technology vendors on their digital transformation strategies. Intellyx retains editorial control over the content of this document. At the time of writing, no parties mentioned in this story are Intellyx customers. Photo by Ehud Neuhaus.


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