Organizational Debt Kills Responsiveness

Have you ever started a task at work that should be simple and quick then found it to be crazy hard? If so, you may have run across an example of a business concept that has been becoming more and more important. The concept is Organisational Debt, and I am starting to believe that this is the number one reason for establishing a Responsive Change Strategy.

You have to avoid debt because debt makes the system more fragile.

- Naseem Nicholas Talib, Antifragile: Things that Gain from Disorder

I recently had an experience that brought this concept home for me. I was performing what I thought would be very simple project, consolidating proposals from different sources into a single MS Word document. I figured this would take me a few hours at the most. Unfortunately, it took me more than a day and a half because I copied content from existing templates that had clearly had gone through several iterations of the text, pictures, and formats being cut and pasted in to them. As a result, the document became painfully difficult to work with. I had to back up, remove all formats, and start clean. Setting aside for a moment my own administrative incompetency, this wasted time is the accumulated interest from Organizational Debt demonstrated on a small scale. On a larger scale, Organizational Debt can paralyze a company.

Let’s unpack Organizational Debt for a moment. Debt is a common concept. Anyone with a credit card or loan understands financial debt. One takes a loan for a short-term purpose to pay it off in the long-term only with the additional cost of interest. Organization Debt works very similarly. Organizations make decisions based on short-term requirements only to create barriers that they will have to manage in the long term. The “interest” from Organizational Debt is the cost of untangling all those decisions when trying to make change. Avoiding this interest becomes a key argument for robust and continuous Change Management approach.

People who think about change, agility, and adaptiveness have understood this intuitively for a while, but to have it so aptly described by Steve Blank in his 2015 article “Organizational Debt is Like Technical Debt but Worse” has proven highly beneficial to recognizing and solving the issue. In his post he says “Organizational Debt is all the people/culture compromises made to ‘just get it done;’ in the early stages of a start-up.” More recently, Organizational Debt has been applied to organizations of all maturity levels, not just start-ups, to ascertain the accumulative and longitudinal effects of short-sighted decision-making on the organization’s ability to respond to change.

An extreme example Organizational Debt and its impacts happened a few years ago with a client who was planning to install a new ERP system. Under the best of circumstances, this is a risky, complicated, and expensive change. The client rightly recognized the need for help on the people side of the change to mitigate the risk and improve adoption of the system. To plan properly, we needed to collect diagnostic data and perform situational analysis. This proved quite frustrating as they were unable to answer the most basic of questions such as:

• How many processes will be impacted by the change? They had no idea.

• How many divisions are impacted by the change? They could only guess (incorrectly)

• How many people are in your company? They had to check (and still got it wrong).

And it only got worse from there.

The primary reason for this lack of clarity was that this company had failed to manage their Organizational Debt accumulated through their 30 years of existence. They had started with a very simple retail product and built up to massive, individual, and highly customized projects. They were very successful, but their success was exactly what was hindering their future. They had never looked back at the decisions they made, the processes they put in place, or the products they had launched and rethought or reengineered them. In other words, they had never retired any of their Organizational Debt. Now, they were facing years of preparation before they could make a positive and logical change resulting in a massive delay realizing the return from their investment. In effect, they were paying interest on their debt.

From my experience, Organizational Debt shows up in multiple ways. One is operational debt that results from complexity created by expanding the organization. As they grow, organizations add new processes, new markets, new products, etc. but they often fail to eliminate or reduce those processes, markets, and products that have become redundant or obsolete. The result is hidden costs to doing business that slowly laden the company and eat up resources that could otherwise be eliminated or reassigned. Another form of debt is knowledge debt. This occurs when people move within an organization or leave the organization. The intent of past decisions is lost and all that remains behind is the effect of those decisions good or bad. A third form of debt is cultural debt. This describes the behaviors and practices that have become ingrained in the culture that fail to evolve with the changing environment. Taken separately operational, knowledge, and cultural debt are a major challenge to change efforts. Taken together they can be fatal.

Like financial debt, getting out of Organizational Debt is best handled by 1) not accumulating it, and 2) strategically reducing the debt you have already. Having a Responsive Change capability is one way to affect both situations. By creating a framework for change that is utilized at all levels and by increasing the speed of adoption, change utilization, and proficiency in new ways of working, your organization will be better able to reduce its Organizational Debt and increase its responsiveness.

Building a Responsive Change program that impacts Organizational Debt requires a few very necessary steps.

1) Make change a strategic imperative: Organizations that make change a key part of their strategy and evaluate leaders on their ability to lead effective change will also prioritize the elimination of Organizational Debt.

2) Create an enterprise wide structure for change: Having the frameworks, tools, and competencies for change widely available to those who will use them and building the competency of leaders, managers, and employees to use them enables them to eliminate Organizational Debt.

3) Build a cadence for change: Avoid the “big interventions” by making change continuous. Create a cadence for the organization that is not overwhelming but also keeps the energy level high. Organizational change is like exercise, the more you do it, the less energy it takes.

Companies with low Organizational Debt have a sustained strategic advantage. They are able to “out change” their competitors, be responsive to internal and external pressures, and more rapidly realize their return on the investments they make. Having a Responsive Change strategy is a primary enabler to reduce or eliminate your debt.