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Are We Creating Organizational Debt?

Linda Parker Gates

Interest in Agile and lightweight development methods in the software development community has become widespread. Our experiences with the application of Agile principles have therefore become richer. In my blog post, Toward Agile Strategic Planning, I wrote about how we can apply Agile principles to strategic planning. In this blog post, I apply another Agile concept, technical debt, to another organizational excellence issue. Specifically I explore whether organizational debt is accrued when we implement quick organizational change, short-cutting what we know to be effective change management methods. Since I started considering this concept, Steve Blank wrote a well-received article about organizational debt in the context of start-up organizations. In this post, I describe organizational debt in the context of change management and describe some effects of organizational debt we are seeing with our government clients.

The technical debt metaphor was introduced by Ward Cunningham in 1992. Technical debt refers to the phenomenon that occurs when an organization adopts a development approach that is expedient in the short-term but creates a context that increases complexity and cost in the long-term. The concept of technical debt likens technical complexity to the financial concept of debt, where short-term gains are sought at long-term, compounding expense. The expense can be in time or dollars and does not refer to deferred functionality but rather to necessary tasks (like the creation of architectural elements or operational capacity) that must be completed.

It's important to note that some debt can be desirable and can be incurred for good reason, just like financial debt, such as investing in a house. When debt is incurred unknowingly, however, or it isn't well managed, it can cause overwhelming problems. Organizational debt borrows the analogy to highlight the impact on people and culture issues that arises from the compromises an organization makes to enact change quickly, cheaply, or both.

As change managers know, there are time and dollar costs associated with proper organizational change, and short-cuts are often sought. 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." As with technical debt, there are some possible common sources of organizational debt, including the following:

  • Business pressures--An organization introduces new methods, technologies, organizational structures, etc., before developing all of the necessary communication, training, and support mechanisms.
  • Lack of collaboration--Leaders don't seek stakeholder input at the beginning of a change effort, resulting in incomplete solutions and a lack of staff buy-in.
  • Poor process design--Business processes are defined without considering the implications on job roles, critical behaviors, reporting structures, physical locations, etc., or without flexibility for changing business needs. In this case, processes can become cumbersome or obsolete, creating additional work and slowing existing business rhythms.
  • Lack of pilot testing--New tools, processes, or procedures are launched without testing organizational fitness.
  • Siloed change--Change occurs in isolated pockets of an organization or efforts are duplicated.

Whether in government or in the private sector, the pressure to invoke change quickly can lead to shortcuts, though change management experts will rarely advise them because the effects of poor change management are well known. What the concept of organizational debt adds is a way to acknowledge that failed change not only fails to deliver the promised ROI, but it also causes additional damage to the culture. That damage can be exceedingly costly and hard to manage. To compound the situation, leaders may be unaware of, and organizations as a whole may be desensitized to, the debt they carry--unaware of how they are paying for it and what their organizations would be like without it.

What Does Organizational Debt Look Like and What Can We Do about It?

Organizational change--whether it is the introduction of a new tool, the restructuring of business processes, or an even larger transformation--requires individuals to change. In fact, the goal of any change, be it lowered costs, greater efficiency, reduced errors, or increased customer satisfaction (to name just a few) can only be achieved, and the ROI achieved, if people adopt the change. The importance of the individual contributions necessary for success increases with the most strategic changes. Change management has the express purpose of delivering the benefits and desired outcomes of the change. If an organization takes shortcuts, however, those shortcuts not only directly undercut the organization's ability to get the return they're looking for, but may add debt as well.

In some of our work with the civil sector, we have been involved in guiding organizations through changes that range from small-scale reorganizations to the introduction of new management processes to the introduction of new toolsets across the entire nation. In most of these organizations, organizational debt that had accrued on past change attempts already existed even as the organization was trying to introduce new changes. This made individuals very skeptical about the coming changes--almost exhausted before they started--and confident in the inevitability of the status quo. The existence of organizational debt made the likelihood of achieving ROI fairly grim.

In addition to following good change management practices, an organization can avoid organizational debt by accumulating what I'll call organizational interest (or trust). Good change management allows an organization to "pay it forward," to establish dependable communication, visible sponsors, consistent training, feedback mechanisms, etc. so that change can be introduced more easily, and leaders aren't tempted to take shortcuts. By using good management practices and effective change management practices as a matter of course--that is, building a change management competency--organizations can establish a culture that is prepared for change, and thus may be able to handle some well-managed debt. Then, in a situation where a quick action is necessitated by market conditions, policy changes, or other unforeseen triggers, the organization may be able to utilize the debt concept in a productive way.

Wrapping Up

Good change management practices should help an organization avoid organizational debt. Short-term debt can be incurred in the interest of seizing opportunity, and strategically managed debt can help an organization take advantage of time-critical opportunities. But 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.

Additional Resources

Read the post Strategic Planning with Critical Success Factors.


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