The Intentional Organisation - Issue #30 - Managing Organisational Debt
1. Managing your Organisational Debt?
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. 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:
is not about missing or delayed features. Instead, these are product management choices.
It is not about producing poor quality: the initial product might be of high quality, but the code still might have debts.
Debt per se is not negative, as, with any other human activity, debt needs to be managed.
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.
Extending the concept to Organisations
In 2015 Steve Blanks famously associated this same metaphor with start-ups, 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.
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.
Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence.
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. 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.
the accumulation of changes and decisions leaders should have made but didn’t.
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.
He defines Organisational Debt as:
The interest companies pay when their structure and policies stay fixed and/or accumulate as the world changes.
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.
He also specifically identifies two ways where Debt manifests itself:
Obsolescence: This essentially happens when structures and policies become "unfit" to market conditions.
Accumulation happens when policies and procedures are constantly added but never removed.
It's easy to see this phenomenon happening in any of our organisations. But there are many different sources of debt. Let's see some:
Lack of Collaboration
Poor process design
Lack of testing
Siloed practices (which create redundancies).
How can we assess the current Debt levels?
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.
Debt can be identified through different tools, like running an organisation chart diagnostic or a broader assessment covering different design elements.
For example, just scanning an org chart, it is possible to spot several issues, such as:
Redundant Organisational Structures
Sideline projects that attract resources
Outdated Structures (Team A that actually does Z)
Disorders and so on.
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.
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."
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.
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.
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. But have the immediate effect of lowering Trust across the people in the organisation.
Actions to Lower the Overall Debt
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.
Job Crafting is identified as one of the main tools to enable the organisation to control its levels of debts. I have already written about Job Design being a pivotal competency to develop for the modern organisation. And here, I definitely see the link with Dignan's statement above. Enabling Job-Crafting by individual workers is the best way to ensure the organisation keeps flexible while enabling energy flourishing across individuals and teams.
Establish a Feedback Culture. We have mentioned it several of the debt artefacts are created instead of giving feedback to misbehaving individuals. The best way to prevent this is giving feedback.
Constantly keep questioning assumptions behind organisational choices. Whether it is an organisational structure, a policy or a role, keep challening the reason for why it was created in the first place.
Practice Participatory Governance. Involving people in the codesign of roles, structures, policies are a formidable way for escaping the junk of debt.
Last but not least, hold an Organisational Backlog. Akin to the agile methodology backlog, this will allow taking note of the priorities and all the "shortcuts" taken that need to be refactored over time.
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 adapt to markets.
Joined with the epochal change on the Meaning of Work, I see this topic is vital to be understood by all organisations.
What do you think?
Cover Photo by Linus Nylund on Unsplash
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