organizational debt

This is Organizational Debt and how to tackle it

We’ve always done it this way”, “that’s from before my time” and “no idea really”. All common answers to a question like “Why do you do this within your organization?”. And say it yourself, haven’t you already given such an answer? This is perhaps logical because you already have your plate full with the things that are going on at the moment. Especially in this day and age. And why shake up something that is already there? You have pain and you are not really aware of it. That’s why you want to shake up something that’s already there. That’s exactly where the opportunity is to really breakthrough something. These kinds of answers, “that’s just the way we do it,” are red flags. 

You are suffering from the past without even realizing it. You have “Organizational Debt.” In this article, we take you along with defining Organizational Debt and how to tackle it. 

How nice it would be if you had an organization, where you don’t have a burden of the past. Or a bit more realistic; hardly have any burden from the past. You are then, as an organization, able to respond to the challenges of today and tomorrow. You are hugely adaptive. And you want to be adaptive, because the world is changing faster than ever before.  But let’s start at the beginning.

What is Organizational Debt

We know the term ‘debt’ originally from the financial world, as the sum of money you ‘owe’ someone through a loan or service that has not yet been paid off. In many tech start-ups, but also in large corporates Technical Debt is also a well-known phenomenon. In that case, we are talking about the debt you have from technical choices you have made in the past. For example, to get something done quickly under high pressure. Just a quick fix, or an easy hack. That may later prove to be inconvenient for further development, but we’ll see about that later. 

But the phenomenon of Organizational Debt is still unknown to many people and therefore a dangerous sniper. Its definition is The debt you bear as an organization due to choices made in the past. Startup guru Steve Blanks has written an extensive article about it, specifically for startups. But the problem applies to any organization, no matter what stage of development.

Organizational Debt is the debt you bear as an organization due to choices made in the past

Control mechanisms as an example

Let’s take you along with a twofold example, which may seem familiar to many companies: You are a pretty informal company in the beginning. Suppose you have made agreements around declarations, but have not yet established hard controls. And recently someone has “taken advantage” of exactly that. He has made off with the declarations and you have sky-high costs that month. To keep that in check in the future, you set up a control process. So far it doesn’t sound illogical, you might say. But this is already the first step away from trusting your employees. For one thing, you need someone else to run this control process. So it takes time, money, and more importantly, trust. At the moment you can still justify this from standardization and predictability.

Then fast-forward 5 years after that. There have been some similar incidents in the meantime that justify this route and more controlling departments have been introduced. But in the meantime, there are competitors who are more responsive to the needs of the market with more innovation. You also want to strike a blow to keep up, or at least not fall further behind. And you want your employees to become more entrepreneurial or innovative so that your organization can respond more quickly. And that’s when you start to feel the pain of past choices. Every idea your employee has that needs budget now has to go through a number of internal departments before they can implement it. There goes your speed. And even worse, the entrepreneurial mindset of your colleagues. Because after experiencing that twice, he or she is done with it.

How do you address Organizational Debt?

Solving debt isn’t fun; it actually hurts most of the times. With financial debt, the solution is very clear. Spend less, or make sure there is more money coming in. With Technical Debt, it’s a little less clear, but often causes code to be rewritten without adding new functionality. Also something painful, but has the potential for a “brighter” future.  Addressing Organizational Debt is another level, as it is not about money or code but often less tangible things. As such, it is a lot more complex.

Organizational Debt is woven into the unwritten rules, the processes, and the functions. Or even in the values or culture of your organization. Go figure. Let’s approach it small: it starts with discovering and recognizing. Then to tackle them at the roots.
Fight this organizational debt by always remaining critical. Do you have a rule or choice that you question why it exists? For example, that one declaration, or the control mechanism. Gather a team and go into depth to find out why it was there in the first place. The ‘5-times why‘ method is proven to address that. We’ve created a Tension Canvas to dive a bit deeper. And if that rule or choice is no longer valid, you have a perfect opportunity to start working on it. Stop it, replace it for a principle or do something completely different. But don’t miss an opportunity like this before it hurts even more later.

Address organizational debt before it hurts even more

To get back to the example and summarize. 5 years ago there was a choice, which seemed very logical at the time and would have little or no consequences. Now, 5 years later, you have experienced that it has mainly created more bureaucracy and prevents people from taking initiative. You now face an important choice. Tackle it now or leave it. Leaving it may be tempting, but the danger is potentially immense: a rule that is there, leads to other and another, more new rules. The effort required to tackle something, therefore, grows as the organization grows and becomes more complex. The visual below illustrates this nicely. 

Here you can see visually how the choice 5 years ago did not have much impact, it also seems easy to reverse. Now it’s already a lot harder, but still easier than if you let this lie for even longer. In short, tackle it now!

Start changing by stopping

In an earlier article, I described how you can start a positive change very small, by stopping. For example, by stopping meetings of which you see the contribution or reports that are not read anyway. That is exactly what you need to do with Organizational Debt. By stopping with choices or rules from the past, you literally free your organization of unnecessary bureaucracy.

Follow the tension

Recognizing Organizational Debt patterns is easier for some colleagues than others. To give you a hand with this, we’ve developed a number of steps that would help you recognize this. We call the first phase ‘Follow the Tension’. A tension is that uneasy feeling, you know that something can be different or even better. It is the gap between where you are now and where you would like to be. It is your opportunity to tackle what stands in the way of getting the most out of yourself or your team/organization. 

tension definition

We have developed a series of workbooks to help you find that Tension. And not only that. Each workbook helps you through the steps of the process by providing practical tools and tangible examples. Check out the Prototyping Workbooks, and start by following the tension.

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