Organisational debt

Organisational debt is lack of structure evolving around individuals.

Organisational debt is one of the hardest things to straighten out in an organisation. It’s very similar, and just as hard to cure, as its sibling “technical debt”.

Technical debt

Technical debt is a phrase originally coined by software developer Ward Cunningham. Wikipedia defines it as the implied cost of future rework created by choosing an easy solution now (quick & dirty) instead of using a better approach that would take longer. (Technical debt, Wikipedia)

In other words: you implement something very quickly and achieve this speed by sacrificing the easiness to further enhance and maintain the software. Typically this does not remain the only compromise. Step by step, a once well-structured system architecture degrades into a spaghetti-code monster full of shortcuts, redundancies, additional complexity, hard-to-foresee dependencies and, even worse, a system that only a few individuals can still understand and manage.

By gaining speed in the short term you create hard debt for the future. Fixing accumulated technical debt requires tremendous effort, a lot of time and heavy investment.

This does not mean that pushing speed over structure is automatically a bad decision. It can be the right decision at the right moment. But it is a dangerous medicine and, like any medicine, should be taken consciously, in small doses and for limited periods of time.

And the same problem exists for organisations.

Organisational complexity

Typically organisations expand. “If you’re not growing, you’re dying.” (William S. Burroughs). Businesses grow either organically or inorganically through mergers and acquisitions.

In both situations – but especially in mergers – organisations fall into the same trap.

When two companies merge, most functions exist twice. And of course, mergers do not take place leaving both organisations untouched. The intent is usually to create synergies, meaning to run both companies with roughly half of the management and support layers of the originals.

But the devil is in the details. In my experience, companies do not usually screw this up completely. They often come out with a new org chart, some top and middle managers leave and the organisation moves on.

But even if it is not a disaster, almost every single merger creates at least some degree of organisational debt.

Conserving knowledge

Imagine company A and company B merge. The goal is one clean risk area with clear teams and proper structure. But company B had certain specialised products that company A did not. Company B had a dedicated team managing this product. And the head of this team is a genius.

You obviously must keep him. It would be absurd to let him leave. But you also cannot ask him to step down in hierarchy just to fit neatly into the new org chart.

Well, guess what happens: you create debt. You build organisational structure around this person. It’s not always a wrong decision, but it becomes dangerous when many such decisions start to add up.

Let me give a second example. This time from organic growth.

Organic growth

Imagine you run a strong and growing organisation. After some time you realise you did an awesome job. The company is flourishing, and you have attracted incredibly talented and valuable young people. To keep this talent and honour their achievements, you start looking for ways to offer them a new position, a raise, a promotion.

But what if there are no free positions? What if this talent is the real driving force behind the business and even outcompetes her own supervisor? You know it. But you do not want to get rid of the supervisor. He might be a loyal senior executive and not doing a bad job at all.

So what do you do?

Very often organisations simply create new positions. They create new teams, let the talent jump several levels of reporting or even run small reorganisations “to make it fit”. Making it fit is not wrong by definition, but it is dangerous.

All such small deviations from a proper MECE-compliant structure create debt.

MECE principle

MECE stands for mutually exclusive and collectively exhaustive. I learned it from one of my best colleagues who worked for McKinsey & Company.

The concept was invented by Barbara Minto and explained in detail in her classic book The Pyramid Principle.

In short: good structure means no overlaps and full completeness. And the same applies to organisational design.

The GAP between a MECE-compliant structure and your actual org chart is what we call organisational debt.

And just like in IT, organisational debt is easily created but very hard to fix. Straightening out the accumulated flaws requires dealing with people, roles, egos and psychology, and this is usually much harder than cleaning up code.

Interestingly, many companies try to fix organisational complexity by creating even more debt 🙂

When facing organisational complexity, companies often experience a degeneration of time-to-market. Projects take longer, delays increase and costs explode beyond what anyone believed possible.

Speedboats

One popular solution is the creation of “speedboats”. These are teams decoupled from the mother organisation. They are given freedom to experiment, not follow old processes, ignore outdated infrastructure and often enjoy almost “limitless” access to funding. They are released from the burden the tanker carries.

You can do this. It’s not bad per se. You just need to be crystal clear about two things:

Now the crucial points:

1. You just created additional organisational debt. A lot of it. You created a two-level society: the innovators and the laggards – or at least the people who feel like they have become the personalisation of “incapacity”.
2. You have not solved the problem. The biggest part of your organisation is still the tanker. The tanker makes the money. The tanker carries the debt. The speedboat will by definition never ever make your tanker better.

And here comes the sentence that has always been true:

If you cannot bet and guarantee your new speedboat to become YOUR COMPLETE AND ONLY BUSINESS, you better start working on the tanker.

Why is it so hard to get rid of organisational debt?

Because humans come with psychology.

Humans need to belong to communities. Once teams or groups exist, they reinforce themselves. Employees often feel stronger belonging to their team than to the company as a whole.

If employees strongly identify with a team, they resist any change that threatens their identity.

And the leaders of those teams will use every piece of corporate politics arsenal to defend their territory.

Teams fight for survival. Organisational debt will not disappear from inside. It requires intervention from outside.

How to get it done?

Two levers help enormously: hierarchy and goal setting.

Removing hierarchical layers is the first step. It reduces the number of resistance points. With fewer layers, fewer managers fight for the survival of their small kingdoms.

The second element is goal setting. Ideally, teams do not receive hundreds of isolated team-specific objectives. Instead, the company defines a small number of overarching goals that are openly communicated and shared across all teams.

Aligned overarching goals unite teams. When people see how they contribute to the overall objective, they identify more with the company and less with their local team. When they understand how organisational changes help achieve these goals, acceptance becomes easier.

Resistance will never disappear completely, but with fewer hierarchical layers and clear company priorities, change becomes significantly easier.

Lessons learned

Organisational debt exists. And if you don’t consciously manage it, it grows.

With this understanding, future promotions and structural changes can be thought through more carefully before adding more debt. And when you notice that the debt has become too large, you must act. Otherwise your competitiveness will weaken faster than you think.

Organisational debt will not clean itself up. Either you design your organisation consciously or your exceptions and compromises will design it for you.