Organisational debt

Organisational debt is lack of structure evolving around individuals

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

Technical debit

Technical debt is a phrase originally coined by software developer Ward Cunningham. Looking to Wikipedia we get the following definition: “Technical debt is a concept in software development that reflects the implied cost of additional rework caused 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 quick but achieving this speed by this sacrificing the “easiness” to further evolve and maintain the software in the future. Typically such “compromise” does not stay alone for long and after some more “speed against structure heroism” step by step a well-structured system architecture degrades into a “spaghetti code” monster, full of short cuts, redundancies, additional complexity, hard to foresee dependencies and even worse, into a system which really only a few individual persons can understand and manage.

By gaining some speed in the short time you create some hard “debt” for the future. Getting rid of the technical debt and to straighten out the accumulated flaws usually takes a tremendous effort, a lot of time and clearly some heavy investment.

This does not mean that pushing speed over structure is in all cases a bad decisions. It can be the right decision at the right time. But it’s definitively a dangerous medicine which need to be taken with great consciousness. And as with any medicine it should better come in small doses and for a limited period of time.

And very same problem exists for organisations.

Organisational complexity

Typically organisations expand, “If you’re not growing, you’re dying” (William S. Burroughs). It’s the nature of every business to grow, either organically or an-organically by merger and acquisitions.

In both cases, but especially in the latter case organisations fall into a trap.

When two companies merge, you face the situation that most of the functions in both companies are duplicated. Of course mergers do not take place leaving both merging organisations untouched. The intent of merging companies is in most cases the creation of synergies, which by itself is nothing else than trying to run both companies with only half of the management and support function layer of both initial companies.

But the devil is in the details. Typically the new merged entity comes up with a new org chart and a bunch of top and middle managers need to leave, but still most companies don’t do their homework well enough. I strongly believe that you will have a very hard time to find a merger and acquisition processes that did not result into at least some bit of organisational debt.

Conserving knowledge

Imagine a situation where two companies merge together, company A and company B. Clear goal is to end up with only one risk area, with clear distinction between teams and clear structure. Unfortunately company B had some very special products that company A did not have. Company B had a fully dedicated team running and taking care about this product. Now imagine that the head of this former team is a genius in his field. You definitely need to keep him, it would be absurd to let him leave. But clearly you can’t ask him to step down in hierarchy to fit better into the newly planned organisational structure.

Well, guess what happens, you create debt. You create an organisational structure around that person. I remind you, it’s not always a wrong decision to do so, but it’s very bad if many of such decisions sum up.

Let me give a second example, this time from organic growth perspective.

Organic growth

Imagine you run a good performing and growing organisation. After some time you realise that you did an awesome job. Not only your company is flourishing but you attracted and hired some very talented and immensely valuable young talent. In order to keep this fabulous talent in your company and to honour the stellar achievements you start to search for a way to offer this talent a new position, a raise, a promotion.

But what if there are not free positions you could promote her to. What if, even worse, this talent is the real driving force behind the business success even outcompeting her own supervisor? You know that, but you don’t want to get rid of her direct boss. This supervisor might be a senior executive which had always been loyal to you and by no means is he doing a bad job. So what do you do?

Very often I’ve seen that organisations create artificial teams and positions. New team structures which are not at all necessary. But by creating a new teams you create room for the talent to grow and you let the talent jump the reporting line by some levels. I have even seen some organisations executing entirer re-organisations just “to make it fit” for a particular person. Again, “making it fit” is not wrong by definition, but it’s dangerous.

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

MECE principle

MECE stands for mutually exclusive and collectively exhaustive, a concept I very much like and which I learned by one of my best colleagues who worked for the honourable consulting firm McKinsey & Company.

The MECE concept was invented by the McKinsey alumni Barbara Minto and described in great detail in her management classic book “The pyramid principle”. (Minto 2009, pp. 23) – we will get into this with more detail in one of the following posts ahead.

In very short words it tells that good structure needs to follow the principle of “no overlap” and “being fully complete”. This holy grail of structure of course applies in the very same way also to organisations.

The GAP between a MECE compliant structure and your org chart is what is meant by “organisational debt”.

And same as with the IT example also organisational debt easily created but very hard to fix. To get rid of the debt and to straighten out the accumulated flaws it takes even more effort than in IT as you need to “fix” people, jobs, egos and psychology.

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

When facing organisational complexity companies do very often experience a degeneration of Time-to-market. In such situations important projects take enormously long, get delayed over and over again and consume amounts of money nobody believed possible.


One of the solutions many companies come up with are “Speedboats”. These speedboats are teams which are fully or partially decoupled from their “mother organisation”. These new teams are created with the intention of giving them the freedom needed to go new paths. In order to release them from the burden of complexity and slowness of the incumbent organisation they are granted big privileges in regard to not following “old” processes, not needing to use existing “outdated” infrastructure or having easier (“limitless”) way of funding and spending their ideas.

Repeating myself again and again, you can do this, it’s not bad by default. You just need to have two things crystal clear: By creating a speedboat,

  1. you just created additional organisational debt. A whole lot of debt to be more precise. This team is awarded to be the “special ones”. You just created a two level society, the group of innovators and the laggards who are or at least who feel like being the personalisation of “incapacity”.
  2. you have not solved the problem. The biggest part of you organisation is still the “tanker” and not the speedboat and most likely the “tanker” is still what makes you earn money. Independent of being a good or bad idea to create speedboats you still need to tackle the organisational debt in your tanker. Why on earth should you not need to do it? The speedboat will be definition never ever make your tanker better. This means in very simple words: 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 the organisational debt?

Solving organisational debt

Well, there is a lot of human psychology in the way. Humans have the inevitable need to belong to communities. We all want to be a part of something, let it be family, religion, sports, work teams or any other. It’s deep into our psychology (Maslow 1965) and on top it’s proven that communities or “social systems” once established, usually reinforce themselves or in other words, they make sure that the system will keep existing (Luhmann 1984).

Applying this concept onto organisations it’s obvious why getting rid of organisational debt is difficult.

But nature teams, areas and groups are pushing to keep existing. Usually employees feel “belonging” to a particular team, department, area or business line. To which level they feel belonging (team, area, etc.) is very much depending on the leader of such organisational structures and the culture established. Interestingly employees only seldomly feel belonging stronger to the overall company than to their smaller group of people they daily work with.

In case that employees strongly identify themselves as part of a particular team they will resist any organisational change which might put their team identity in danger.

And even stronger, the leaders and managers of such strong teams will do all they can to maintain their team, they will use all their corporate politics arsenal to influence on any potential organisational change.

Teams will always actively fight for “survival”. Organisational debt won’t disappear from inside. Removal of organisational debt requires heavy intervention from outside.

How to get it done?

Less hierarchy and good goal setting

Surely it won’t be easy, but the best thing organisations can do, is tackling hierarchy and goal setting.

Removing hierarchical levels is the first step, it simply reduces the number of resistance levels throughout the company. Less hierarchy, less number of teams which might go to war against change.

Remember, especially the managers of teams have an even stronger reason to keep their little part of the organisation due to ego and fear of losing power and influence in the organisation.

The second important element to start tackling organisational change is goal setting. Ideally you avoid as much as you can the setting of team specific objectives. The key to team alignment are clear company priorities. This priorities should result into a few number of overarching company goals, which are than being shared across all teams of the organisation and get openly articulated by the top management. I will come back to mastering goal setting in a future post when talking about OKRs.

Aligned overarching goals can unite teams across the organisation. When people see how they contribute to the overall company objective, they start identifying more with the company itself and not only to the individual team they work in. When understanding why organisational changes might help to achieve overarching goals and how organisational change can lead to be better prepared for the future employees might accept change more easily.

It will never be easy, resistance to change will always be part of organisational change. But by less hierarchy in the first place and by transparent well understood company goals change can be easier.

Lessons learned

The key lesson is to understand that organisational debt exists and that you actively need to deal with it. With this concept in mind future promotions and organisational changes can be well thought through before creating even more debt.

On top you should understand the importance of the concept and when realising that the debt in your organisation has gotten too far, you need to take immediate action or else your competitiveness as a company will be tremendously weakened.

2 thoughts on “Organisational debt”

  1. Great post Daniel!
    I think technical debt is not only originated by quick and dirty implementations, but also by the fact that technology is evolving very fast, and systems just become obsolete, or they are used with a different purpose or at a different scale than what they were designed for. In my opinion the best approach is to invest on a regular basis to reduce the technical debt by doing code optimizations, refactoring, and improving documentation, to make sure systems stay in shape. But can this be applied to organizational debt? Maybe by investing in people to acquire new competencies (e.g. through training and coaching) so they can be moved to another department, or do a different function. I think company culture also plays an important role here… Of course are some situations where this won’t help, and as you said you also need to deal with egos and psychology

    • Hi Hans, first of all thank you 😊 great to have you here. What you write is fully true, missing adjustments to technological evolution is indeed a root cause for technical dept.
      I fully think that this can be applied to organisational debt too, think on scaling an organisation. A good manager of a small org might be not the right one for a huge organisation and vice versa. Thus evolution of the organisation can as well have a similar effect.
      I never thought about this in this way, cool, something new to add to my classes 😊


Leave a Comment