How to pay back organisational debt
Innovate without drowning in organisational debt. Here’s how.
Rachel André | October 13, 2015
It's October 2015 and someone, somewhere has had a great idea to do something very differently (you might call it “disruptive” if you want a few points in Buzzword Bingo). It takes off overnight, becoming an instant success, leaving most of us thinking, "Why didn’t I think of that?"
Fast forward two years and the start-up is no longer run by a group of friends in an apartment working 24/7 to deliver their product to the masses—it's now a 200 person–strong, fully fledged company with no documented processes, no organisation structure, and almost certainly no defined roles and responsibilities.
Meet organisational debt, technical debt's new, less-techie counterpart tempting you to take out multiple (organisational) credit cards and loans which you cannot pay back.
What is organisational debt?
Let's start with technical debt, a well-known concept in the world of technology enablement. Technical debt arises when organisations need to make quick-and-dirty system changes to support the delivery of a service or product, or perhaps just make a minor, quick enhancement to the customer experience. This is debt companies are willing to owe, but if it isn't managed in the right way, it soon spirals and can become impossible to pay back.
The same can be said for organisational debt. When companies innovate successfully and grow quickly, there's usually an underlying “just get stuff done” attitude to focus on providing excellent products and services to customers. They ignore developing internal processes and structures, resulting in an accumulation of organisational debt. At first, this is usually completely manageable and worth the investment.
After all, debt can be good, right? Paying off debt later enables you to quickly respond to opportunities now. But unchecked, that organisational debt can grow to the point that its unmanageable. The building blocks of your business—processes, organisational design, information flows, talent management, and communications, among others—need to be stable to support on-going business growth.
Why is it important to understand now?
Whilst we have heard about technical debt for over ten years, organisational debt is a fairly new concept. In fact, even today the thought leadership around this topic is very limited.
We see organisational debt in innovative companies that have grown at great speed; startups that have accelerated from 1 to 200 people in two years are prime examples. We've spent time speaking to clients in these companies and here's what we are hearing:
"We have no HR processes at all. There are no clear reporting lines and everything is a mess," said one client from a leading online retailer.
"We grew to 1000 people in just a few years, and as a result we have over 400 job titles," said a senior HR executive in an insurance company.
"All our knowledge of the back-end systems sits with two individuals who joined as interns two years ago. We haven't increased their salaries and I'm worried they will walk soon. They see all this new blood who are on at least double the pay, we have no contingency planning, and I don’t have the structure to manage this serious business continuity risk," said another client from an app development company.
And it's not just start-ups. We are seeing more and more established companies suffer at the hands of organisational debt, too. These companies have dedicated teams focused on innovation, creating new products and services outside of the existing organisation (in "innovation labs" or isolated teams) and we see organisation debt forming when they try to put what they have created back into the existing organisation. It doesn’t fit. Or even worse, it's shoe-horned in with no thoughts on how to align it with existing processes or organisational structure, creating massive organisational inequality and debt.
How to deal with organisational debt in times of rapid innovation
Option 1: Avoid it.
Build a responsive organisation that is flexible and agile (two more bingo points) enough to face these challenges head-on as they occur. Put in place the structure, principles, and processes from the start to allow your people to react to the change around them in a way that does not leave debt behind. It would be naïve to think you could have no debt at all, but you can create a culture where it's not spiralling out of control.
Option 2: Accept it and manage it.
Identify your “non-negotiables” up front. Spend some time with your leadership team in the early days and decide on 1-5 things you will not let fall by the wayside. For example, “we are not willing to compromise on role clarity” or “we are not willing to compromise on a clearly defined purpose and vision.”
Realistically, if you have already started accumulating debt, the best way to deal with it is probably somewhere in-between… leading us to Option 3.
Option 3: Accept where you are.
Identify those areas you are willing to accept will create debt, but be sure to put a plan in place to address these areas so it doesn’t become unmanageable, and agree on this upfront. We call this an “organisational debt alignment check.” For example, “we know we won't have a rigorous performance management process for the next 1-2 years, but we will empower and give our people managers the tools to manage this themselves.” Equally, identify the quick wins and put short-term, tactical plans in place to address them.
It's always going to be tough managing organisational debt in a time of such rapid innovation, but if you ensure everyone is on the same page from the start, be open and honest about the challenges you're likely going to face, and agree on areas that you’re not willing to compromise, you'll be in a great starting position.
And remember, start-ups require a lot of investment, so who isn't going to need a few (organisational) credit cards in their back pocket? Just make sure you pay them off on time.
Rachel André is a principal consultant in Slalom UK's Business Advisory Services practice. Rachel specializes in change enablement, change effectiveness, and project delivery.
Rachel André is no longer with Slalom.