How Big Is Your Organizational Debt?
The debt that’s crippling your company isn’t on your balance sheet. It’s organizational debt. We’re all familiar with the concept of financial debt — money you owe, often with interest. Some of us are familiar with technical debt — taking shortcuts while writing code (or making repeated changes to code) that has downstream consequences later.
Financial and technical debt plays an important role in organizations. But another type of debt exists — organizational debt. Organizational Debt is the “interest” companies pay when their structure and policies stay fixed and/or accumulate as the world changes.
Consider this — as time passes, companies create roles, structures, rules, policies, and other norms that become fixed, and difficult to change by design. For example, a company’s travel budget may balloon one year, only to be restricted by a travel policy the next. If that policy starts costing more than it’s saving, it becomes debt. The “interest” comes in the form of reduced speed, engagement, and flexibility, which ultimately undermine the broader objectives of the company. Organizational Debt tends to manifest in two ways: through obsolescence and accumulation.
Obsolescence debt occurs when structures or policies become unfit amidst new market conditions. We operate in a world where everything inside and outside the organization is changing faster than the organization itself. As a result, our roles, structures, rules, and policies become obsolete all the time. If you require customers to fax, call, or mail you written instructions to make changes to their accounts today, that’s debt. If you can’t give a reasonable customer the thing they want because “our policy says or our processes won’t” that’s debt.
Accumulation debt occurs when structures or policies are repeatedly added but never removed. Every time something goes wrong, our instinct is to prevent future mistakes by instituting a new role, structure, rule, or policy. Unfortunately, we rarely eliminate them. And so a one-step process becomes a twenty-step process over the course of a decade. Ten different roles are required to make a decision. And the list goes on. This increase in complexity creates risk. Because we change jobs with increasing frequency, no one knows why we do things the way we do.
Organizational Debt is so pervasive we often experience a kind of paralysis about it. It’s too big to address with a sweeping edict or a task force. But we can prevent or even reduce it. The truth is that we can get away with a lot less structure if we hire smart people and let them figure things out. There may be an efficiency cost to keeping things open-ended, but in a rapidly changing world that’s often worth it.
About the Author
Andrea’s 25-year, field-tested background provides practical, behavioral science approaches to creating differentiated, human-focused organizations. A 4x ADDY award-winner, TEDx presenter, and 3x book author, she began her career at a tech start-up and led the strategic sales, marketing, and customer engagement efforts at two global industrial manufacturers. She now leads a change agency dedicated to helping organizations differentiate their brands using behavioral science.
In addition to writing and consulting, Andrea speaks to leaders and industry organizations around the world. Connect with Andrea to access information on her book, keynoting, research, or consulting. More information is also available at www.pragmadik.com or www.andreabelkolson.com.
Originally published at https://www.linkedin.com.
