We’ve all been there. Desperately trying to get work done but in order to do so, you have to fight through layers of bureaucratic BS just to get approvals from people who don’t know what’s going on in the first place.
Maybe you have to use multiple systems to complete work that could be done in one. Or, perhaps you have poor data management causing rework and redundancies. These are just a few examples of a hidden kind of debt called organizational debt.
What is Organizational Debt?
The term was coined by Steve Blank all the way back in 2015. Blank likened org debt to technical debt (or design debt) which is related to software development. Essentially, when shortcuts are taken by a development team to get a product to market quicker, technical debt is the expense a company pays for rework later when performance suffers.
Organizational debt is conceptually the same, only related to an organization as a whole. You can see it rear its head in all areas - strategic planning, organizational structure, company culture, and decision making just to name a few.
Blank wrote only about organizational debt when it came to startups and the fast changes they go through in the early stages. However, org debt is an issue in all companies. It is unavoidable but certainly can be mitigated.
Aaron Dignan, founder of The Ready and author of Brave New Work believes that organizational debt will be one of the most important and talked about problems facing companies in the future. Dignan has a simple definition of organizational debt that I think sums it up nicely.
Any structure or policy that no longer serves an organization.
I also like Scott Belsky's definition.
Organizational debt is the accumulation of changes that leaders should have made but didn't.
The way I see it, organizational debt is always due to poor change management.
Examples of Organizational Debt
Org debt can show up in many different ways and have a massive impact. Leaders spend a lot of time trying to find ways to get rid of financial debt but often fail to factor org debt into their overall debt load. Organizational debt ultimately leads to financial loss and can lead to major organizational risk.
So...what are some basic examples of organizational debt?
Layers of approval
This one is common. Often it's a knee-jerk reaction to something that went wrong. Sometimes it's added layers of hierarchy as a company grows. Either way, if there is a 6 month lead time for ordering a box of pens because four people need to approve the order, maybe rethink what you're doing.
Static Job Descriptions
Organizations change and market conditions change. That means the needs of an organization change. It makes sense that what you need out of employees changes too.
When a job description doesn't shift as business needs do, you are setting a person up for unneeded or even redundant work and employee performance will suffer. This is very common in companies where mergers and acquisitions are common.
Business Process Issues
This could be an issue of not creating needed business processes creating inefficiencies in work. It could also be not updating processes that are outdated and no longer make sense.
Processes can have a high-level effect on agility and autonomy within an organization and can make an individual task much more expensive than it should be.
Organizational Debt is Everywhere
There is a seemingly unending list of examples where organizational debt rears its head and it can creep in at any time. It's why good change management is important.
Change is inevitable but sometimes we force unneeded change.
Other times we fail to adapt to change that's forced upon us. Get into the practice of looking deeply at how any change will affect you down the line - Company culture, employees, assets, equity for a team member, and ultimately your balance sheet. If you're making a change, you're likely increasing your debt load.