The CEO who said that to me was a successful entrepreneur who had grown his startup into a 25-person marketing company serving hundreds of brands. Our technology gap analysis had turned into more of a venting session about the growing pains he was seeing in his organization. He was losing sleep about his company’s challenges arising from:
- Poor vendor management
- A hodgepodge of tech that wouldn’t scale
- Inability to keep up with new leads
- Stagnant R&D
- Lack of focus
A week later I found myself in a similar conversation, this time with a VP of Engineering looking for an outside perspective. By most measures, his 350-person SAAS (Software as a Service) company was a success. But behind the scenes lurked dysfunction common to many companies, especially those that have grown by acquiring other companies. My friend was aware of these issues but was struggling to make a business case that would persuade his fellow executives to address:
- Duplicate processes
- Redundant tools
- Incompatible technologies
- Balkanized departments
- Misaligned priorities
What did these executives have in common?
- They were smart, successful managers focused on operating their business day-to-day.
- As the strategic needs of their business changed over time, small problems had grown into bigger problems.
- Both leaders were struggling to prioritize solving these kinds of problems.
They had accumulated strategic debt.
If “strategy” is how you define and implement a framework for success, strategic debt is what accrues when you neglect the necessary maintenance of that framework.
I often speak with leaders struggling with strategic debt, and I’ve faced it myself: stuck in a cycle of endless meetings, fighting fires, continuously being in reactive mode. Or struggling to get work done across departments, each with their own competing priorities.
As a leader, at one time you may have invested a fair amount of time and thought in your organization’s strategy. Over time, that initial investment loses value. Your original framework for success drifts from the framework your organization needs today. You accumulate strategic debt.
You know you have strategic debt when:
- Organizational structure is aligned with former, not current business needs. For example, a marketing person is responsible for technical issues (or vice versa). Or what should be a single department is spread across multiple groups because those groups historically owned a piece of the portfolio.
- An employee, manager, or perhaps the CEO has become the expert in an essential function. That person can’t delegate or scale because her best practices live inside her head.
- A team’s portfolio has grown larger than the team’s capacity, but bringing new people up to speed (never mind recruiting them in the first place) takes time. It’s a lot easier to calculate the cost of an additional resource than the opportunity cost of not adding that resource, so the team continues to make do with existing staff.
- Different teams within the company a) have different processes for the same function, b) use different technologies for the same function or c) pursue competing priorities. Or all of the above.
- Innovation has stagnated in an organization that once made its mark through innovation. The organization now focuses on optimizing existing lines of business, not exploring new ones.
What examples from your organization would you add to that list?
Strategic debt is comprised of the structural inefficiencies and gaps that grow over time by prioritizing short-term needs over long-term needs. Each decision may have been locally optimal — but the accumulation of these decisions suffocates your organization’s ability to perform. That’s because your people/process/priority infrastructure is no longer organized optimally for your current needs.
What gets measured gets managed
Strategic debt can be difficult to address because it is squishy and hard to quantify. To quantify strategic debt you have to measure decision-making and operational performance across the organization over a long period.
Because it’s hard to quantify most strategic debt, it can be hard to justify spending time to address it. But not all strategic debt is hard to quantify. There is a type of strategic debt commonly found in software development that is highly quantified. Not surprisingly, there is also a commonly adopted approach to addressing it.
Even though software development is creative work, that work is typically decomposed into discrete tasks. Software teams estimate each task’s size independently and log their workflow from initiation to completion. They track productivity and efficiency through metrics that are a natural byproduct of this process. (The “Accelerate metrics”, such as deployment frequency and lead time to deploy, are a popular example.)
Because software development workflows are highly quantified, it’s easier to recognize the effect of strategic debt on productivity — the drag as debt accumulates, and the boost with its elimination. In turn, that makes it easier to persuade individuals and organizations to address strategic debt, or as it’s commonly called in technology organizations, “technical debt.”
In fact, the prevalent approach to addressing “technical debt” can be used to address any strategic debt. That approach is to stop addressing strategic debt as a crisis — and allocate a recurring budget for it.
In software development, 15-30% of a team’s capacity is typically reserved for technical debt. An appropriate budget for your organization’s strategic debt may or may not be in that range. Instead of a percentage, your “budget” might be a requirement for managers to include one strategic debt OKR Objective in their quarterly OKRs. However you allot time and resources for strategic debt, what’s important is that your budget is greater than zero.
Let’s say you’ve decided to reserve a budget for your organization’s strategic debt. How can you spend your budget effectively to reduce that debt? Here are some examples:
- Review roles and responsibilities at the company, department, team, and individual level. Draw the org chart you would create today and create a plan to get there. That might include a reorganization, hiring to fill gaps, or both.
- Have your leaders think through their “mental best practices” and codify them into procedures and protocols so the team can scale, others can grow, and company best practices remain consistently applied.
- Create an inventory of tools and processes across departments, determine which qualify as company best practices, and create a plan to eliminate those that don’t.
- Maintain your innovation pipeline. Budget time and resources for experimentation. (Some technology companies invest in hack-athons or “labs”.) Create incentives to take the necessary risks to innovate.
What strategic debt do you recognize in your own organization? Is it one issue or several? Who decides whether to address it — your CEO who’s still “fixing everything himself”, your fellow executives with competing priorities, or perhaps yourself? Whoever your decision-maker(s), it can be difficult to make the case to carve out time from the day-to-day to address each component of your strategic debt in turn. Instead, make the case once for addressing strategic debt as part of your normal workflow — by budgeting a portion of time and resources to work on your framework for success and pay down your strategic debt.
This post was originally published on GreenBar LC.
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