Embracing Modernization: Transforming Technical Debt for Growth

Information and technology executives deal with the notion of technical debt (tech debt) every day. It’s a notion because it’s an implied cost, not a tangible one. But tech debt has far-reaching implications for an organization.

Yesterday’s solutions may have worked in the moment but fail to hold up well over time. While different from obsolescence or depreciation, tech debt can be far more disruptive to an organization’s success and even stock price. The potential harm from outdated technology — or technology that is ill-suited to a current need — can be measured in billions for most large enterprises.

Any executive’s blood runs cold to think that 20%-40% of the value of their entire tech estate before depreciation may be tied up in technical debt. In a landmark 2023 survey of 750 C-suite information and technology executives commissioned by DXC Leading Edge, only five respondents said that tech debt wasn’t on their risk register. The other 745 indicated it is explicitly listed or is a subset of another line item. Leaders recognize that tech debt limits an organization’s ability to adapt to change.

These pockets of outdated tech, code, practices or ways of working are obstacles in other ways as well. They block the path to innovation, with 46% of IT executives noting they “very often encounter restrictions” or that “tech debt has a dramatic effect” on their organization’s ability to pursue digital transformation or grow.

We have developed a comprehensive study that analyzes how leadership teams can understand and reframe tech debt from a problem that needs to be solved to something that needs to be tackled as part of modernization efforts. Likewise, this debt needs to be dealt with robustly by uniting CIOs and CTOs with their counterparts across the enterprise. We also explore tech debt through the lenses of organizational incentives — and demonstrate that, to corral and control it, organizational architecture and performance management are essential. Prioritizing and addressing these areas is step one on the path to better serving customers and stakeholders.

Finally, we propose a detailed four-step prescriptive plan to pay down today’s debt and discourage it in the future:

1. Reframe organizational debt (org debt) as modernization: Clearly articulating org debt is a way to ensure clarity of vision on the modernization path. The mind shift toward future focus is essential. This is an appropriate time for candid executive conversations when taking stock of what you have.

2. Define opportunities: The first step in defining modernization opportunities is to expand the circle beyond IT accountability. The CIO and CTO will lead modernization, but the entire executive team is responsible for its success. Coordination between the business side and technical arm of the organization is crucial. CTOs and CIOs are uniquely positioned to communicate org debt effectively to the C-suite and wider business stakeholders, with the CFO’s support. Making the case clearly and convincingly to enable effective collaboration is the next step for these leaders.

3. Clear your barriers: Every industry has a unique profile, as would every organization. Therefore, clearing organizational barriers is a matter of defining them in light of your inventory and Wardley Maps. Use your industry profile as a baseline and modify it for your organization’s needs.

4. Organize for execution: Having shifted the conversation, defined the barriers and gained alignment, an organization can then focus on the desired objectives and impact of the activities. Modernization is an ongoing collaborative process,and involves not just the IT circle but the entire organization. When done properly, the benefits are felt across the whole organization. From cost savings to carbon reduction, to making employees’ work lives smoother, there’s a business case to be made across every arm of an organization. When org debt is viewed clearly and articulated fully, it can be flattened, understood and managed thoughtfully as part of the balance sheet of a healthy business.

Reframing Tech Debt

The term tech debt carries negative connotations of burden and risk. It often implies that things were not done right due to constraints on time, budget, or skills. Organizations might try to put numbers on it by estimating how big an investment is needed to resolve the debt and get things exactly right. But what does “right” mean in this context?

There are situations where the answer seems clear. For example, if you do not install security patches on time, not only have you accrued tech debt; you have exposed your organization and its ecosystem to security risks from third parties, which could carry significant liability.

But it’s not always clear where tech debt starts. For instance, is it tech debt if your company uses code in a beta test that is not as efficient as desired but enables a new function to be tested? Often, the answer is no.

The impact of tech debt lies in its ability to hinder an organization’s adaptability. Few people would complain about weathered but functional solutions if they are still fit for purpose. However, rapid changes in the external environment can render even once-perfect solutions problematic.

The language used to describe tech debt can be unwieldy and inconsistent. That may contribute to organizational inaction because it is all too easy for people across the business to ignore it or relegate tech debt to a tech team problem. But that would be a mistake. It is imperative that organizations adapt the language they use around it to convey not just urgency but the need for concrete and quantifiable action.

Tech Debtors

Tech debt is an erroneous moniker. In fact, tech debt encompasses infrastructure, applications, UX, data, and process debt as well as knowledge debt resulting from diminishing systemic intelligence and ineffective management. These may be better understood as organizational debt.

When organizations acknowledge these various forms of debt, they gain a clearer understanding of the challenges they face. Opening the aperture can reveal an underbelly of nontechnical factors that contribute to an organization’s deficit of adaptability.

Dealing with organizational debt requires a shift in mindset. Building flexibility within the organization and empowering people to prioritize and understand debt’s impact is essential. This transition from debt to modernization is an ongoing process that demands constant, iterative management. The bonus: It moves the conversation from tech debt to org debt, owned by all executives, not just IT.

Organizations can and should redefine their approach to tech debt and view it as part of the modernization process. Understanding that tech debt arises from various trade-offs and suboptimal decisions allows leaders to tackle it more effectively.

Considering that the pace of technological change is expected to accelerate due to the dynamic nature of businesses and the emergence of new technologies, the likelihood of technological debt increasing is high unless well-informed, agile, and consistent decisions are made. This circumstance should serve as a catalyst for companies to establish suitable decision-making and control mechanisms in response to these demands.

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