What is operational debt? As a founder, there are several kinds of debt that are always top of mind. There’s financial debt, which you issue to raise capital. There’s also technical debt, which can be understood as the code-based debt development teams accrue prioritizing speed over perfection, and that manifests in code that needs to be rewritten or reworked.
As with financial debt, if technical debt is not repaid, it accumulates a kind of interest, and becomes harder and harder to rectify. Though the multifaceted costs of technical debt are difficult to quantify, the Consortium for IT Software Quality found in 2018 that “buggy” software cost U.S. companies $2.26 trillion, and that 75 percent of IT budgets go toward fixing bugs.
Of course, debt is a tool. So long as we’re conscious of the costs of using it — of letting the technical or financial debt accumulate — we can do so without putting our organizations in danger.
But there’s a third and more destabilizing kind of debt that we often accrue less consciously: operational debt. It’s the amount of time and money required (in the way of change management, new technology, IT support, and so on) to divorce employees from the imperfect, labor-intensive, and haphazardly stitched together processes and systems we build our operational infrastructures upon today.
The Hidden Costs of Operational Debt
Operational debt translates directly to increased inefficiency — it’s one reason employees spend only 2.8 hours a day completing high-value work — and is said to cost organizations 20 percent to 30 percent of their revenue every year.
But lost revenue and wasted time are just two costs of this kind of debt. Like technical debt, operational debt results from operational decisions made in the spirit of expediency — process challenges fixed with Band-Aids; workflows that originate from an, “Oh, let’s just do it this way for now” mentality; apps you use for one purpose initially and adopt incidentally for other purposes later on.
Overtime, your use of and reliance on this convoluted, accidental ecosystem of loose apps and once-convenient workflows serves to seriously weigh you down. Employees have to do more and more manual work — in the form of chasing follow-ups, importing and updating data across CRMs and spreadsheets, even engineering their own work arounds — just to ensure key processes run end-to-end. This drains the happiness and productivity of employees across the board. In the way it slows down workflows and processes that are cross-functional, in fact, operational debt encumbers employees holistically. This, in turn, is holistically damaging.
In this sense, operational debt eats you alive, like a cancer. And the more it’s allowed to spread — the more complex and convoluted that your internal infrastructure grows — the more infectious it becomes.
Eventually, it renders you fundamentally unable to adapt, provide your employees what resources they want and need to perform, or otherwise move with any kind of agility, which, as the world has grown less and less predictable in the wake of the COVID-19 pandemic, is a crucial thing to be able to do. Today, you need your company to be able to make adjustments and strategy decisions with the deftness of a speed boat. Operational debt turns us all into cruise ships.
All told, snowballing operational debt proves one primary but deceptive reason companies fail. There is a way, however, to better control it — to make use of it without allowing it to add up.
It starts with changing the way companies think about implementing technology to solve process challenges internally — and ends with more purposely empowering the operations function. Many company leaders today approach solving process challenges internally with a mind only for adopting individual, specifically targeted technological solutions. This is, generally, a product of the larger “There’s an app for that!” philosophy.
But the problem with that is, operational, process-level challenges require operational, process-level solutions — solutions that are holistic in scope, capable of optimizing our internal operational ecosystems as a whole. This has always been true.
A Master Class in the Holistic Approach
Consider the example of Henry Ford, whose process-level innovation of the assembly line resulted in an improvement in efficiency and productive capacity across not just his factories, but the entire industrial world.
In 1913, the predominant system for car production was rife with inefficiencies, with production time for car assembly clocking in at around 12 hours. This was relatively standard for the period, but Ford knew he could do better. As Tony Swan wrote in Car and Driver, “Prior to 1913, Ford and virtually every other automaker assembled whole cars at a station with a team of workers working together to complete a single example, usually from start to finish.”
In this system, Ford saw ample opportunities for streamlining. Ford didn’t only seek to optimize individual elements of this process, such as redesigning a specific station or task. Rather, he optimized the entire enterprise. His genius insight was that a factory’s disparate components — much like a technology company’s — are symbiotic, and that by redesigning the factory’s workflow so as to run synchronously, he could eliminate many different modes of inefficiency at once. Or, in other words, he could manage his company’s operational debt at the root.
How to Address Operational Debt
Business leaders should adopt similar strategies today in our app-based contexts. That starts by appreciating the individual processes, systems, and people that comprise our companies not as siloed entities, but as interconnected components of a larger orchestra. Nothing inside a company operates in a silo, so changes made to one workflow invariably implicate other workflows, always.
When it comes to technology solutions, it means investing in platforms that can be designed to optimize the tools you’re already using, such that business operations teams can create workflows that make the smartest use of them, and, in the process, put people first.
The best platforms are capable of appreciating how employees like to operate, and of working for them — pinging them via their preferred work environment when their follow up or signature is needed, for example, or completing menial tasks like data entry on their behalf. This is a perfect example of using technology to manage your operational debt, as opposed to simply moving or adding to it.
This is also where the business operations function comes into play. Operations as a function exists to do precisely this kind of work: to strategically orchestrate and optimize your company’s various moving parts. To invest more purposely in operations, then, means investing in your ability to think operationally. It means empowering ops teams to be more than just paper pushers. Your sales ops team shouldn’t be the ones running around the office chasing salespeople to update their CRM. They should be equipped with tools that can automate that process and focus on building more impactful, strategic workflows.
We already take pains to manage our financial and technical debts — entire departments exist for precisely that purpose — such that they don’t overwhelm us. Why wouldn’t we do the same with our operational debt?
As we all proceed into a future in which agility, adaptivity, and efficiency become ever-more paramount, business leaders who do will gain clear advantages. Unburdened by operational debt — positioned strategically to use it more effectively as a tool, rather than simply pretending it doesn’t exist — they’ll be able to move faster, more flexibly, and more productively.
This, of course, is what happened in 1913, with the birth of the assembly line. We’re due for a similar kind of revolution today. The companies who act now will find themselves at the forefront of it and will enjoy many strategic advantages. Those who don’t, on the other hand, will risk going the way of the horse and buggy, and find themselves left behind.