Debt: the result of borrowing from the future to overcome challenges of the present.
As your organisation grows and evolves, you might observe that adding new services, integrating new staff, and implementing organisational changes and improvements becomes difficult and slow to implement.
Often this happens because the organisation’s management infrastructure (i.e. management structures, processes, systems, competences and culture) required to support the new commitments of the organisation are simply not there or are significantly inadequate.
Management debt is defined as the sum of all the management infrastructure that should have been set-up within an organisation but was deliberately deferred for later.
This is often the result of management decisions which allow the organisation to take on new projects and offer new/expanded services and grow beyond what its management infrastructure can support.
In these cases, ad hoc structures are introduced to provide temporary support for the new initiatives. But these quick and dirty fixes are ineffective: they are sub-optimal and non- scalable and their effectiveness will rapidly decrease while contributing to degrading performance and an organisation that cannot deliver on its strategy.
Management debt appears when the breadth and scope of an organisation’s activities have been allowed to grow beyond the organization’s management capacity to support and manage them effectively.
How does it come about?
Management debt comes about when management decisions allow the organization to grow beyond what its management infrastructure can support.
Situations in which this often happens include:
- Adopting fancy/trendy strategies (due, for example, to political or market pressures) without knowing how to implement them. A prime example would be getting on board the “Agile” bandwagon without first evolving the organisational competencies and culture.
- Growing too fast and not taking the time to restructure, re-purpose or evolve management
- Low management capability or capacity (no skills or time to properly analyse the situation)
- Bottom-up initiatives that are executed without holistic and strategic alignment
- Excessive focus on short-term gains
- Urgent financial obligations (no time/room for other considerations)
- Short-term strategies
Bottom-up initiatives which are not holistic or strategically aligned are a major cause of well-concealed management debt.
How does it impact on an organization?
The observable symptoms of management debt include slow, expensive and low-quality services, internal conflicts, frustrated operational staff, and even conflicts with clients. The management structure survives by adopting an increasingly defensive and autocratic management style, deferring responsibility, and indulging in blame gaming and office politics.
There may also be an increasing reliance on external contractors, who are called in for two reasons: one, to compensate for the inherent inefficiencies, and two, to serve as useful scapegoats for specific organisational failures.
If you have worked in IT perhaps you have also heard of technical debt as the debt accumulated when choosing quick and dirty short cuts to implementing technical solutions.
Debt as a strategy
Management debt is not inherently bad. In fact, management debt is a tool. Just as financial debt is a financial tool and technical debt a technical tool, so management debt is a management tool.
Management debt is a potentially valuable strategy and, therefore, a certain amount of management debt will – and should – always be present in growing organisations, particularly those for whom serving emerging opportunities is critical. Because it allows organizations to respond to urgent operational demands by setting up temporary structures.
But the strategy is only valuable if it is clear from the start that the debt will have to be paid back. If we take on management debt deliberately, as part of a well-thought-out management strategy, with the intention of paying it back at a better time in the future, then all well and good.
But management debt is all too often the result of bad management; of managers who are oblivious to the debt their decisions are creating.
This is why management debt should be tracked as if it isn’t, it is unlikely to be repaid. And while tracking management debt won’t automatically make it easy to handle, it will enable more productive conversations within management teams on how to deal with it.
Dept that is not repaid will turn over time into organisational design debt as the ineffective ad hoc structures are formalised and become permanent.
Managing your management debt
As with financial debt, management debt incurs interest payments. These come in the form of the extra management effort that will have to be expended in the future to remove the temporary structures and replace them with what the organisation needs to deliver on its mission.
When making decisions, managers should balance decisions directed at delivering new services in the short term with sustaining overall productivity in the mid- to long-term. They should not only consider how much time they will save now. They must also factor in the fact that their decision will inevitably slow down other initiatives later, and that the cost of repaying the explicitly incurred management debt may be high.
Unidentified management debt introduces significant risk. When left unmanaged, it will eventually degrade an organization’s long-term value creation potential.
Some managers build their careers by quickly taking credit for short-term success while passing on serious amounts of debt to their successors. Accumulated management debt will over the long term slow an organisation’s delivery speed and quality, cause staff morale issues and even lead to the organisation failing entirely.
Management debt is a bad strategy when managers do not consider the medium/long term effects of their decisions. Managers who get an organisation into debt should be held accountable both for their decisions and for paying the debt back.
Dealing with Management debt
Not all management debts are the same: different types of debt come with different rates of interest. Therefore, identified debt instances must be prioritized for action on the basis of factors such as their potential impact on the organisation and the cost of re-payment.
It is practically impossible to be 100% debt-free; it is okay to live with some (low-priority) debt to maintain the balance between new services development/delivery and debt repayment.
It could be a good strategy to repay a large management debt in smaller instalments, where a small portion of effort every so often is dedicated to improvements and alignments of the organisation process and structures to the organisational needs.
At the same time, management should always seek out opportunities to also repay management debt on a large-scale. Large-scale organisational changes such as reorganisations can contribute to a drastic reduction in management debt. However, such exercises require considerable planning and effective communication in order to reduce the associated risks.
Case: The Leaning Tower of Pisa
Paying down the architectural debt on the Leaning Tower of Pisa was very expensive and time-consuming. The foundation of the structure was flawed, built on unstable ground. However, instead of solving the problem of integrating the structure with a more solid foundation, the builders decided to obscure the flaw by designing and constructing one side of the upper floors higher.
In the context of an organisation, does this behaviour sound familiar?
References and further reading