What is Enterprise Debt (it’s worse than technical debt) and how to manage it?

What is enterprise debt (hint: it s worse than technical debt) and how to manage it? As the enterprise debt in your organization increases, it can eat away at time and money. What causes this this force? But first let s talk about technical debt. Technical debt originated in software engineering, when a piece of code was written as a shortcut to deliver the functionality sooner, with an intention to fix it later. But if that code is not fixed soon, which is often the case, another shortcut might be written on top of the first one, another one on top of that, and so on. Over time the system become so complicated that it causes many other problems.

The same concept debt can be applied at the enterprise level whose scope includes more than just technology. Here s an example of enterprise debt. A company is selling refrigerators. They create the underlying information system and processes that helps them to do this efficiently. To grow, the company identifies an untapped market in washing machines. Before a competitor can enter this market, the company decides to release a product. But to speed things up, instead of integrating the manufacturing sales and service processes of washing machines with existing refrigerator processes, this company decided to establish an independent unit using the same template it had for refrigerators. These two independent units grow quickly. Yet another market segment in the dishwasher is identified, and a different unit is established for speed to market.

Establishing independent units, caused multiple copies of software, systems, and processes to be created. People were trained differently in each of the units. The problems started to happen when the customer who bought the washing machine also wants to buy a dishwasher and refrigerator in the same purchase. However, since the systems and organization are siloed, there is no integrated billing, no integrated purchase, no integrated sales expertise, no integrated call centers, and so on. This caused lousy customer experiences. The enterprise debt created by siloed organizations causes reduced efficiencies, reduced profitability, and places the company at a competitive disadvantage. Enterprise debt is multi-dimensional that includes technical debt, customer experience debt, architecture debt, people debt, process debt, design debt, service debt, and much more.

Essentially debt along any dimension is caused because things should have been done one way, but a shortcut was taken either intentionally or unintentionally. For example, if people are not trained to keep up with the latest technology, that causes a skill gap that in turn slows down innovation. Slower innovation causes the business to lose its competitive advantage. When a customer orders the three products, the fridge, washer, and washing machine might be delivered in three different deliveries. They are also installed at different times. The customer must take three afternoons off from work to handle the delivery. Bad processes and a lousy customer experience. Changing the organization along the multiple dimensions of debt to better meet the market needs and flourish is the essence of digital transformation. Nowadays, organizations are investing a lot in AI and machine learning. You must be extra careful in these disciplines because technical debt can quickly creep in.

I have a video on this topic in much more detail linked in the description below. Enterprise debt incurred can be intentional or unintentional. Most times, speed to market is more important than debt. That s ok. But since it s an unseen and negative force, business managers must be aware of it. Architecture can help organizations understand and manage this it well, so it does not get out of hand to the point of crippling the organization. We have great news also. Sometimes you can pay off debt easily. I ll give you a couple of examples. In the 1990 s, the US was much ahead in communications and telephony than most of the world. Large telecom companies laid out physical wires for connectivity providing a strong infrastructure. Developing countries could not catch up because of the expense. Then wireless technology came along and developing countries circumvented the need to lay cables in the first place.

Today many developing countries have cheaper and broader mobile phone access. They leapfrogged the enterprise debt. Cloud-based transformation provide an advantage to many companies. When companies migrate their information technology to the cloud, all they have to do is to bring their data. If they can architect the integration of their data using the cloud vendor services, the application integration problem goes away. It used to be expensive for small companies attract talent based on location. Then the pandemic happened, and remote working became the preferable option for many. The mind shift helped smaller companies to circumvent the problem altogether and are now able to hire talent from anywhere in the world. If you enjoyed watching this video, please consider subscribing. For a one-page visual summary of this video please sign up on my website. Thank you deeply for giving me the opportunity to do what I do..

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