Tech Debt – Pay Me Now or Way More Later

By HPA Senior Advisor Bob Kaplan

The word on the street among the many CIOs I speak with is tech debt. If this term is new to you, it refers to the aging or obsolete technology stacks that organizations continue to nurse along in spite of their needing major upgrading or wholesale replacement– in some cases long ago.

To illustrate this, I know of multiple CIOs, including one CIO who told me recently, his company’s solution to dealing with a major system that was no longer supported by its vendor was to purchase the source code and maintain and enhance the functionality of the system themselves. He recognized this was a challenging approach but he was unable to get the required capital and expense budgets approved to replace the system. His story is in no way unique.

Another major industrial client did a risk assessment of 300 + applications they were running (having that many is a problem in and of its own) and found they rated over 30 applications as being “high risk to the stability of business operations.” Apps in this group presented problems ranging from lack of vendor support, cyber risk, unavailability of engineering talent familiar with the code, no business interruption plan, and other assorted ailments. The company’s response to this pending disaster was to adopt a plan to fix three applications per year. At this pace, it would take 10 years to fix the problem, assuming none of the other 270 applications turn “red.” As in the previous example, lack of budget was the reason.

Given the digitalization of just about everything everywhere, reducing tech debt through IT modernization is key to businesses sticking around for the long-term. And yet, I have seen the above pattern repeated countless times, which helps explain why and how tech debt has become an enormous problem for many companies.

When you are in a hole, the first thing to do is stop digging.

If your company wants to avoid the many pitfalls associated with tech debt, here are some straightforward actions your organization can take to help ameliorate this pervasive problem:

• Move away from one-year budget cycles: Most IT departments are subject to an annual budget and planning process despite the fact that many large systems have multi-year cost implications. Because of this approach, over time more and more of the IT budget is consumed by managing existing systems and making minor changes to functionality. The net result is fewer resources are available to invest in new processes and capabilities that will truly help the business keep up with the technological times.

• Plan explicitly for system life cycles and create accounts for system depreciation: All systems have a finite life yet are not depreciated the same way as other major assets. Typically, there is a five-year (+/-) life expectancy, at which point significant cost for a new version or upgrade of the software is required. This cost should be accounted for in the IT budget over the anticipated life of the system and not suddenly confronted at the point of obsolescence.

• Create an integrated costing and planning approach across tech stacks: This should include anticipated integration costs for upgrades. Unfortunately, companies don’t often know how a budget is being spent across categories. A first step in dealing with the tech debt problem is to do the analysis and track how resources are being consumed.

• Create a budget and explicit plan to deal with tech debt: This doesn’t happen often. Instead, what frequently occurs are decisions being made that are purely based on cost-savings with the intention of extending the life of existing systems at the point when they should be replaced. Consequences typically include increased maintenance costs, higher system integrations costs (it’s harder to manage older code), and declining vendor support. This is at the heart of tech debt. As this decision pattern is made repeatedly across different system stacks, the tech debt builds.

Companies that are serious about tackling tech debt should start with building the financial and operational approaches to implement technology upgrades across the organization. The exciting news is there are amazing new technologies out there that can help businesses eliminate tech debt and deliver value to their customers.

About the Author

BOB KAPLAN is an HPA Senior Advisor with over 35 years of experience as a senior executive and management consultant. A former Managing Partner at BCG and Senior Partner at McKinsey, Bob currently counsels CEOs and other senior executives on strategy, technology, and organizational issues. Bob has held senior executive positions such as acting CEO and CTO for multiple companies, including: Motif Inc., ITM Software, Silicon Valley Bank, Netliant, and Alibris. He holds an MBA from the Stanford Graduate School of Business and a BA from Yale University.

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