The Number 1 Reason for Enterprise Change Management

Have you ever started a task at work that should be simple and quick then found it to be very difficult?  If so, you may have experienced a business concept that has been becoming more important: organisational debt. I am starting to believe this is the number one reason for establishing capabilities in enterprise change management.

Change Management and Organisational Debt

Before I get into enterprise change management, let's look at an example of organisational debt based on personal experience. I was performing what I thought would be very simple project, consolidating proposals from different sources into a single MS Word document. I figured this would take me a few hours at the most. Unfortunately, it took me more than a day and a half because I copied content from existing templates that had clearly had gone through several iterations of the text, pictures, and formats being cut and pasted in to them.

As a result, the document became painfully difficult to work with. I had to back up, remove all formats, and start clean. Setting aside for a moment my own administrative incompetency, this wasted time is the accumulated interest from organisational debt demonstrated on a small scale.

On a larger scale, organisational debt can paralyse a company.

You have to avoid debt because debt makes the system more fragile.

—Naseem Nicholas Talib, Antifragile: Things that Gain from Disorder

What Is Organisational Debt?

Let’s unpack organisational debt for a moment. Debt is a common concept. Anyone with a credit card or loan understands financial debt. One takes a loan for a short-term purpose to pay it off in the long term only with the additional cost of interest. Organisational debt works similarly.

Organisations make decisions based on short-term requirements only to create barriers they will have to manage in the long term. The “interest” from organisational debt is the cost of untangling all those decisions when trying to make a change. Avoiding this interest becomes a key argument for robust and continuous change management approach.

People who think about change, agility, and adaptiveness have understood this intuitively for a while, but to have it so aptly described by Steve Blank in his 2015 article, “Organisational Debt is Like Technical Debt but Worse,” has proven highly beneficial to recognising and solving the issue. In his post he says “Organisational debt is all the people/culture compromises made to ‘just get it done’ in the early stages of a startup.”

More recently, organisational debt has been applied to organisations of all maturity levels, not just startups, to ascertain the accumulative and longitudinal effects of short-sighted decision-making on the organisation's ability to respond to change.

ERP Systems Change and Organisational Debt

An extreme example organisational debt and its impacts happened a few years ago with a client who was planning to install a new ERP system. Under the best of circumstances, this is a high-risk, complicated and expensive change. The client rightly recognised the need for help with the people side of the change to mitigate the risk and improve adoption of the system.

To plan properly, we needed to collect diagnostic data and perform situational analysis. This proved quite frustrating as they were unable to answer the most basic of questions:

• How many processes will be impacted by the change? They had no idea.
• How many divisions are impacted by the change? They could only guess (incorrectly).
• How many people are in your company? They had to check (and still got it wrong).

And it only got worse from there.

The primary reason for this lack of clarity was that this company had failed to manage their organisational debt accumulated through 30 years of existence. They had started with a very simple retail product and built up to massive, individual, and highly customised projects. They were very successful, but their success was exactly what was hindering their future.

They had never looked back at the decisions they made, the processes they put in place, or the products they had launched and rethought or re-engineered them. In other words, they had never retired any of their organisational debt.

Now, they were facing years of preparation before they could make a positive and logical change, resulting in a massive delay in realising the return from their investment. In effect, they were paying interest on their debt.

Types of organisational debt

From our experience, organisational debt shows up in multiple ways:

1. Operational debt

This type results from complexity created by expanding the organization. As they grow, organisations add new processes, new markets, new products, etc. However, they often fail to eliminate or reduce the processes, markets and products that have become redundant or obsolete. The result is hidden costs of doing business that slowly burden the company and consume resources that could otherwise be eliminated or reassigned.

2. Knowledge debt

This occurs when people move within an organisation or leave it. The intent of past decisions is lost,and all that remains behind is the effect of those decisions, good or bad.

3. Cultural debt 

This describes the behaviors and practices ingrained in the culture and fails to evolve with the changing environment.

Separately, operational, knowledge and cultural debt are a major challenge to change efforts. Together, they can be fatal.

How to Reduce Organisational Debt With Enterprise Change Management

Like financial debt, getting out of organizational debt is best handled by 1) not accumulating it and 2) strategically reducing the debt you already have. Building an enterprise change management (ECM) capability is one way to affect both situations.

By creating a framework for change that is utilised at all levels—and by increasing the speed of adoption, change utilisation, and proficiency in new ways of working—your organisation will be better able to reduce its organisational debt and increase responsiveness.

Building an ECM programme that impacts organisational debt requires a few essential actions:

• Make change a strategic imperative – Organisations that make change a key part of their strategy and evaluate leaders on their ability to lead effective change will also prioritise the elimination of organisational debt.
• Create an enterprise-wide structure for change – Having the frameworks, tools, and competencies for change widely available to those who will use them and building the competency of leaders, managers and employees to use them enables them to eliminate organisational debt.
• Build a cadence for change – Avoid the “big interventions” by making change continuous. Create a cadence for the organisation that is not overwhelming and keeps the energy level high. Organisational change is like exercise: the more you do it, the less energy it takes.

Companies with low organisational debt have a sustained strategic advantage. They are able to “out change” their competitors, be responsive to internal and external pressures, and more rapidly realise their return on the investments they make. Developing an enterprise change management strategy is great way to reduce or eliminate your debt and start making change part of your organization's competitive advantage.