What is transformational debt and why should you care about it?

There is a concept in software development called technical debt. Put simply, technical debt is a cost associated with performing additional work to put right a quick fix solution, or the cost of performing work later than it should have originally been performed. In both cases, the cost of paying back the debt is often higher than the cost of doing the job right first time. Like financial debt, the amount of interest incurred can increase rapidly as technical debt accumulates, and this is the same for transformational debt.

All organisations experience periods of transformation as they evolve to meet new objectives or emerging challenges. Like developing software, transformation programmes develop solutions to satisfy requirements and, when implementing those solutions, it is common to take shortcuts and delay necessary work to later. This leads to the organisation incurring transformational debt which can result in significant consequential costs for the organisation.

The reasons for incurring this debt are numerous. Some are deliberate, some are not. Navigating the conflict between time pressures to implement change while maintaining stability in the organisation is a fine line to tread. Shortages of resource to perform transformation activities can lead to decisions that delay performing them. Assumed buy-in to changes can result in failing to conduct enough engagement sessions with the people impacted by them. Often crucial steps in transformation are skipped and details missed, leading to an accumulation of transformational debt.

Like technical debt in software development, transformational debt is therefore the accumulation of key transformation steps that are skipped or worked around.

Sometimes the interest associated with transformational debt is paid back soon after the debt is incurred. In other situations, it may be months or even years before the debt may need to be paid back. For example, consider the case where a process definition only covers success scenarios. When a failure scenario occurs, that is not covered within the process definition, the costs of delay due to confusion about how to respond could be large, or even catastrophic.

Why is managing transformational debt important?

In an ideal world, robust transformation plans are established, executed perfectly, no steps are skipped, and everything goes according to plan. However, we all know this is not realistic. Critical transformation activities can simply be missed from the plan. Decisions under pressure result in shortcuts being taken or activities being delayed.

Skipping steps may make logical sense at some points in your transformation, so getting into some transformational debt is likely. What is key, is that you understand the potential implications of incurring this debt and how you will manage it. This will reduce the chances that this debt will cost you more in the long-term.

Understanding and getting comfortable with how you manage transformational debt can be the key to successfully transforming your organisation.

Managing your debts

Transformational debt is inevitable on any project. But if it is identified, logged and plans are put in place to pay it back, then the risks of incurring the debt can be mitigated. This starts with being aware that skipping steps / using workarounds comes with a cost.

> Aware – be aware when you are making the decision to delay / shortcut critical activities

> Record – log the delayed / shortcut activity and associated risks, and make plans to repay the debt

> Clear – execute the debt reduction plan and clear the debt.

Having a rigorous transformation framework is essential to avoid the pitfalls of transformational debt. We use structured transformation frameworks and effective approaches to help your organisation successfully realise the true benefits of organisational transformation.