Topics:   Corporate Governance,Technology

Topics:   Corporate Governance,Technology

November 1, 2018

Is Technical Debt Limiting Your Company’s Competitiveness?

November 1, 2018

For decades, discussions within the information technology (IT) department about technical debt have occurred with insufficient engagement from executive management and the board. But boards must increase their awareness and understanding of this issue in order to add additional perspective and make suggestions that would facilitate execution of the strategy and improve their companies’ competitive position.

What exactly is technical debt? It refers to the cost and magnitude of additional work caused by choosing technology solutions that are easier to implement over the short term instead of selecting the best overall solution for the long run. As an organization makes these decisions, and as technology continues to evolve, the cumulative effect of layers upon layers of code and architectural approaches can stifle a company’s ability to innovate and compete.

While not new, technical debt has become a formidable hurdle to sustaining competitiveness in the digital age. Today, agility and resilience have emerged as essential for long-established incumbents exposed to “born-digital” players with architecture built optimally from the ground up. With wave after wave of cutting-edge technology solutions addressing pressing market needs, responding to these market entrants becomes a challenge for organizations that have multiple layers of architecture reaching back decades. Therefore, the topic is strategic in nature rather than a narrow IT discussion.

Not all technical debt is bad. There are times when it helps bring a product to market or respond to an emerging opportunity or risk more quickly. For example, a company may make a conscious decision to take on debt for a specific business outcome, such as debugging known problems now with an action plan to pay it back later after more thoughtful consideration is given to a design that accommodates future requirements.

However, it can become a serious issue if technology isn’t refreshed or if the shortcuts taken are not subsequently addressed. All too often, the work to reduce technical debt is delayed due to competing priorities. Left unchecked, the debt can grow insidiously until it becomes the proverbial ball and chain that could prevent an organization from keeping pace with its nimbler rivals.

In many longstanding organizations, mapping technology-supporting, mission-critical operations can be like an archaeological dig. On the surface, the shiniest, newest technology supporting websites, mobile solutions, and advanced analytics may exist. But dig below the surface and one is likely to find layer upon layer of highly interdependent, complex systems—some dating back four decades or more. Continued dependence on this aging technology presents several risks, including reliance on an aging (and shrinking) workforce with the knowledge and skills to support it.

It gets worse: The complex, monolithic design of these systems and the processes supporting them are not well-suited to the fast-paced, agile nature of today’s digital world. Organizations deploying these aging platforms often find it difficult to respond to market opportunities or risks or to adopt emerging technological capabilities promptly. In some cases, the platforms and their complex integrations create security risks and challenges in responding to regulatory compliance demands.

Why not just upgrade, replace, or even abandon aging systems and wipe out the technical debt? If only it were that easy. Options to mitigate technical debt include:

  1. Build new infrastructure based on modern technologies. An example of this digital-first, clean-slate tactic is Goldman Sachs’ approach to supporting its Marcus brand in 2016.
  2. Quarantine. “Ring-fence” the technical debt to isolate it, such as when the infrastructure and supporting business processes are designated for retirement.
  3. Preserve and protect. Build a services layer around the system to defer the inevitable need to upgrade or replace the systems in question and extend the life of critical systems assets.
  4. Simplify and rationalize. Simplify and rationalize the infrastructure to address some forms of technical debt (organizations that have grown through mergers and acquisitions may find this useful).
  5. “Big bang.” Do a full replacement and upgrade to more modern infrastructure. This option is a high-risk, high-reward proposition.
  6. Phased upgrade and replacement. Conduct a phased upgrade or migration to newer technology platforms. This is one of the most likely approaches for dealing with technical debt.

These options are not mutually exclusive, and they also can be combined with additional modern technologies as organizations deal with existing—and avoid further—technical debt. For example, cloud solutions offer several benefits related to avoiding future technical debt while shifting some of the maintenance burden to the cloud services provider. Service-oriented architectures, including application programming interfaces (APIs) and microservices, can be used to “wrap” and “decompose” legacy systems in the “preserve and protect” option described above. They can be an important tool in the implementation of the “phased upgrade and replacement” option as well. The decomposition of large, complex, monolithic systems into smaller components offers support strategies that manage technical debt, create agility, and enable innovation.

What should you, as a board member or director, take away from this discussion? You need to ask about the extent and level of the enterprise’s technical debt and where management is in creating and executing a plan to address it. Organizations that built their legacy applications for operational optimization now face formidable challenges as new business realities demand ever-higher levels of resilience in adapting business processes and systems to the digital economy. The board can play an important role in ensuring the organization selects the best approach to modernize.