In Preparation for a Downturn, Companies Have Paid Off Debt: But They Still Hold Technology Debt

In Preparation for a Downturn, Companies Have Paid Off Debt: But They Still Hold Technology Debt

Every successful executive understands the importance of financial hygiene to a business’ long-term viability. Throughout a business’ lifecycle, there is a time for debt, a time to spend cash, and a time to hold onto funds—and trusting when it’s time to pull a different lever is key to winning the long game.

With an impending downturn, U.S. corporations with an eye on the long game have paid down financial debt and built up cash. As this preparation period seems to grow longer and longer, they are looking for additional levers to pull. A lever that we see companies overlooking is taking care of their technology debt.

Technology debt may not appear on the balance sheet, but it can be just as dangerous as financial debt. Obsolete legacy systems not only impose draining costs on operations, but they can demoralize employees and limit your agility in rolling out new products, adapting to market shifts and staying ahead of your competition.

Think of technology debt as an old car: It’s paid for, and it still runs. But it probably uses too much gas and racks up a lot of repair bills. Meanwhile, you scale back your vacation plans because you’re not entirely sure the old rustbucket can make it to Niagara Falls and back. That’s why they call it debt – it has real cost and reduces agility, just like loans that gobble up too much of your cash flow every month.

The upside of legacy systems is they may be so old you no longer have to pay licensing fees to the technology vendors that made them. And maybe there are antiquated systems that some customers prefer to use because they still work and have sunk costs. The health insurance industry still can be found to be supporting fax technology because many providers, especially physician’s offices, still have fax machines too and prefer to exchange information that way. So long as those machines are cheap to maintain and easy to use, it’s hard to force the upgrade to be entirely paperless, even though we all know that’s where we should be.

But you should be making those decisions very deliberately, not simply letting the technology debt pile up. The best way to get a handle on your company’s technology debt is to start with a few simple questions:

What’s your IT budget?

The best way to avoid going into massive technology debt is to make consistent, robust investments in your systems. If you’re spending less than 3 percent of revenue on information technology, I can guarantee you’ve got a technology debt problem. There’s no way your platforms can stay debt-free without significant investments in digital and cloud technologies and the ongoing attention they need. Technology is only growing more synonymous with business—those who align their budgets accordingly can better manage their tech debt.

Are you making excuses?

Are you forced to demur or make empty promises when business users or customers ask for enhancements because you know your systems can’t deliver what they’re asking for? Maybe your platform is too fragile to modify or you lost the source code years ago, or maybe it’s just too old to accommodate the kind of digital interactions a customer wants. In any case, if it’s holding you back from accommodating customers, you have tech debt to address.

What’s your capex vs. opex?

If your IT department employees spend 80 percent of their time keeping the business running and only 20 percent either growing the business or transforming it, that’s a strong sign your systems are out of date. Your IT team should be more than a maintenance crew – they should be a core driver of growth and transformation.

Are you having trouble attracting new talent?

Nothing turns off prospective employees – especially young workers – more than the thought of working with outmoded technology. Today’s talent understands that technology should either help them do their jobs or get out of the way; they have little patience for technology that slows them down or frustrates their creativity, and little interest in working for companies that use it. There’s a big opportunity cost associated with keeping too much technology debt on the books and driving away potential talent.

 

It’s no easier to eliminate technology debt than the financial kind. And just like paying down money you owe, you can whittle away at tech debt. That should come as something of a relief – while you can embark on a rip-and-replace project if you have the means and appetite for condensed transformation, you don’t have to take this approach. Instead, you can find out where the tech debt is concentrated and where it is causing you the most pain, then you can develop a plan to gradually shrink it down to a manageable size.

For a consulting firm that prides itself on having deep technology expertise with a commercial mindset, we recently went through a tech debt exercise ourselves. West Monroe’s platform that fueled project management, resourcing, and more for our professional services business was still working for more than 1,000 employees 16 years after it was built when we were only a handful of people—but we knew the system would not be able to carry us through the next stage of our growth. We had to say goodbye to the legacy tech we called WMProject, and conducted a “heart transplant” moving to an outsourced, cloud-based solution that is supported by the vendor and won’t need to be maintained by our internal tech team.

Was the process easy? No. Do we miss WMProject? Yes, many of us do. Do I regret this costly decision to get current? Never. The future of any business, including ours, is only as good as its debt profile suggests. Tech debt included.

Phone: 312-602-4000
Email: marketing@westmonroepartners.com
222 W. Adams
Chicago, IL 60606
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