Understanding Technical Debt: What It Is and How to Manage It

What is Technical Debt?

There is no single definition of technical debt. Broadly speaking, it refers to any system in our list of applications that slows down our ability to deliver changes and innovate quickly. Another aspect of this definition is that technical debt represents any system where the cost of maintenance begins to exceed its value. According to a recent McKinsey Survey, CIOs report diverting up to 20 percent of their new technology budgets to resolving tech debt issues. Moreover, technical debt accounts for as much as 40 percent of their entire technology estate. This demonstrates how pervasive and impactful technical debt can be, affecting not just IT departments but the overall strategic direction of a company.

Types of Technical Debt

There are several types of technical debt that can impact an organization:

1. Code Debt : Poorly written or outdated code that is difficult to maintain or enhance. This type of debt often arises from quick fixes or rushed coding, where long-term maintainability is sacrificed for short-term gains. Over time, this can lead to an increasingly fragile codebase that is prone to bugs and difficult to extend.
2. Architectural Debt : Flaws in system architecture that hinder scalability and integration. This occurs when systems are built without a clear plan for future growth or integration with other systems. Architectural debt can severely limit an organization’s ability to adapt to new technologies or changing business needs.
3. Data Debt : Legacy data systems that are not aligned with modern data practices. Data debt can occur when data is stored in outdated formats or systems that are not compatible with newer analytics tools, preventing organizations from fully leveraging their data assets.
4. Operational Debt : Inefficient processes or outdated practices that slow down operations. This includes anything from manual processes that could be automated to outdated management practices that no longer serve the organization well in a digital age.
   

Causes of Technical Debt

The causes of technical debt can vary widely, but some common reasons include:

• Short-term Focus : Decisions made to achieve immediate goals without considering long-term consequences.
• Lack of Standards : Inconsistent coding practices or lack of architectural guidelines.
• Legacy Systems : Older systems that are difficult or expensive to upgrade or replace.
• Skill Shortages : A lack of skilled personnel to manage or modernize systems effectively.

The Impact of Technical Debt on Organizations

We observed a Techolution client spending $62 million annually on legacy support costs, nearing a point where most incoming revenue was directed toward mainframe support. This scenario is not uncommon; a significant percentage of Fortune 500 companies in finance, insurance, healthcare, and retail sectors, as well as government agencies, rely on legacy mainframes and other technical debt generators. According to a U.S. Government Accountability Office report, the government alone spent over 80 percent of its $90 billion 2019 IT budget on operating and maintaining legacy systems.

Many of these legacy mainframes are still running Cobol, a programming language that is over 60 years old. This creates an additional problem where the technical debt associated with these systems increases due to the dwindling availability of engineers experienced in Cobol. Many such engineers are nearing retirement, and Cobol, like other legacy business programming languages, is no longer widely taught or of interest to newer generations of engineers. This situation leaves businesses struggling to decide their next steps and how to modernize to meet current business and customer needs.

Challenges Caused by Technical Debt

Legacy systems burdened with technical debt are expensive to replace and often considered not worth the business disruption that such replacements might cause. However, they create major bottlenecks to essential modernization efforts that impact application development and overall IT and OT improvements necessary for maintaining business competitiveness and innovation.

1. Data Inaccessibility and Its Implications

For instance, data analytics drives everything from product innovation and customer service to digital twins, operational intelligence, IoT, computer vision, business intelligence (BI), and predictive analytics. If your data remains locked within a legacy mainframe, that technical debt prevents you from performing critical actions enabled by predictive analytics. This not only hampers current operational efficiency but also stifles future innovation and growth, putting the organization at a competitive disadvantage.

2. Business Competitiveness and Innovation

Technical debt may be the most significant obstacle preventing businesses from staying competitive and meeting customer needs through digital transformation, which drives cost reductions, business growth, and innovative products, services, and customer experiences. Technical debt also brings a range of interconnected challenges, including :

• Lack of system architecture integration
• Escalating maintenance costs
• Hindrances to digital transformation
• Internal and external skill shortages
• Bottlenecks in organizational capacity and growth
• Project backlogs
• Reactive business decisions due to the absence of cohesive predictive analytics environments
• Sluggish application development
• Failure to meet evolving customer demands for products, services, and user experiences
• Limited ability to fully utilize cloud environments for business efficiency and innovation
  

How to Manage Technical Debt

This technical debt is increasing faster than your rate of adoption, creating a significant bottleneck that needs to be addressed. Overcoming this bottleneck is crucial for the success of digital transformations. Understanding how to manage technical debt effectively is key to unlocking real-world business potential.

Next Steps to Overcome Technical Debt

To learn more about how to manage technical debt and overcome its challenges cost-effectively and efficiently, let’s set up a call. Get in touch with us to explore how to unlock your organization’s true business potential and drive innovation forward.