Organizational Debt: It’s Not Just for Start-Ups

Back in the dark ages before 2019, I read a great blog post by Stanford Professor, Steve Blank, about Organizational Debt.

Organizational Debt includes, as Blank put it, “all the people/culture compromises made to ‘just get it done’”.

This includes taking shortcuts in organizational design, such as how you structure and reward your teams. How you communicate to your growing team. How you adapt your company culture to work as you move from figuring out what the heck your hot new company is doing to actually getting it done. Educating your start-up idea-guy founders on how to actually manage a growing company.

Think about Steven Covey’s concept of emotional bank accounts. You can see how these shortcuts can create emotional debt with your employees. Employees who joined your organization may have accepted lower compensation because they felt passionately about the mission or about what you wanted to build. They rose to the occasion. They worked late and grabbed free snacks from the lunchroom so they could keep working without meal breaks. They defined success by how the organization was doing. But each of those things represented a withdrawal from their emotional bank accounts, whether they realized it or not. When your company starts to grow and succeed, if you have overlooked helping them grow and succeed, the past-due notice will come.

Blank, in his blog, was specifically talking about “getting it done” in the early stages of a start-up. More recent articles that define Organizational Debt as “debt” related to operational inefficiencies. Okay, Operational inefficiencies (which I think of as “Operational Debt”) can cause distractions and administrative tasks that prevent people from doing those things that make the work rewarding every day. But this definition misses an important point. The emotional debt the organization has to people who work there.

I suggest that organizational debt has accumulated in more places than start-ups.

We saw it in 2001 and again in 2008, when Fortune 500 companies laid people off and asked other people to pick up additional responsibilities. We’ve seen it when a tiny pool of executive OWGs get recruited from struggling behemoths, reward their buddies at high prices, and declare that improving profitability requires gutting the jobs that enabled entry-level workers to rise to management. And, when that doesn’t work, take golden handshakes and go somewhere else to wreak havoc. And we all saw it in 2020, when “essential workers” – people who couldn’t work from home – rose to the occasion, and put their and their family’s health at for risk for the success of their organizations

The employees then watched as the companies rebounded but missing workers were not rehired and executives rewarded themselves with bonuses higher than lottery money. The attitude of upper management – “you’ve been surviving with fewer employees, therefore replacing them is unnecessary” – overlooked the organizational debt that the companies had incurred with employees when things were bad.

The emotional bank accounts of American employees have been seriously overdrawn. People are burnt out and emotionally depleted. Covid has held up a mirror of mortality that showed them that how fragile life is… How little time any of us have on this earth… How that time can be cut short without warning… How much of that precious time they are spending at work…

It made them realize that they’ve been throwing bad money after good, with nothing to show for it. The loyalty they’ve shown when times were tough has not been reciprocated.

So, they are on the move. Throwing their cap over the windmill at things they haven’t tried before but have always been curious about. Because, heck, life is short and why not? Dating around for a company that will make deposits not withdrawals.

It’s time to look in the mirror and ask yourself:

What organizational debts has my company accrued?

How can I repay those?

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