Mark McDonald

While Europe finance ministers deal with national debt crisis, CIO’s and CFO’s are ignoring their organizational geek debt crisis.  Measure your organization’s geek debt by the degree to which existing systems, operations, and capabilities limit future potential.  We often think and call our existing systems in more noble terms – legacy.  But in reality it is, as Gartner’s Andy Kyte describes it, an IT debt  that Andy estimates at more than half a trillion dollars.

Just like its financial counterpart, a geek debt crisis reaches critical proportions when servicing the current debt/systems crowds out the resources required to invest in the future.  In a world where debt is continuously refinanced rather than retired a 7% interest rate is deemed unsustainable.

Operationally unstustainability comes when depreciation and operational charges exceed two thirds of the budget. These charges crowd out IT investments, even when there is a separate IT project budget, as each change is accretive change  that drives future consumption of the IT budget.   The figure below illustrates two aspects of the geek debt crisis: the portfolio crisis (left) and the attention crisis (right)

 A cycle of investment, complexity, depreciation and expanding operations creates a geek debt crisis.  There is less money to pay for the future (investment) when your budget funds the past (depreciation) and present (operations). This is how a transformational organization becomes functional and loses its potential strategic value.

You cannot grow your way out of this problem, unless you are willing to start over by declaring digital bankruptcy and defaulting on current systems and commitments.  Getting out of the geek debt crisis requires reducing the debt in absolute terms and removing the forces that created it in the first place.

Three “R‘s” describe some ideas for how to work your way out of this situation.  Reuse, Retirement, and Reassignment

Reuse really matters. By reuse we mean solving new issues or requirements through applying existing technology resources rather than building something new.  This form of large grain reuse leverages the existing IT

Retirement of obsolete or underused applications is something that we all say we will do when we can free up enough resource.  Break out of that self-defeating plan and create a dedicated team whose sole job is retiring old systems – with extreme prejudice.  I described this to one CIO as creating a team of Vikings, 5 – 10 people, whose job is to raid and pillage old systems.  Measured by the operation budget they liberate, the Vikings will reclaim operating budget and resources.

Reassignment of the benefits generated from IT solutions to better balance direct IT cost with indirect IT benefit.  Budget and finance processes create an open-ended loop that drives increasing IT operational requirements without providing the offsetting resources that flow from the benefits of those operations.  IT pays while the business plays whenever costs are placed in one area and value accrues on another side of the organization.  Full cost allocation is not a solution to this issue as business unit cost allocation leads to business unit control and demands for unique solutions that expand the IT estate.

Reuse, Retirement and Reassignment are just three ideas on how to break the cycle that is fueling the geek debt crisis.  The figures provided in the graphic above illustrate the degree to which IT organizations have their budget and time consumed servicing their geek debt.  Reducing that debt requires reform along multiple lines.

What are your thoughts?  Does your organization have a geek debt crisis?  Is legacy a threat or just another operational reality?

Related Posts:

The business decisions that drive IT cost structure 

The Advantages and Economics of Reuse (executive summary)

Are you an accretive leader?

Managing accretive leaders and accretive change

4 Comments »

Category: budgets Distortion Re-imagine IT Technology     Tags: CFO, cost cutting, IT budgets, Technology Leadership

Share

Tweet