In today’s software development world, we are all accustomed to the concept of Technical Debt, which is created when we deliver software that is (intentionally or unintentionally) sub-optimal in the near term and must be refactored later. Absorbing the cost of refactoring retires technical debt and creates a healthier balance sheet and income statement for the product line over the long run. The more code that is added on top of technical debt, the higher the cost of retiring it. This is accepted wisdom in our industry.
In our work with SaaS companies, we often see a different kind of debt that can have even wider implications for the organization. We refer to this as Strategy Debt, and no, we do not mean financial debt that is strategic in some way because of an arbitrage opportunity in the cost of capital. Companies incur strategy debt when they fail to clarify their intent with stakeholders, especially their own employees who are left to act in self-interested and/or expedient ways – creating unnecessary cost and strategic inefficiencies for the organization over time. Strategy debt can be incurred by any combination of functional groups in the company, making it potentially much more expensive than technical debt.
Our experience has taught us that strategy is most effectively expressed in the form of a Strategic Narrative, which we define as a succinct, high-level summary of the company’s (or business unit’s) intent for the coming 18-24 months. The Strategic Narrative becomes the foundation for organizational planning and prioritization, resource allocation, whole product planning, ecosystem partnerships and performance management from the enterprise level down to individual goals and deliverables. If the Strategic Narrative is absent entirely, or incomplete, or incoherent, or incomprehensible, then Strategy Debt will follow and increase non-linearly.
What does Strategy Debt look like?
- Commitments made to customers for near-term transactions that de-prioritize important whole product capabilities for a target market
- Neglect of the organization’s differentiating assets and capabilities, and failing to anticipate how these will need to evolve over time
- Lack of focus and prioritization for initiatives that can create leverage
- Confusion in your markets about your company, offerings, and position
- Employees expressing frustration – and ultimately leaving – over organizational inertia and lack of clarity
Without a powerfully stated Strategic Narrative, attempts to retire any of this debt – and other types not listed here – will result in even more internal strife and ambiguity.
Over the next few weeks, we’ll be diving back into the specific elements of our Strategic Narrative framework: how they individually and collectively allow customers to avoid Strategy Debt to begin with; and to retire Strategy Debt that exists in the organization before its costs become overwhelming.
Until then, we invite you to think about how your company expresses its strategy, and the extent to which this expression enables your company to avoid Strategy Debt.