Despite the name, technical debt is more of a business challenge than a technology challenge. It's defined as the obligations an organization accumulates by prioritizing short-term technology demands over those required for long-term performance and sustainability. Technical debt results in enormous unproductive spend just to maintain operation and can eventually throttle innovation as it builds up. Critical indicators of technical debt, such as outages, IT service cost hikes, slow response times, and customer and employee-experience glitches, are serious enough. However, they don’t fully convey the impact. These translate to constraints on growth, risk of customer loss, and inability to innovate with agility, leading to missed revenue.

To grasp the enormity of the challenge, we conducted an analysis estimating the growth of technical debt from 2012 to 2023 across industries and geographies. Based on this research, we estimate global technical debt has roughly doubled during that period, growing by approximately $6 trillion. Just three industries account for 64% of the estimated $2.2 trillion growth in technical debt in the United States: banking and investment services; communications, media, and services; and government. However, no industry is immune.

Understanding the acceleration of technical debt — impact and prevention strategies

Facing the digitization of traditional industries and the growth of new digital industries, companies need to deploy more technology more quickly. This need results in shorter renewal cycles and a faster accumulation of technical debt than has been seen historically. There is no sign this trend will abate as digital transformation remains an imperative.

Another factor accelerating the growth of technical debt is companies’ continuing allocation of finite resources to the pursuit of new growth. Many organizations do not understand that managing technical debt is itself a contributor to growth as it sets them up for sustainable innovation. Therefore, managing down technical debt needs to be an enterprise-wide priority that is proactively overseen by the entire executive leadership team starting with the chief operations officer, chief financial officer, and chief technology/information officer. Frequently, however, there is a lack of prioritization at this senior level. Our analysis found that only a small minority of companies earmark the recommended 15-20% of their budget to manage technical debt.

Instead, most companies don’t tackle their technical debt until the problem has ballooned, in some cases sparking an operational meltdown. They end up allocating as much as 30% to 40% of their budget to massive transformation programs, a significant expense that is exacerbated by the costs of damaged public perception, unsatisfied customers, and lost time to adapt in competitive markets. Additionally, these programs are often intricate and time-consuming, diverting resources and attention from other strategic priorities.

How early compromises can result in massive technical debt

Technical debt tends to gain a foothold early in IT projects, long before leaders become aware of its risks. In fact, initially, a business might view taking on technical debt as beneficial and an indication that it is driving innovation. Technology teams often need to compromise to fulfill immediate requirements, releasing a “minimum viable product” to let market response guide further development, even if that means incurring some technical debt. Indeed, Ward Cunningham, the "Agile Manifesto" co-author who coined the term technical debt, acknowledged: “A little debt speeds development so long as it is paid back promptly.”

Holding unmanaged technical debt, however, soon becomes detrimental. When teams write suboptimal code, document it inadequately, establish convoluted workarounds for integration to prioritize product delivery, or simply let code age over time, they cannot foresee all the later consequences. Pressure from added complexity will expand these cracks, causing slower performance, downtime, bugs, and more difficulty adding features, with greater resources becoming necessary for maintenance. For example, the BBC reported that a social media giant’s six-hour outage due to a failure in a 34-year-old networking protocol cost an estimated $60 million in revenue, and there are signs today that such technical-debt-related outages are increasing across companies.

As organizations prop up opaque, outdated systems, they still cannot stop the structural support of these systems from faltering. Inevitably, procured technologies reach end-of-life (EOL), the phase when a product is no longer supported by its supplier and cannot be upgraded. As we have previously discussed, running systems on EOL IT becomes increasingly inefficient. A single department of the UK government estimated it would need to spend about $900 million from 2021-2025 on maintaining legacy IT, with 30% of its applications unsupported.

At the point when an organization’s technical debt is substantial, it also presents a problematic “skills debt.” Consider the critical lack of programmers for COBOL, a language more than 60 years old. As discussed in a 2022 academic paper, there are 220 billion lines of COBOL still in use — most prevalently in financial services and government — powering $3 trillion of daily commerce. In the United States, several states and the federal government have struggled to keep unemployment systems based on COBOL running. And chasing a limited talent pool diverts resources better directed to innovation: salaries for COBOL developers increased 44% between 2021 and 2022, according to the programming website Stack Overflow.

The actions organizations must take to rein in technical debt now

Ultimately, organizations hamstrung by convoluted systems, the cost of maintaining them, and talent tailored to working on them will be unable effectively to scale, innovate, and swiftly adapt in competitive markets. That’s why we recommend organizations take several key actions to manage their technical debt effectively:

Adopt a proactive mindset, starting from the top 

Because technical debt is a business problem, leaders including board directors, the chief operating officer, chief financial officer, chief technology officer, and chief information officer must both set a concrete agenda and foster an organization-wide culture valuing technical debt reduction as the only path to achieving sustainable innovation and strategic goals.

Identify where technical debt has been incurred

With broad executive support, the organization should conduct a current state assessment, identifying outdated technologies, mismatches between skills and strategy, and inefficient systems. For procured technologies, they must identify those that are at or near end-of-life and review internal policies to manage their lifecycle. An inventory alone isn’t sufficient, though. It's also vital to evaluate the long-term maintenance costs these systems may incur, as well as noncompliance, cybersecurity, and operational resiliency risks.

Allocate resources for long-term debt reduction with clear objectives

With an understanding of the state of its technical debt, the organization should determine a course of action and the resources required to execute it. For replacing or updating third-party products, that will involve vendor discussions. Depending on the risks, the organization may need to secure immediate funding for any urgent updates and integrate other updates into regular budget cycles. These are management decisions first and foremost, so senior leaders must agree on and own the prioritization.

Hire the right profiles by thinking long-term

An optimal workforce will not only effectively manage technical debt but also take advantage of reduced technical debt. As modernized technologies allow the organization to pivot from chasing outdated skills, it should focus on recruitment and reskilling programs to acquire the expertise needed for competitive differentiation.

Accelerate technical debt reduction with emerging technology

Generative artificial intelligence can accelerate technical debt by allowing nontechnical employees to produce low-quality code. But with proper governance, AI can also help organizations reduce technical debt more efficiently. It is already mature enough to scan large code bases, translate code into more modern languages, identify code quality issues, and suggest fixes. AI can also help predict technology supply chain risks. First movers will be poised to reap the benefits as AI capabilities improve exponentially.

An organization’s technical debt will not stay inside its walls for long. Its clients or customers inherit the debt and will increasingly choose competitors that don’t saddle them with such a burden. Simply put, it's an issue that firms in a competitive market cannot afford to ignore.