Technical debt is a “ball & chain” for many financial firms - a natural consequence of getting things done quickly instead getting things done well. However, regarding technical debt simply as a “thing” is a limiting factor for firms and misses vital nuances of this concept. In this article, we’ll re-visit the concept of technical debt, and suggest why it isn’t just a side effect, but a core management imperative that any financial services firm should include in its transformation strategy.

Technical debt as a strategy

Expediting the achievement of objectives by borrowing against the future is a key financial strategy for most governments and businesses. Using this as a metaphor, Ward Cunningham first coined the term “technical debt” in 1992 to help formulate his ideas around how software solutions could be created in an agile manner. Software issues that are intentionally ignored in the interests of short-term agility invariably become more onerous to address in the longer term. Ward recognised how the extra effort to address these deferred issues was akin to an interest payment on a debt, where the debt is the agility acquired by initially ignoring them.

However, Ward also realised that technical debt was fundamentally a systemic issue. It can be intentionally acquired but it is also endemic in an environment where the knowledge of what a perfect product or service should look like is unknown. Each deployment of a service approximates what consumers wish to use, to which subsequent re-work will always be required. 

Accordingly, successful management of technical debt is to routinely incorporate the accumulated knowledge into systems and applications with the minimum effort, so that it looks like firms knew what they were doing all along. With this approach, technical debt is a management strategy, where firms actively trade off short term and longer-term agility in response to business demand. It is an approach to distinguish when “good enough” is genuinely good enough, and when “good enough” imposes too greater penalty on a firm’s future agility.

Technical debt in transformation

Back in 2018, Gartner predicted that without sufficient digital transformation, up to 80% of heritage financial firms would cease to exist by 2030. Digital transformation momentum has significantly up-ticked in the interim and  IT decision makers say that they have accrued more technical debt over the past year than in previous years.

Digital transformation is ultimately about making organisations more adaptable to disruption. Adaptation implies change, but often there is uncertainty about the exact nature of the change required, and this change must occur quickly. In this dynamic environment, technical debt becomes one of the key control levers for finance firms, enabling them to optimally adapt now by judiciously borrowing against their future agility.

The operative term here is judicious. Judicious borrowing can only occur when the costs of borrowing are understood. Given a specific set of lending terms, a highly mature set of disciplines exist which enable the cost of financial borrowing to be understood in advance. In the context of technical debt, the equivalent lending terms are far less transparent and are dynamically linked to how the organisation behaves.

For example, a “quick and dirty” roll out of a service to onboard partners may seem like a fair exchange of immediate outcome for future agility. This is true so long as the business addresses the technical debt early and uses insights from the early deployment to consolidate the service design. But if the company decides to defer “payment” on the technical debt over successive releases, or worse, chooses to expand the service and to onboard many diverse new partners, many layered dependencies could be embedded into a hitherto simple service infrastructure. What was a cheap, affordable debt quickly spirals with no good paths to repayment.

Controlling technical debt in automation 

Automation initiatives are likely to be a significant source of technical debt for financial services firms. This is not only because automation is one of the pillars of digital transformation, but also due to the complexity of the automation challenge which cuts across business and IT domains. Automation is particularly susceptible to poor technical debt management because often it is regarded as a tool, when in fact it is a strategy. Automation tools have never been easier to use and acquire but when used tactically within a narrow context, technical debt is almost impossible to manage. When the application of those tools is informed by a coherent strategy, technical debt becomes more manageable and predictable.

To create such a strategy, a comprehensive understanding of the firm’s Enterprise Architecture is required, from process to the IT infrastructure that supports it. For example, premature automation involves significant technical debt where redundancy or significant variance exists across a process landscape, leading to high maintenance solutions that fail to exploit the business value available.  Effective process management enables optimal consolidation of the process landscape to take place before automation, at which point the risk of excessive technical debt from automation is significantly reduced.

However, one cannot undertake an automation initiative through sole consideration of the process landscape. Automation will require IT infrastructure on which to run, so the state of the IT infrastructure must be a key consideration. For example, deferment of application upgrades is a crude but effective way to increase short term agility, though this must not be taken lightly as the cost of running applications that fall out of support typically increase by 200-600%. If this is done, it is imperative not to deploy a large volume of automation workloads on these technically indebted systems. This is to avoid substantial impacts to future agility.

Banking on technical debt

In an increasingly competitive landscape, it is imperative that finance firms undergo and maximise the impact of digital transformation. Technical debt is not simply a regrettable artefact that firms accrue during this process, whether they are undergoing a cloud migration or pursuing automation initiatives that help support new services. It is a strategy that financial firms can use actively to seize opportunities and optimise the impact of their transformation initiatives.

Addressing technical debt is not something that should be done as a matter of last resort, but routinely conducted as part of this strategy. It is imperative that technical debt strategy is informed by a holistic view of the firm’s enterprise architecture to maximise its effectiveness. Indeed, in a world abound with digital transformation activity, firms may find that the right technical debt strategy is the source of their biggest competitive advantage.We'll look at how this could be done in a future article.