Episode #49 | Lighten your Organisational Debt
How frequently do you declutter your business or your personal matters? We are all so busy that we forget to spare some time to reflect and declutter. This leads to an often more complicated and tougher-to-solve situation and called organisational debt.
Organisational Debt is the accumulation of changes that leaders should have made but didn’t—from a bloated hiring process, maintaining the company’s culture between employees, struggling with overly complicated processes to unkonwingly straying from the original business strategy.
In this episode, Warsha talks about organisational debt and how it shows up in the Five Elements of your company.
Let’s dig deeper into the causes of organisational debt and how to avoid it in the first place.
- The importance of knowing the root cause of an organisational debt
- How decision-making can affect the efficiency of the operation
- Know how this debt shows up in your Five Elements in your business
- How communication and culture help in avoiding organisational debt
“When Steve Blank coined organizational debt, he defined this as what I paraphrase as the accumulation of changes in the organization, or the people and culture fixes that founders or leaders should have made, but did not.” –Warsha Joshi
“It’s possible that it’s the unseen interest a company pays for the debt that it has accumulated on its resources. A lack of strategy sometimes leads to this.” –Warsha Joshi
EP49_Lighten your Organisational Debt
Warsha Joshi 00:00
If your culture is not built on very strong values that your company stands by, there is a very strong chance that you will find that that culture begins to deviate.
Evan Le Clus 00:15
Hello, you are listening to the Dare to Scale show with me, Evan
Warsha Joshi 00:19
And me, Warsha. This show is about all things scaling, scaling your business, your journey.
Evan Le Clus 00:28
And you, you are here because you dare to dream, dead to dream big. So sit back and enjoy the conversation, or perhaps even join in.
Warsha Joshi 00:42
About two weeks before recording this episode, Evan and I moved houses, we moved cities. And of course, what do you think happens when a move like this happens when most of us have been through this?
The weeks preceding the actual move, we start to clear up, clear up stuff from our houses, clear up stuff that we didn’t even know existed, clear up stuff that we didn’t even know we had bought, for what reason? And that’s exactly what happened. I started to bring out and I’m not a hoarder, by nature, I actually don’t buy I’m not an impulsive shopper. And neither is Evan.
So in an already clean enough house, we still managed to find a massive amount of clutter that we decided as most people do, we have a garage sale, bring it on, here’s everything laid out, take it for free, take it for charity, don’t really care. Get rid of it, because that is clutter.
And that’s what led me to talk about today’s topic.
Because while we were decluttering the house, a topic that I had picked up a couple of months ago when I was leading a boot camp came to mind. And it was a phrase coined by Steve Blank a few years ago. And the phrase actually is organisational debt.
So just as we accumulate things in the house, get out when it’s a when when you have space, we tend to accumulate things to fill up the space. It’s like a handbag, larger the handbag, the more stuff in it, you suddenly start to realise, why is my handbag so heavy? And why am I not actually not doing anything about it, lug it around, carrying the heavy handbag. And suddenly we start taking pride in the fact that Oh, but just in case I need something, I must have something in my handbag.
Now, as a rule, I carry a very, very small handbag. But I know I used to carry a massive handbag just for this. And organisations are no different.
So, what is organisation debt? And why am I talking about this today?
So, when Steve Blank, coined the phrase, organisation debt, he defined this as I paraphrase, as the accumulation of changes in the organisation, or the people and culture compromises that founders or leaders should have made, but did not. Sounds familiar.
When it’s a fast growth company, everything looks possible. And I’m going to talk a little bit deeper into how an organisation that starts to show the symptoms in all the Five Elements in your business. But before that, let me talk a little bit more about where these areas and how many different ways an organisation debt can be defined. people and culture compromises totally.
It’s possibly the unseen interest, a company pays for the debt that it’s accumulating on its resources. Locked, lack of strategy sometimes leads to this. But more on that later.
Anyway, so I want to talk about how the symptoms start to show up first. One of the biggest ways it starts to shows ours to show up is lots of layers suddenly appearing in management teams, which then leads to a longer decision making process, which then leads to inefficiency in your operational structure. Because decisions take time.
There are way too many people it’s almost like a bureaucratic organisation that starts to happen. And whether it is an absolute startup, or it’s a midsize organisation or a large organisation, organisation clutter in exists in nine out of 10 companies out there, where else does it show up size of the team that reports into one role, because suddenly, you have way too many people and industry is too wide a structure to manage efficiently.
In large organisations, sometimes a lot of restructuring happens. And when that restructuring happens, it possibly could happen at departmental levels, possibly not fully aligned with the strategy. And when a misaligned restructuring happens or a reactive restructuring happens, departments which are already operating in silos get even further and further away.
So communication becomes an even bigger issue. Processes procedures sometimes are reactive. So in many cases, when a procedure is not constantly reviewed, we tend to bring out a process just so we can almost put a bandaid on something that is not working out. If this happens, we’ll do this. And to then to manage that procedure, then we need more people.
So a simple and effective 10 Step Process possibly could turn into a 25 step process and needing twice the number of people headcount increases. What happens when headcount increases, the culture in your company begins to shift imperceptibly in the beginning, and then starts showing bigger chunks of issues, then it becomes too big to handle in an organisation that has an open and community driven culture.
Sometimes, we lose track of the fact that while it’s a wonderful community driven nurturing culture, there are decisions, tough decisions, that are then that much more difficult to take. So they are possibly not taken, decisions that should have been taken.
When it the time is right, usually don’t get done. It’s possibly the difficulty of firing some people that actually shouldn’t be there. Possibly the underperformance being a friend of the business is much tougher than most people think it is. Because being a friend of the business is walking that tight and very fine line between being friend of your people being friend of the community that you’re building.
At the same time, there is no community if there is no business. So most times, and this is this is a line I read in one of the articles, and I will actually post a link to that article. It’s a very small one, the line that I read is, in most cases, organisation debt builds up is when the most common decision is to not make a decision just yet, or leave the decision to somebody else. Or even in many cases, if it’s not broken, then why fix it.
So we just keep doing what we have been doing so far. I’m not going to go into the Five Elements, and how organisation debt shows up in these Five Elements. And how these symptoms can be easily recognised and fixed when the time is right. Because the longer you take to fix it, the bigger the task it becomes, and the further it gets pushed away.
Now, when I’m talking about fixing an organisation debt, I also want to address a couple of phrases that we hear quite a lot. downsizing, scaling up, scaling down, right sizing, agile flat organisations, many, many, many ways.
My simple way to look at this is if you want to stick to the scaling theme, scale it to a size where it’s effectively moving forward, scale it to a size where it’s not so much scaling up or scaling down. It is scaling forward sustainably. And the key over there is to keep a very, very keen eye on the organisation debt that you’re building on that unseen interest that you’re paying, without even realising now.
So if we start with strategy, what happens when it’s a fast growth company? You know, when when everything is going well, there is a lull, there’s a false sense of security that comes in and you think, well, this is all fabulous, my strategy is totally working. Everything that we said, we’re doing is actually happening, things couldn’t be better.
Now, what happens over there, unless there is somebody holding you accountable to your own strategy. And now when I say you, I’m talking to you, the founder of your business, the person or people who actually own the strategy, and keeping track of your strategic growth roadmap, because when the going is so wonderful, everything looks possible. Everything.
And when I say everything, suddenly, things start appearing, which are shiny objects. So accessible anything Well, why not? If this is working, let’s say yes to that, too, when in actual fact, you should be saying no to? Because saying, No. I know this is this has been a big topic of conversation. And yet, we tend to not say no, as much as we ideally should be saying no.
So the risk of losing track of your strategy is the first sign where organisation debt actually begins. But that’s not when you actually notice it, do you? Because it’s not pinching anywhere yet. Everything is fine. And the minute you say yes to something that should have been a no.
What’s the next step that happens? You put in some cash towards whatever that you’re saying yes to. And it may be a direct investment into a specific product or a specific service that you’re saying yes to in or launching a new product, and the cash unseen. And I say unseen, because it’s not something that you’re picking up and putting it down as a capital investment. The cash on scene then starts coming through as salaries because then you need more people.
And even if you’re not, if this team that you’re now building together, because you said yes to something that doesn’t really belong in your strategy, even if you’re saying yes to increasing a headcount, what are some of the things that will help you?
Say, No. Keeping a very keen eye, if you have an HR manager, or if you are the HR manager, or if you have a team leader, keeping a very keen eye and a very tight grasp on functional role responsibilities or role descriptions. Because again, when the going is great, we don’t say no to hiring new people, even if it oh, just one more one, her I think we really need somebody is really overworked. And we definitely need someone else. We really need someone else.
And yet, if you keep a tight grasp on that functional, actual functional role responsibilities, we very soon realised that, in very, very rare cases, is someone in a company busy for eight continuous hours.
I’ll repeat that. Very rarely, in any company, is someone busy for continuous eight hours. If they are, and if they have burned out by the end of those eight hours, there’s more a procedure or Yeah, like a procedure following a procedure or a documented procedure issue. So efficiency in operations, rather than a role that is so over burdened and if it is, look at that functional responsibility again, look at the procedure again, before you say yes to hiring someone else.
And by that I don’t mean have a burnt out staff, please don’t get me wrong. What I’m saying over here is sometimes appearances put pressure on saying yes, you can see the thing Yeah, the more I say we are saying yes when we should be saying no, is where the root of an organisation debt actually lies in.
Again, these are decisions founders must take and yet don’t, not because they don’t want to, not because they don’t know how to know, most cases it is because they don’t know what they’re even dealing with. Because in most cases, the founders are actually busy handling several other things. There are other priorities. There’s firefighting every day. There are growth pressures every day, there is the keeping your clients happy, keeping your organisation happy, keeping your people happy, there are fires that you’re putting out absolutely. In every corner. I get it.
This is exactly the conversation that happens when in most of our coaching sessions with the founders.
So yeah, you know what I’m talking about? Yeah. So then you get in people, more people come in. If more people come in, they may or may not actually have processes written. Because we hire when the volume of work overtakes, documenting procedures on the priority scale. That’s how the headcount increases.
So as I was talking about keeping a tight grasp on functional role description, keep a tight grasp on your procedures, your procedural documents, keep them as a live document. proactive rather than reactive, proactive, rather than reactive.
Now, keep a very close eye on your business model efficiency, because that’s where in the rush to say yes to everything a client says in a rush to please the client, we run the risk of losing track of our business model efficiency, how efficiently Are you delivering your product to the customer?
Again, risk of building up your organisational debt when more people come in, and when policies and procedures while documented while people are following it. management levels increase, a bureaucratic organisation starts to take shape.
What is one of the biggest things that takes hit? Communications, efficient communication, transparent communication, smooth flow of communication between the ranks all the way from your leadership team to your frontline?
How is communication handed down? How does that waterfall look like? efficient communication is one of the biggest topics that I address during coaching sessions. And believe it or not, we’re humans, we’re naturally born to communicate. And yet, we have no idea how. And then starts memos and letters and club boards, stuff stuck up on cork boards with nobody even bothers to listen to or read threads of email going back and forth where there is no actual message being transparently given.
So having a schedule of meetings, having daily huddles, having weekly huddles having a consistent structure in huddles, I’m not talking about long meetings, I’m not talking about spending five hours in meetings all day and when nothing actually gets done, because that is your organisation that because that is your people’s time not being managed efficiently.
You’re paying people to sit in meetings to talk about everything under the sun, not actually get to a decision. And even if you get to a decision walk right into another meeting, when nothing is actually getting done. And you think why people have been out.
So communication back to communications, Swift, short, sharp, and transparent. Communication is key. Starting with your daily huddles, and if you haven’t heard about daily huddles yet, go back to some of our older podcasts, Google daily huddle, and you will find tons of information over there, or drop us a line.
And I’ll have a quick chat with you to talk about daily hurdles. It is one of the best things that you can implement in your organisation, culture. Keep an eye on what is the culture that you want your organisation to be? What do you want it to represent? And that goes back to strategy.
And we’ve done quite a few episodes on this. So scroll back and listen to a couple of those that burden on culture because the more your headcount increases, if your culture is not built on very strong values that your company stands by, there is a very strong chance that you will find that that culture begins to deviate.
And that starts to show up in your hiring process. Who do you bring on? Do you hire for culture fit or skill fit only misalignment in teams begin to show up. And then it starts showing up where you start to lose great people in your company. Because suddenly, they realise, wow, actually, I don’t think I belong here anymore. It’s not the company that I said yes to this is not how it used to be. Or his start having people say, well, actually, you know what? That’s okay. It continues. And I’m just going to stay here. Because Thirdly is I have a job.
In many ways, everything that I’m saying right now might sound like I’m rambling or amusing. In a way I am amusing. Because defining an organisation debt is really about taking an in depth look into how we lead our lives, whether we declutter our homes, because we have accumulated stuff that shouldn’t even be there, or decluttering, an organisation because we haven’t said no when we actually should have.
Now, you may remember, in one of our at least couple of past episodes, Evan and I talked a lot about cash conversion cycle. When we were going through the bootcamp and I was I was taking this particular topic on cash, cash flow management and cash flow, cash conversion cycle, I redefine that as a resource conversion cycle, you know, what the cash conversion cycle is? How long does it take for $1 invested in your business, to go through your entire business cycles and to come back into your bank account, as in the form of payment?
Now, if you look at this as a resource conversion cycle, then you are now tracking every single dollar invested not just directly into building a product, but into every single aspect of your company, whether it is people process, business model, you name it, how long does that dollar invested into a specific resource take to travel through all the cycles of your company, and actually show up as a return on that investment.
That’s something that I was actually going through with a particular coaching client in about a month ago. And some of those are has was so enlightening, that in about six days, he came up with at least a saving of $50,000. Because suddenly you realise that there is a lot of cash that is sitting invisible, and not actually giving results or returns on investment. What does that translate as $50,000 worth of organisation debt was identified straight up now. Take up that cash conversion cycle, and name it resource conversion cycle.
Go through all the Five Elements in your company and begin a Declutter. Declutter your organisation. Declutter your company. And stop paying that invisible interest that you are, whether you’re a startup of five people, or you are a large scale company of, I don’t know, 5000 people, organisation debt exists at every level. And it’s time to start decluttering now.
I have completely enjoyed decluttering my home, I have enjoyed decluttering my business because that’s what I did as well, along with decluttering my home, because that was it was quite an eye opener for me. And it all came together. So well. I thought, Well, I’m gonna do a musing podcast on organisation debt.
I hope you enjoyed today’s topic. And I hope you’ve taken away at least a couple of our houses that are possibly showing up in your companies right now.
Just to know what to put to name it, what to call it, or how to even identify what that actual problem is. But pick up your pen and paper and pick up that cash conversion cycle and work on decluttering your companies today and tell us what the effects have been after you go through your own decluttering have fun, get rid of your debt.
I will speak to you at the next episode. Thank you for joining us and for listening all the way through to get the show notes, the transcription and of course to subscribe, visit dare to scale.fm.
Evan Le Clus 25:24
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