I want to let CFOs in on a little secret. It’s called “technical debt.” It consumes nearly one-third of technology budgets and more than one-fifth of technology professionals’ time. What’s more, 70% of CIOs, CTOs and other technology leaders view technical debt as a major drag on their organisation’s ability to innovate.
If these findings, which are based on a recent Protiviti global survey of technology leaders, come as startling news for you, you’re not alone. Some technology groups prefer to keep the size and scope of the organisation’s technical debt—the accumulation of legacy systems and applications that are difficult and expensive to maintain and support—under wraps. CIOs and enterprise architecture managers would rather not broadcast the fact that rifling through eBay listings is the only way to procure network replacement parts, or that everything on the monolithic mainframe is so kludgy that merely touching the system could break it.
These issues create a wide range of critical concerns for the organisation, not the least of which is the cost to manage technical debt. But the CFO’s interests extend beyond the obvious costs. Technical debt can stifle innovation, slowing an organisation’s ability to pivot to emerging market opportunities—which does not bode well for sales, costs or resilience in disruptive markets.
In many organisations, particularly longstanding incumbents, mapping the technology supporting mission-critical operations can be similar to an archeological dig. On the surface, the shiniest, newest technology supporting websites, mobile solutions and advanced analytics may exist, but below the surface one will likely find layer upon layer of highly interdependent, complex systems, some dating back decades. The monolithic design of these systems and the processes supporting them are not fit for purpose in today’s fast-paced digital world. Further, the platforms and their intricate integrations create security risks as well as challenges in responding to regulatory compliance demands.
For these reasons, CFOs should play a proactive and prominent role in understanding, identifying and remedying technical debt in collaboration with their CIO peers and enterprise architecture teams. In addition, finance leaders should evaluate and consider technical health in conjunction with technical debt and understand the differences between the two. Doing so will lead to more precise and actionable risk assessments of technical debt and the development of responsive action plans, which are core components of the CFO organisation’s role.
Some legacy systems are supported by underlying technology infrastructure with relatively high technical health—meaning the infrastructure, despite being long in the tooth, can be maintained and supported in a relatively efficient and cost-effective manner. Thus, not all technical debt is bad. Other legacy technology infrastructure requires rare, specialised expertise (and a money hose to procure hard-to-find parts and skills) to keep operational. That’s a big problem. When aging, poor-performing infrastructure supports technology systems and applications that, in turn, support business-critical capabilities and processes, it quickly rises to the level of a resilience-inhibiting strategic risk.
CFOs also should keep in mind that translating the technical jargon used to describe technology infrastructure health into business objectives and outcomes is both difficult and absolutely necessary. Finance and technology leaders should work together to ensure this translation occurs.
As stewards of the organisation’s financial health, which is growing increasingly dependent on the organisation’s technical health, CFOs should consider the following actions:
Recognise the signs
High support costs, frequent outages, high numbers of support incidents and slow response times to service requests are common indicators of technical debt. So are complaints from owners of innovation initiatives regarding inability to scale, reduced forward motion and increased headwinds due to infrastructure. Another sign is overreliance on aging programming languages. When a technology group scrambles to track down a specialised, high-priced COBOL coder to tape together the technology stack beneath an ancient loan system, that’s an indication of deteriorating technical health.
If you think this is just an isolated example, think again. According to this article, some of the largest business systems running on COBOL, a language that is over 60 years old, include 95% of ATM transactions, 96% of travel bookings and 80% of daily point-of-sale transactions, There are between 200 and 250 billion lines of COBOL code in production. With the average age of COBOL programmers being 55 and only a minority of universities teaching the language, it isn’t hard to see where the puck is going.
Evaluate recent technology investments
Assessing the actual value of recent technology investments is a great way to get started on reducing technical debt. Finance leaders can huddle with the technology buyer and business sponsor of a major purchase to determine the extent to which the ROI presented in the business case has been achieved. What business value has the technology investment delivered? If that value falls short of the expected returns, what caused those shortfalls (e.g., aging infrastructure)? What can be done to reduce these value hindrances going forward? What needs to change in the up-front ROI evaluation process?
Drill into technology cost structures
A more comprehensive technical debt assessment starts with a layer-by-layer cost-structure examination of business-critical capabilities, the systems that support those capabilities, and the technology infrastructure (the tech stack and network) that supports those systems. Reviewing the technology cost structure through these lenses will equip finance, technology and business leaders with a more comprehensive understanding of the technology costs and risks associated with revenue-generating activities and other critical business capabilities.
We recently completed this type of exercise working closely with a CFO who was concerned about overall technology costs. What we discovered after drilling into technology cost structures with the CFO, CIO and business leaders was that the company’s finance and accounting function’s share of technology investments (and technical health) was higher than technology investments for vital areas like customer-facing functions and supply chain operations. This finding was an eye-opener.
Reallocate technology investments to reduce debt and improve health
Following up on this real-life example, the CFO prioritised making finance- and ERP-related technology investments more efficient while working with the technology function and the business to reallocate more technology spending on reducing technical debt underlying the systems supporting revenue-generating activities such as supply chain management.
Support the technology group’s long-term debt reduction efforts
Yesterday’s transformation is tomorrow’s technical debt. Technology groups and enterprise architecture teams should monitor how the landscape is evolving while ensuring technology investments in business capabilities keep up with the rapid pace of change. On a tactical level, it helps to maintain roadmaps and timelines that identify how technology vendors plan to support crucial systems, infrastructure components and programming languages into the future, including for how long these planning efforts require funding and the CFO’s support.
Although technical debt lurks in technology infrastructure, it can have major implications on the organisation’s financial health—both now and in the future. That makes technical debt a top concern of CFOs who can work closely with their technology counterparts to drive greater efficiency in business and technology systems, reduce infrastructure costs by streamlining services and moving core applications to the cloud, and remove the shackles on the organisation’s ability to innovate. Making these improvements starts with understanding the financial and performance effects of technical debt on the organisation.
This article originally appeared on Forbes CFO Network.