# Organizational Debt — Icalia Labs Blog > Explains organizational debt, Steve Blank's analogy to technical debt, how it shows up inside a company, and why tackling it is key to survival. Pre-AI era · 2018. Written before AI was part of how we build. The fundamentals still hold; tooling and workflow advice may be dated. Originally published in Spanish on [Medium](https://medium.com/icalia-labs/deuda-organizacional-8e36da13ebd1) on July 9, 2018. Translated into English and lightly edited for clarity. 1. [Home](/) 2. / 3. [Blog](/blog/) 4. / 5. [Software Development](/blog/topics/software-development.html) [Software Development](/blog/topics/software-development.html) # Organizational Debt Explains organizational debt, Steve Blank's analogy to technical debt, how it shows up inside a company, and why tackling it is key to survival. ![Eduardo Lopez De Leon](/assets/eduardo-lopez.webp) Eduardo Lopez De Leon · Co-Founder & CEO July 9, 2018 · 5 min read ![Red-tinted photo of an engineer working at a shared desk with laptops and a bookshelf in the Icalia Labs office](/assets/blog/working-setup2.webp) > This post began in November 2017 as research into some of the concepts affecting corporate innovation and agility in large organizations, stemming from a service we productized for a few prospective clients in early 2018. ![Black-and-white cartoon of a man straining to hold back a row of giant falling dominoes](/assets/blog/organizational-debt-1.webp) _Illustration: Nestor Ortega,_ [_El Cafecito Diario_](http://elcafecitodiario.blogspot.mx/2015/03/el-efecto-domino.html)_._ Over the past few weeks, I have been analyzing more and more concepts, cases, and exercises that many organizations have implemented to spark corporate innovation, despite the many challenges that exist in terms of culture, coordination, and agility. One of the concepts that has caught my attention the most, coined by an expert on all of these topics, [Steve Blank](https://en.wikipedia.org/wiki/Steve_Blank), is [organizational debt](https://steveblank.com/2015/05/19/organizational-debt-is-like-technical-debt-but-worse/). When I first heard it, I connected it with the well-known concept of [technical debt](https://en.wikipedia.org/wiki/Technical_debt), which was formalized from the quick and, in many cases, unconscious decisions made by technology teams that were starting to build new products or were part of small teams (startups). If that debt wasn't paid down in some way later on, for example through [refactoring](https://en.wikipedia.org/wiki/Code_refactoring) or a thorough polish of the entire project's design, the consequences could be catastrophic, to the point of ending the company itself. Organizational debt is the analogy for the same kind of debt at the organizational level — basically, decisions made in the past that affect the present, and that threaten the organization's long-term existence because it fails to keep pace with the changes and advances of today's world. ![Chart of four curves showing organizational debt, from low to chaos, against capabilities from maintenance to innovation](/assets/blog/organizational-debt-2.webp) _Chart: Phillip McDonald,_ [_moveforwarddeveloment.blogspot.mx_](http://moveforwarddeveloment.blogspot.mx/)_._ This situation can be seen in companies where, early on, in the desperate search for [product/market fit](https://en.wikipedia.org/wiki/Product/market_fit) or the right business model, certain decisions are made with a focus on moving fast and with a sense of urgency. Eventually, these decisions need to be revisited to modify or change the mechanisms that govern organizational policies, typically at the point when a company is looking to accelerate and consolidate its market expansion. When it comes to digital transformation and corporate innovation, much of the need to start a formal plan to transform an organization from within stems from that scenario: companies with high organizational debt, where correcting it can be painful, or even impossible, within the current structure. There are some [references and tactics for tackling this debt](https://medium.com/positiveslope/avoiding-organizational-debt-3e47760803a0), and the most important points come down to two things: 1. The organization's culture. Does it actually allow for change, new projects, and a real sense of unity among everyone involved? 2. The alignment of the key stakeholders and executives, who are the main drivers of constant change in an organization. Unless both of these happen in parallel, it is very hard to pay down the debt. ## How can I measure my organizational debt? Organizational debt certainly doesn't show up on balance sheets or in financial statements. It is embedded in the organization itself, keeping it from moving in an agile, responsive way. Decision-making will typically drag on, and team members won't carry out new tasks because the activity, the role, and the responsibility are ambiguous. On that last point, a lack of clarity about people's roles, responsibilities, and sense of belonging in the organization will create a culture in which those involved have no autonomy. Finally, this debt can show up in how business objectives are achieved — in the gap between when they are expected to be met and when they actually are — or simply in the number of activities that fall behind and never get acted on because of all of the above. ## What can you do when the debt is high? To tackle organizational culture, one tactic is to create new organizational entities — new in their culture, their legal structure, and their workforce — with the fresh mindset of building something new: the organization's next big value proposition. This tactic comes from the [Three Horizons concept](https://web.archive.org/web/20180708020943/https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/enduring-ideas-the-three-horizons-of-growth), in which innovation, happening in the third horizon, is carried out by a completely independent team using the infrastructure and resources of the existing corporation. The key element here is **independence**: the ability to move freely, with the right team and the right leader, to unleash the sense of speed and urgency that a startup has. While this model has a big advantage, it also has disadvantages, and it's important to identify them before executing the plan, in order to set the necessary thresholds and avoid becoming dependent on the elements that will initially allow an idea to take off. [Corporate venture capital](https://en.wikipedia.org/wiki/Corporate_venture_capital) is a great vehicle for making sure nothing stops these initiatives from getting started. The same goes for using the departments that form the foundation of many new organizations: administration, tax, legal, and others. The important thing is to leave that dependence behind quickly and have these new initiatives operate as new companies — retaining the corporation's knowledge and experience and keeping a connection with its top executives, but setting the project free to learn, evolve, and get to know its market, its employees, and its projects. ## Why tackle organizational debt if I'm already profitable and have grown Nx in recent years? To survive (and keep creating value). Companies used to last much longer than they do today. On top of that, [companies used to hold on to their market positions for much longer](http://theprincesynergy.com/learn-from-former-fortune-500-ceos-get-ahead-stay-ahead/). That's no longer the case. ![Visual Capitalist chart of the top five companies by market cap in 2001, 2006, 2011 and 2016, with tech firms taking over](/assets/blog/organizational-debt-3.webp) _Chart: Visual Capitalist,_ [_The Largest Companies by Market Cap Over 15 Years_](http://www.visualcapitalist.com/chart-largest-companies-market-cap-15-years/)_._ The only thing that will keep an organization alive is continuous progress and the search for its next competitive advantage. Today, organizations must assume that any competitive advantage has a limited lifespan, and being able to replace it with a new one or evolve it is fundamental to their future. ## Conclusions Organizational debt exists in every company, to a greater or lesser degree. What matters is recognizing it, managing it, and reducing it at the right time. Doing so makes it possible to create the policies and mechanisms needed to rethink the way the organization operates, grows, and makes an impact. Being able to stop and recognize this debt makes it possible to introduce the necessary practices and build a culture of responsiveness and agility in the face of change — important, necessary qualities for any company anywhere in the world. This responsiveness and agility must be assessed continuously, and if something is keeping the organization from moving at the pace it needs to achieve its goals, it's important to fix whatever is necessary before the debt grows larger and leads to its destruction. ![Eduardo Lopez De Leon](/assets/eduardo-lopez.webp) Written by Eduardo Lopez De Leon · Co-Founder & CEO Strategy, brand presence, and partnership development at Icalia Labs. Startup and corporate experience. YC Founder. [LinkedIn](https://www.linkedin.com/in/elopezdeleon/) [X](https://x.com/edolopez) [GitHub](https://github.com/edolopez) ## Related reading [ ![](/assets/blog/monterrey-office-overhead.jpg) September 22, 2026 ### How to Hire Software Engineers in Mexico: A US Guide A practical guide for US companies hiring software engineers in Mexico: hiring models, legal setup, vetting, onboarding, and the mistakes to avoid. 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