Technology has become a primary driver of business competition today, but as companies pursue digital strategies, many are struggling under a significant and often underestimated burden: technical debt. According to McKinsey survey data, tech debt represents up to 40% of a company’s technology estate, diverting as much as 20% of IT budgets originally allocated for new projects.
This mounting debt has become an anchor for many organizations, dragging them down and standing in the way of innovation, agility, and the ability to compete. With that in mind, let’s look deeper at technical debt, its business implications, and how IT financial management (ITFM) is essential to managing it effectively.
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Tech debt encompasses all of the work a company must do in the future to fix or modernize its IT systems. It is essentially borrowing from the future to save money or use resources elsewhere now, accumulating over time from sources such as:
One prime example of tech debt related to software development are applications that haven’t been refreshed in over a decade. Built on outdated code, these apps represent a ticking time bomb of potential failures that drive up maintenance costs and keep IT teams stuck in firefighting mode.
Or consider the implications of running critical applications on a legacy mainframe because it’s the only hardware that can support them. Maintaining these systems can become increasingly cumbersome, using budget that could be spent on more efficient cloud-based investments.
Another common scenario is companies that continue using outdated customer relationship management (CRM) systems rather than switching to modern alternatives like Salesforce. The result is a less effective sales team, as well as growing technical debt that must eventually be repaid.
Technical debt is similar to financial debt in that it continues to grow over time. Just as interest compounds on financial debt, so does the cost of addressing tech debt the longer companies take to address it.
This problem bogs down companies in a variety of ways by:
The implication is clear: tech debt is far from a benign problem, and organizations that want to stay competitive must manage it effectively
Misconceptions around tech debt are common among business leaders, making it harder to address the problem to move the organization forward.
Examples include:
The first step in managing tech debt effectively is building a complete picture of what it’s costing your organization. Practices like and FinOps can help, but complete visibility requires a more comprehensive solution. That’s where IT financial management (ITFM) comes into play.
Working alongside solutions like FinOps, ITFM offers a broader view into the entire landscape of IT spending on a granular level, so companies can:
The impacts of technical debt are often far-reaching and can slow down growth and innovation. ITFM practices and tools like Nicus are vital to uncovering the true costs and sources of tech debt, so companies can chart a more efficient, agile path toward market leadership.
Learn about Florida Blue’s Transparency Shift with Nicus: From financial reporting to true IT financial management
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