RESEARCH REPORT
Build your tech and balance your debt
5-MINUTE READ
October 22, 2024
In brief
- Managing technical debt is a critical component of digital reinvention but generative AI and enterprise applications are fueling tech debt growth.
- Eliminating tech debt entirely is unrealistic. Organizations need to proactively manage tech debt and balance their liabilities with future investments.
- We’ve identified three actions to help companies balance their debt while building their tech in the age of generative AI.
The catch-22 of tech debt and generative AI
The rapid adoption of generative AI and other emerging technologies is leading to a surge in new technical debt. Generative AI and AI are now the highest contributors to a company’s tech debt along with enterprise applications, according to our digital core research. This trend will likely exacerbate: in our Pulse of Change survey, 52% of organizations said they plan to allocate more funds toward generative AI, heading into 2025.
Generative AI is leading to a classic catch-22. On the one hand, it has the potential to create new technical debt. On the other, when used appropriately, generative AI can help manage tech debt remediation as well as minimize tech debt creation.
Balancing investment with innovation
AI is just part of the tech debt picture. In the US alone, tech debt costs $2.41 trillion a year, according to a 2022 report, and would require $1.52 trillion to fix. In our digital core report, we explored how companies can use their critical technology capability to thrive through change. That research revealed that leading companies balance tech debt liabilities with investments for the future, targeting 15% of IT budgets, using programmatic and autonomous methods.
For chief information and technology officers, this means deliberately investing in the parts of the digital core that are critical to their corporate strategy while being proactive, structured and data-driven in how they identify, measure, prioritize and remediate such debt.
41%
of executives identified AI as the highest contributor to tech debt, level with enterprise applications
52%
of organizations plan to allocate more funds toward generative AI, heading into 2025
15%
The approximate portion of the IT budget leading companies allocate for tech debt
Three actions for managing tech debt
In this report we go deeper to help CIOs and CTOs keep their IT estate running smoothly. We’ve identified three actions to help companies balance their debt while building their tech. These findings are based on our deep client experience layered with data analytics from our digital core survey of 1,500 companies.
01
Focus on the principal cost of tech debt
Companies must be aware of technical debt costs in four categories: principal, interest, liabilities and opportunity cost. They should remediate starting from the principal.
- Principal: The cost of updating outmoded technology.
- Interest: Incremental costs associated with those updates.
- Liabilities: Additional issues that occur because of a faulty principal.
- Opportunity cost: New opportunities a company cannot realize due to outmoded technology.
Much of the current discourse on technical debt uses these distinct categories of technical debt interchangeably and often combines them. This is a hurdle in remediation. IT leaders should focus on the principal. If they effectively manage technical debt at the source or principal level, just like financial debt, it will accrue little or no interest and minimize any liabilities or opportunity costs.
02
Create an inventory and trace your debt to the source
A clear understanding of the principal can help companies better manage and remediate their tech debt. A technical debt inventory will help them trace the debt to its precise source in the system. From there, IT leaders can systematically prioritize and sequence their technical debt remediation efforts, based on their business value estimates, technical risk and feasibility.
A prioritization framework such as this PAID value one is particularly effective. This work will form the basis of a roadmap to identify the timeline, milestones, potential benefits and return on investment.
03
Use the right metrics to measure your technical debt
You can’t manage what you don’t measure. Technical debt is not necessarily a bad thing—so don’t fear the debt. Instead, it’s essential to focus on the right metrics for what your business wants to achieve. If your tech debt remediation budget is increasing and your innovation and the business value you are delivering is outpacing it, it’s not a cause for alarm—rather, it’s a positive sign of the success of your strategic efforts.
For example, at the code level, our research suggests that companies should focus on technical debt density. This is the level of tech debt that shows up in a system or application per line of code (LOC). It is measured in units of cost per LOC. Much as GDP per capita is a better indicator of a country’s development than overall GDP, technical debt density should give a more accurate measure of code health.
Balancing—not eliminating—tech debt is key to reinventing with a digital core
One thing we don’t recommend is trying to eliminate your tech debt entirely. A degree of tech debt is healthy for the balance sheet as it’s often an unavoidable cost of innovation and agility. But too much of it can hinder progress.
Throwing too much money at tech debt can also be counterproductive. Our analysis found there is an inverse U-shaped relationship between a company’s digital core maturity and technical debt remediation. Using more of the IT budget to pay down tech debt only improves digital core maturity to a certain point. Beyond this peak, it indicates that a company is over-indexing investments in technical debt and not building their digital core capability effectively and efficiently.
Managing tech debt in the age of generative AI
Tech debt is a problem as old as technology. This report offers a clear look at what tech debt means in today’s age of generative AI. It explores how companies can balance it to spur innovation with their digital core and create the conditions for long-term business growth.