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This diagram illustrates three main things

1)    Firstly, it illustrates (in red) what happens when Transformation Debt™ is not exposed and managed. This is typical of most Enterprises.

2)    Secondly, it illustrates (in green) what happens when Transformation Debt™ is exposed and managed.

3)    Thirdly, it shows (in orange and blue) the savings produced when Transformation Debt™ is exposed and managed vs when it is not exposed and managed.

When Transformation Debt™ is Hidden and Not Managed

The solid red line illustrates the cumulative Transformation Costs of an Enterprise that does not expose and manage Transformation Debt™ and is typical of many Enterprises. The light red line shows the resulting Transformation Debt™.

Cumulative Transformation Costs rise, but very slowly, while Transformation Costs are kept low. During this time hidden Transformation Debt™ is slowly building up…

When this hidden Transformation Debt™ reaches a critical point (akin to when the pile of dirt that is swept under the carpet has become too big to ignore any longer) a very large and abrupt rise in Transformation Costs is required to deal with it. Often referred to as “getting the car out of the ditch”, its focus is usually very tactical - short term and only concerned with dealing with the major issue that cannot be ignored any longer.

Having spent a large amount of money on Transformation over a very short timeframe, the focus then tends to be, once again, to keep Transformation Costs low and therefore we return to the low level of Transformation Costs we saw before and the whole process repeats itself.

Not exposing and managing Transformation Debt™ is characterised by:

¨      Low Transformation Costs while hidden Transformation Debt™ builds up…

¨      Followed by large, unplanned and abrupt Transformation Costs when things get too bad…

¨      Causing unpredictability, which leads to instability, which means management is not in Control.

These large, unplanned and abrupt rises in Transformation Costs, can often occur at the same time that an incumbent CIO is replaced by another! This is obviously not good news for the CIO, but more importantly is not good news for the entire Enterprise.

A cynical view might be this.

From the point of view of giving prospective Enterprises a feeling that someone senior is a good hire, what could be better than for a previous Enterprise to have been fantastically successful while they were there and then fall apart when they left? What could be better than to say “While I was there, they were growing well and highly profitable because I kept Transformation Costs low. When I arrived they were in the doo doo, but I turned it around! Then, after I left, without my guidance, Transformation Costs increased and profits fell. It all fell apart”. Of course the reasons they managed to keep Transformation costs low was because they were raping the future.

So, what could be a perfect way to engineer this outcome? Is there one thing that could be done to achieve both of these things? Can I hit two birds with one stone?

The answer is yes you can.

All you need to do is rape the future of the Enterprise by ignoring Transformation Debt™. You will then guarantee short term benefits while you are there (for which you will be applauded and given large bonuses because everyone loves quick wins) at the same time as guaranteeing it will all fall apart when you leave.

But that’s not the best part. The best part of it is, you can achieve all of this by effectively doing nothing!

(Is this the definition of Management Nirvana?)

Not exposing and not Managing Transformation Debt™ is like boom and bust in the economy, and we all know the effects of boom and bust!

When Transformation Debt™ is Exposed and Managed

The solid Green line illustrates the cumulative Transformation Costs of an Enterprise that does expose and manage Transformation Debt™. The green dotted lines shows the resulting Transformation Debt™.

Cumulative Transformation Costs rises more steeply than before, as management decisions release resources to keep Transformation Debt™ under control.

Transformation Debt™ does build up but this debt is exposed and managed and does not get as large as before, purely because we are managing it and spending money wisely.

Since we are managing Transformation Debt™, increased Transformation Costs to reduce it can be planned ahead, so that when debt reaches a critical point we can reduce it in a controlled way.

In addition, while this increased Transformation Cost solves any short term problems that may be evident it is also aligned to longer term goals.

After the increased Transformation Costs, we again return to a more moderate level of Transformation Costs and the whole process repeats its self.

Exposing and managing Transformation Debt™ is characterised by:

¨      An Increased level of Transformation Costs while Transformation Debt™ is exposed and managed…

¨      Followed by moderate Transformation Costs when planned…

¨      Providing predictability, which leads to stability, which means management is in Control.

Exposing and Managing Transformation Debt™ relieves this boom and bust investment cycle. The downside is that it requires an increased initial investment in the short term. The upside is that it requires lower investment over time and prevents Transformation Debt™ from spiralling out of control.

“If you don’t control your Transformation Debt™, it will control you.”

- Pragmatic

Savings Produced When Transformation Debt™ is Exposed and Managed

Looking at the two final lines - Blue and Orange. They essentially answer the question:

“If I utilise Transformation Debt™ how much money will I save?”

The lines are shown negative as negative = savings. Positive = costs.

The Orange line shows the direct savings made by managing Transformation Debt. Essentially it is the Green line minus the Red Line. Although the Orange line does show savings over time, the important thing to note is that it costs us more initially. It is only when the first “panic” is averted later (because we managed Transformation Debt™ over time) that the savings kick in. This initial increase in costs is what needs to be “sold” to management.

The Blue line shows the savings of the Orange line added to the additional indirect savings we make by not incurring as much Transformation Debt™. Essentially it is the Orange line plus the difference between the light green dotted line and the light red dotted line.

 

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Questions to ponder...

Which line most closely resembles your Enterprises Transformation cost profile?

Do you think it is preferable to expose and manage Transformation Debt™, and if so, why?

How much hidden Transformation Debt™ exists within your Enterprise?

What is the interest rate you are paying?

How long will you have to continue to pay the debt for?

How do you intend to pay off the Debt and when?

How close are you to maxing out your Enterprise’s credit card?













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