Five Kinds of Organizational Debt
Most of us are familiar with technical debt — the accumulated cost of quick fixes and shortcuts in code that eventually slow down development and create bugs. Org debt works the same way — compounding over time, affecting how the organization functions, corroding our culture and ability to reach goals. Over time, org debt slows everything down.
Companies often incur this debt during times of rapid change as we prioritize executing over tending to the organizational system. In our haste to meet revenue or product goals, we create workarounds. We fall prey to "we'll fix it when things slow down" thinking. Even when these issues make it to a list, they tend to fall to the bottom.
Eventually these workarounds become organizational sludge, dragging us down and impeding our ability to execute. While tech debt affects our product development, org debt affects our ability to execute anything at all. If tech debt is why our software is slow and buggy, org debt is why our teams can't collaborate, decision making is hard, and the best people are leaving.
Do we have org debt? The answer is likely yes. Org debt is especially common during times of rapid or unexpected change, and for startups transitioning to new phases. When we’re in transition we often have this weird double vision — we know we need to change but we're still making decisions based on who we used to be rather than who we're becoming. We're caught between the reality of old constraints and the fantasy of new possibilities. This is why so many of companies struggle with change — we’re carrying multiple types of debt that compound each other, making the transition even harder. Once incurred, org debt requires intentional effort to pay down, just like financial debt. Some amount of org debt is inevitable. What you want to look for is how much it's accumulating, how fast it's accumulating, and the impact on the org. But first, we have to recognize it's there and understand what type we're dealing with.
The key is getting specific about what type of dysfunction we're actually dealing with. When we talk about org debt, we often lump it into one big category overwhelming us. This leads us to do nothing or focus on the wrong issues. Making distinctions helps us diagnose what's actually broken and where to focus our energy. If we're trying to fix everything at once, we'll probably fix nothing.
That's why I've identified five distinct types of org debt: leadership debt, relational debt, structural debt, systems debt, and reality debt.
Each type has a corresponding "org smell" — surface indications that help us recognize what needs attention and where to intervene. Just like code smells signal deeper problems in software, org smells point to specific types of organizational dysfunction lurking beneath the surface. Recognizing these smells allows us to pinpoint which type of debt we're dealing with and focus our efforts accordingly.
Five Kinds of Org Debt and Their Org Smells
Leadership debt
Leadership debt is the accumulated cost of leadership capabilities and roles that haven't kept pace with organizational needs. It's the difficult conversations that have been avoided, the critical skills gaps we hope will resolve themselves, and the leadership roles that should exist but don't. It grows when leadership development is underfunded or when we select on functional excellence and technical skills rather than the ability to navigate a complex system. This debt accumulates over time until there's a crisis—senior leaders departing, a siloed leadership team that operates as distinct functions rather than a collective unit, or key decisions that get delayed because we can't align. It manifests as unclear direction, inconsistent decision-making, priorities that aren't clear, and leaders who oscillate between being too hands-on and too hands-off. Leadership bottlenecks develop where decisions pile up - often because organizational leaders are still thinking functionally rather than systemically.
Leadership Org Smells
Pleasant leadership team conversations that demonstrate artificial harmony and lack of trust
Senior leaders who are bottlenecks—everything waits for their input or approval
Leadership team meetings that are glorified status reports rather than strategic discussions
Leaders avoid difficult performance conversations or conflict resolution
Inconsistent messaging from exec team members about priorities or direction
Key decisions getting revisited repeatedly because we can't align
The exec team operates in silos, rarely collaborating across functions
One or more functional rock star leaders who struggle in organizational roles
Relational debt
Relational debt is the accumulated cost of transactional, neglected, or damaged relationships within an organization. These relationships deteriorate when trust, goodwill, and psychological safety erode over time through lack of communication, work style misalignments we don't discuss, and unresolved conflicts. This debt compounds quietly but relentlessly—each communication gap creates more distance, each unaddressed work style conflict makes working together harder, and every unresolved conflict makes people more guarded and less willing to collaborate. Blame and finger-pointing become more common, creating additional barriers to effective partnership. "Us vs them" mentalities develop as teams protect their territory rather than working toward shared outcomes. The whisper network grows as people share frustrations privately instead of addressing issues directly. Relational debt is a quiet assassin, undermining collaboration and creating an environment where information gets hoarded, mistakes get hidden, and innovation suffers because people are more focused on protecting themselves than achieving shared goals.
Relational Org Smells
Perpetual friction between areas making collaboration difficult
Rise in negative emotional contagion damaging the culture
Lack of psychological safety—people afraid to speak up or admit mistakes
Information hoarding between functions, individuals or leadership layers
Reluctance to give honest feedback or raise concerns directly
People avoiding difficult conversations and letting issues fester
Cross-functional projects that consistently fail due to poor collaboration
Blame games when things go wrong instead of problem-solving together
Structural debt
Structural debt is the accumulated cost of outdated org charts, unclear roles or team structures and reporting relationships that don't match how work actually gets done. This debt builds up gradually as organizations evolve but fail to update their organizational design to match their new reality. What worked at 20 people becomes dysfunctional at 200, but instead of redesigning the structure, organizations add layers, create workarounds, and let informal networks fill the gaps. Teams get organized around yesterday's priorities—engineering around legacy systems, marketing by old channels, or product by outdated features—creating coordination overhead and slowing down current work. This includes under-investing in critical functions like People operations - hiring junior roles when you need senior expertise, or nesting people leaders under other executives rather than giving them direct CEO access. Over time, this creates confusion about accountability, slows decision-making, and forces talented people to navigate dysfunction instead of adding value—the real cost isn't just inefficiency, but that our structure actively works against collaboration and clear execution.
Structural Org Smells
The most senior people leader doesn't have a seat at the exec table
Unclear decision rights (who actually decides what)
Roles and responsibilities that overlap or have gaps
Leadership layers misaligned with org size and complexity
Managers who don't want to be managers (lack of dual career tracks, compensation structure issues)
Departments or functions that should collaborate but are set up as silos
Unclear ownership leads to cross-functional projects that fail or get stuck
People consistently bypass formal approval chains to get work done
Key functions missing entirely (no one owns customer success, data, etc.)
Systems debt
Systems debt is the accumulated cost of operating with outdated, inefficient, or poorly integrated systems and processes. It's the org equivalent of duct tape and workarounds that pile up over time. These manual processes, disconnected tools and workarounds force people to fight the system instead of adding value. It's manual processes that should be automated, databases that don't talk to each other, or reporting that takes weeks because someone has to pull data from five different places and manually reconcile it. Systems debt creates friction everywhere — people waste energy on system friction rather than productive work, information gets lost or duplicated, decisions get delayed because getting good data is a nightmare, and new employees take forever to become productive navigating this maze of workarounds. The real cost isn't just efficiency, it's that our best people get frustrated and leave, innovation slows because everything is cumbersome, and we can't scale because our systems can't handle growth.
Systems Org Smells
Productivity problems caused by inefficient tools and processes — teams spend more time fighting systems than doing actual work
Manual processes that should be automated frustrating employees
Multiple tools or databases that don't integrate
Reporting that requires manual data reconciliation from multiple sources
Onboarding processes based on outdated documents requiring multiple handoffs
Long ramp-up time for new employees to navigate system complexity
Critical data gets lost or duplicated between systems
Strategic decisions delayed due to difficulty accessing reliable data
Reality debt
Reality debt is the accumulated cost of operating with unrealistic assumptions about our capabilities, capacity, and constraints that don't match what's actually true. This debt builds up when we consistently overcommit relative to our actual resources, make plans based on best-case scenarios, or struggle to acknowledge tangible limitations. When the org is in transition we often have this weird double vision — we know we need to change but we're still making decisions based on who we used to be rather than who we're becoming.
It's particularly dangerous because it compounds all other types of debt — we can't fix leadership problems if we're not realistic about what good leadership looks like in our actual situation, and we can't address structural issues if we're not realistic about our real constraints. Reality debt is especially common in startups that survive on optimism early on but find it challenging to ground that optimism in what's actually possible. The company ends up living in an idealized version of itself, and that fantasy becomes increasingly expensive to maintain.
Reality Org Smells
Burnt out team (unrealistic expectations about capacity and capabilities)
Productivity problems caused by overcommitment - taking on too many initiatives with unrealistic timelines and insufficient resources
Shuffling poor performers (avoiding reality of performance management needs)
Budgets and timelines that look good on paper but ignore actual constraints
Decisions based on past success that don't account for new complexity
Planning assumes an ideal operating model rather than the current reality
Treating new challenges as if they're just bigger versions of familiar problems
Goals that require everything to go perfectly with no buffer for the unexpected
How Org Debts Compound Each Other
While each type of debt creates its own problems, the real danger lies in how they reinforce each other. Just like compound interest, the effects multiply rather than simply add together. Certain combinations can become toxic, creating vicious cycles that make organizations increasingly dysfunctional. Understanding these patterns helps explain why piecemeal fixes rarely work and why some debt combinations require coordinated intervention across multiple areas.
Most tricky combinations
Some debt combinations create particularly challenging cycles that are difficult to break without addressing multiple areas simultaneously. These debts go hand in hand, so we might have multiple org debts. The key is to look out for particular combinations.
Leadership + Reality debt: When we're not realistic about our capabilities and also lack the leadership skills to navigate that gap effectively. This creates a cycle where unrealistic expectations lead to decisions that don't account for actual constraints, generating more organizational stress.
Relational + Structural debt: Damaged relationships make structural changes difficult to implement because teams lack the trust needed to navigate the ambiguity of organizational transitions. Misaligned structures create more friction between teams, further eroding relationships.
Leadership + Relational debt: When we avoid difficult conversations, unresolved conflicts accumulate and trust breaks down, creating a cycle where each avoided conversation makes the next one harder and more charged.
Most common combinations
Certain organizational situations tend to create predictable debt patterns. Recognizing these common combinations can help leaders anticipate challenges and address multiple debt types before they compound into bigger problems.
Startups scaling: Reality + Structural + Leadership debt
In this phase it's easy to underestimate what this organizational transition requires. We often assume that what got us here will get us there, but scaling creates fundamentally different challenges. Our structure doesn't match our new size - decision-making processes that worked with 20 people become bottlenecks with 100, and informal communication breaks down as teams grow. Meanwhile, leaders who excelled at hands-on execution now need to delegate, build systems, and think strategically about organizational design. The reality debt compounds the other two: because we underestimate the complexity of scaling, we don't invest adequately in new structures or leadership development, assuming we can figure it out as we go.
Post-merger/acquisition: All five types can show up
Everything gets disrupted and nothing aligns anymore. Two organizations with different leadership styles, cultures, structures, systems, and operating assumptions suddenly need to function as one. Leadership debt can emerge as executives from both sides may need to navigate unclear roles and decision rights while trying to blend different management approaches. Relational debt can build quickly if teams form "us vs them" mentalities, trust erodes between formerly separate groups, and communication breaks down across cultural divides. Structural debt often multiplies as overlapping roles create confusion, reporting relationships become unclear, and the combined organization may lack coherent design. Systems debt tends to compound as teams struggle with incompatible tools, duplicate processes, and data that doesn't integrate. Reality debt often peaks as everyone may underestimate how long integration will take, how much coordination is required, and how different the merged entity will need to be from either original organization. The result can be a perfect storm where all five debt types reinforce each other, potentially making the integration far more challenging than anticipated.
Rapid growth companies: Systems + Structural + Reality debt
We outgrow our systems and structure while not fully anticipating what's needed to support the growth. What worked when we were smaller suddenly becomes a constraint as volume increases and complexity multiplies. Systems debt accumulates as manual processes that were manageable with a small team become bottlenecks with a larger workforce - spreadsheets replace databases, email chains substitute for project management, and workarounds multiply faster than proper solutions. Structural debt builds as roles become unclear with rapid hiring, new teams get added without clear integration, and decision-making processes can't keep pace with the expanding organization. The original structure designed for startup agility becomes a maze of unclear accountability and overlapping responsibilities. Reality debt drives both problems deeper: we tend to underestimate how much infrastructure, process design, and organizational development rapid growth actually requires. We assume we can maintain our scrappy, informal approach while doubling or tripling in size, not realizing that growth creates qualitatively different challenges rather than just more of the same work.
Why intentionality matters
The common thread across all these situations is that change creates vulnerability to debt accumulation. Being intentional about managing these transitions rather than hoping they'll work themselves out is what separates organizations that emerge stronger from those that get buried under compound debt.
Reinforcing cycles to watch for
Beyond the major combinations, these smaller feedback loops can quietly amplify debt over time. Recognizing these cycles helps explain why organizational problems often seem to get worse before they get better.
Reality debt makes leadership debt worse (unrealistic expectations put leaders in no-win situations, undermining their effectiveness)
Leadership debt creates relational debt (leadership gaps erode trust and psychological safety)
Structural debt enables systems debt (misaligned structures make it hard to implement good systems or processes)
Systems debt increases reality debt (unreliable data and inefficient processes make it harder to assess what's actually possible)
Relational debt worsens leadership debt (damaged relationships make it harder for leaders to get honest feedback or navigate difficult decisions)
Addressing Org Debt
The temptation of tangible fixes
It's tempting to start with more tangible debts like structural changes. We can redraw org charts, clarify decision rights, and fix reporting structures. People can see those changes happening, which builds momentum and credibility. The tangible stuff feels safer because we can check boxes and show progress, while leadership work feels squishy and uncertain. So leaders gravitate toward what they can control and measure, even when they know the real issue is how they think and operate.
But that's exactly the trap. Without leadership buy-in and mindset shifts, all that tangible work just becomes busy work. We get the illusion of progress without actual change. Organizational changes without leadership changes simply create new structures for old behaviors. We end up with the same dysfunction, just with different reporting lines. If leaders don't change how they make decisions, communicate, or hold people accountable, the new org structure becomes meaningless. As we've seen with the debt combinations, these problems are interconnected - fixing one type while ignoring others often makes the remaining debt harder to address.
Why leadership comes first
Leadership debt sets the foundation for addressing all other organizational challenges. Leadership must model the change they want to see. Starting with leadership work means addressing the source of much of the other debt - when leadership capabilities haven't kept pace with organizational needs, other debt types tend to follow. Leaders who haven't developed systems thinking create structural problems. Leaders who avoid difficult conversations generate relational debt. Leaders who aren't realistic about capabilities drive reality debt. Plus, leadership work establishes credibility for everything else.
When people see leaders actually changing their behavior — being more transparent, following through on commitments, having difficult conversations they used to avoid - they start believing this time might be different. This means developing new habits around decision-making, communication, and accountability that demonstrate they've evolved their leadership approach to match organizational needs. This often means transitioning from functional to organizational thinking - moving from optimizing their area to optimizing the whole system. Reality debt must be addressed alongside leadership debt because we can't lead effectively if we're operating with unrealistic assumptions about what's actually possible. When leadership changes first, it creates permission for everyone else to operate differently. People take cues from leadership behavior more than leadership words - authentic change at the top signals that transformation is real, not just another initiative.
The practical approach
The practical approach is tackling both simultaneously. Use organizational work to create clarity about how things should work, but leadership must visibly model new behaviors from day one. People need to see that new structures come with new leadership patterns, not just new boxes on an org chart. It takes courage to start with leadership work, but without that foundation, everything else is just moving furniture around.
Organizations accumulate these debts naturally as they grow and change. The key is recognizing the patterns early and addressing them systematically. Start with an honest assessment of which debt types we're seeing, focus on leadership and reality debt first, and remember that paying down organizational debt - like any debt - requires intentional effort and sustained commitment.
If you're ready to move from “something's wrong” to “here's exactly what to fix,“ let's do an org debt assessment together. I'll guide you through the diagnostic process and help you determine how to engage your leadership team in addressing what we find.