Competence Debt

By Chuck Violand

July 17, 2017

Most people would agree that having too much debt isn’t good for our financial well-being. Some would even argue that having any isn’t a good thing. It seems all of us have our own comfort levels when it comes to debt.

Recently, I was introduced to the term Technical Debt by Paul, a very smart guy with a background in software programing and coding. Being the technical incompetent that I am, I was intrigued by the term and looked it up. Here’s what I found: “As a change is started on a codebase, there is often the need to make other coordinated changes at the same time in other parts of the codebase or documentation. Required changes that are not completed are considered debt that must be paid at some point in the future.”

As with financial debt, these uncompleted changes can affect multiple areas of the software and start to accrue interest, making it cumbersome to build a project. Although the term is primarily used in software development, it can also be applied to business.

What Paul was describing with reference to computer code, I have been witnessing with business owners and leaders for years. Businesses are all about change and growth. So, when a leader doesn’t regularly make the necessary upgrades to his own leadership skills—technical, interpersonal, emotional—these skills become outdated and insufficient to run his business or to address the ever-changing demands of his customers and his industry. He begins to accrue competence debt that his business, his markets, and industry changes will demand payment for at some point. And these debts also accrue interest. This combined debt can place such a burden on a business owner that it can cause his business to stall or even decline.

The reasons frequently given for a business’s decline are changing customer needs, competitive forces, or economic factors. Every business faces these same challenges, yet many continue to thrive. Could the real underlying reason be that leaders of struggling companies haven’t fortified their own professional competence to keep up with the inevitable changes?

Most business owners recognize the need to regularly update the technical skills of their people, especially their frontline workers who produce revenue. Sometimes this is mandated through licensing or professional certifications. Yet how many business owners feel the same urgency when it comes to their own or to their manager’s leadership and management skills?

Owners often fail to recognize the critical importance of continually developing themselves and their managers. With soft skills, it’s not as easy to draw a straight line between skill development and revenue generation or profitability. And so, the company develops a leadership competence debt that will ultimately have to be paid—either through reduced financial performance of the company or by a lower selling price when the owner decides to sell.

We can avoid financial debt by making sure our income always meets or exceeds our expenses. If we’re going to avoid competence debt, our competence must meet or exceed our leadership challenges.