Market Views

Why can’t companies innovate like a start-up?

‘Tech Insights’ is our regular commentary from Bill Murphy, Blackstone’s Chief Technology Officer, on the ways technology is shaping Blackstone and its outlook today:

  • “Startups are innovating so fast and we can’t get out of our own way”
  • “If only my technology team were like the other companies, then we would do something great”
  • “We spend so much money on technology and get a limited amount for it”

These are quotes I commonly hear from CFOs, COOs and CEOs about the lack of innovation at their firms.

  • “No one knows what I have to do every day to keep up with everything”
  • “I don’t have the resources to be innovative, everything new is cut in the budget”
  • “I spend so much time on specific needs and internal bureaucracy, I can’t focus on the bigger picture.”

Conversely, these are the quotes from CTOs and CIOs at the same companies.

Why is there such a big divide?  It is because both sides are correct, but they are missing the real problem.  They are missing the giant factor that is weighing down most big companies (and merged companies especially), TECHNICAL DEBT.  

While technical debt is a term most techies know, those outside the discipline have never heard of it.  It refers to the wealth of old code, bad decisions, poor architectures, competing systems and other issues that invade a company’s technology landscape over time.  Just like normal debt, if you don’t repay the principal, you are just treading water and worse, as you take on more, the interest payments (maintenance and support) eat up more of your resources every month.

The situation is difficult for many CIO/CTOs. There is limited short-term gain from cleaning up a lingering architecture problem and long-term gain is difficult to measure.   And in today’s environment, what gets measured gets managed.  As a result, systemic technical debt goes ignored.  The only time everyone stops and realizes the extent of their debt is when the situation gets so bad that they can’t do anything, or a competitive threat enters the market in a way that forces a massive investment.

Take the car rental industry for example.

A car rental company grows over time.  It starts putting in reservation systems in the time before data centers and cloud storage.  It buys a few other companies along the way and does only basic integration between the systems because it is the quickest way to show merger success.  Now, it is left with hundreds (or thousands) of individual reservation systems running around the country, barely talking to one another. For the company to roll out a simple patch of new code to the system takes tons of people, time and coordination, creating a drag on innovation.

On the flip side, a new company decides to aggregate rentals or launch an entirely new rental car company in today’s environment.  They start from scratch, using the latest in technology, API-first services methodology and centralized software as service (SaaS) reservation platform.  This company launches new features to their system every day in order to quickly test new pricing methodologies and incentives to maximize their business.

Bill Murphy Blog Post


Who is going to win here?  Pretty obvious, right?

Realize that this is not a reflection on the quality of the people in either scenario.  We mentioned nothing about the development process being better at the startup. The only thing holding them back is this mountain of accumulated technical debt.

So, you might say, “No kidding – so why are you writing this article?”

As I have spoken to many people about this, I have been amazed at how few really know this dynamic exists.  Business leaders are always misdiagnosing the problem and the companies that are not hitting a competitive inflection point are ignoring it altogether.

The obvious solution is to continuously invest in the team and resources to avoid falling into this cycle in the first place.  That can seem expensive over time, especially during down cycles for any business when making investments in keeping the firm up to date are difficult. Businesses must make difficult decisions and it will be impossible to never take on technology debt as mistakes are sometimes made or you need to make short-term tradeoffs to maximize a business opportunity that could be fleeting.  Mergers add huge amounts to the tech debt balance as there are often competing systems for the same job (while each could be fine, having two is a debt that needs to be accounted for).

The solution I suggest to business leaders is to start a dialog and start measuring the costs of cleaning it up and the benefits of doing so. All the non-tech executives should be learning about their technology stack and demanding an accounting for their technical debt.  All the CIOs and CTOs should be trying hard to understand and proactively explain the effects that paying off the debt will have on the ability to move faster and innovative in the future.  By speaking the same language, we can make joint decisions based on the facts.