Innovation in the information and communication technology (ICT) sector is being fuelled by technical debt, making it one of the top three most indebted industries in the UK.
Thanks to surging demand for AI, IT services, software, and semiconductors, the global ICT market is set to grow by between 5.7% and 7.6% CAGR over the next three years, according to GlobalData. In the UK, it’s growing particularly fast, at more than 9%, and is expected to reach $248 billion by 2028.
However, according to a survey of more than 52,000 UK businesses by business funding and savings platform Swoop Funding, the ICT sector carries nearly £1.9 billion in business debt – only retail and manufacturing have more.
According to the researchers, many businesses are incurring what’s known as ‘tech debt‘, where development shortcuts are taken to deliver products or services quickly, often at the expense of long-term sustainability.
While such strategies, they said, can meet market demand in the short term, they frequently lead to greater operational and financial challenges later. However, debt isn’t necessarily a bad thing, according to Swoop Funding CEO Andrea Reynolds.
“Business loans are vital for growth as you are borrowing to invest in your business; the debt you take on when used correctly will repay you multiple times over,” she said.
“Cash flow is vital to your business. Borrowing may be essential to ensure that you are able to pay invoices, payroll, and utilities on time. Look for products such as VAT funding that are built to address a specific need and keep your finances afloat.”
The rise in AI is fuelling technical debt, according to research from Forrester late last year. More than half of technology decision-makers expect their technical debt to rise to moderate or high levels this year, rising to three-quarters by 2026.
“This year, I hear a new phrase on the lips of Forrester clients: technical bankruptcy,” warned Forrester VP and principal analyst Charles Betz.
“At this point, business outcomes are impacted – new system initiatives encounter constant schedule and cost overruns, existing systems are redundant and poorly resilient, and security risks escalate past an acceptable level.”
Accenture advises three methods to help companies balance their technical debt. They should focus on the principal costs – the cost of updating outmoded technology – ahead of interest, liabilities, and opportunity cost.
They should create an inventory and trace debt to the source, prioritizing technical debt remediation efforts based on their business value estimates, technical risk, and feasibility. And they should use the right metrics to measure technical debt:
“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),” said the researchers.
“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.”
