Five examples of technical debt: How software failures and productivity loss go hand-in-hand
In this article
Summary
Technical debt exists in every organization that relies on software—but because it’s often hidden, it frequently goes unaddressed. When left unmanaged, technical debt can lead to severe consequences: from multimillion-dollar software failures and lost competitiveness to obsolete products and, in extreme cases, complete business collapse. In this article, Software Improvement Group explores five of the most well-known real-world examples of technical debt and shares key lessons to help you safeguard your organization from this “silent company killer.”
Introduction
It is estimated that at least 20-40% of ICT companies’ tech estates are occupied by their technical debt. In other words, about 30% of a company’s entire IT budget is spent purely on paying off tech debt. Instead, the IT budget is quietly consumed by servicing technical debt, gradually eroding the funds intended for innovation and value creation.
The big problem with technical debt, however, goes beyond its destructive impact on IT budgets. Perhaps the most challenging aspect of technical debt management and preventing software failures is that the debt accrued is often invisible. As McKinsey puts it:
“Technical debt is like dark matter: you know it exists, you can infer its impact, but you can’t see or measure it.”
However, here’s where we disagree. In our experience, tech debt is most certainly measurable.
Moreover, tech debt manifests in multiple ways that can harm your business—for example: productivity loss, spiraling software development costs, cybersecurity breaches, reputational damage to your brand; and the list goes on.
As such, the best way to reduce the tech debt in your business is first learning from other businesses’ software failure examples. Doing so allows us to recognize the omnipresence of technical debt in tech companies, and, increasingly, in any company which uses software in their daily business operations.
In this article, we’ll explore common pitfalls associated with technical debt, examine five well-known historical cases and their consequences, and discuss how you can avoid making the same mistakes in the future.
What is technical debt and why does it lead to software failures?
When we talk about technical debt, we’re referring to past decisions made during software development—often involving shortcuts or compromises in code quality—to speed up time-to-market, which ultimately increases the long-term cost of maintaining the software.
To put it another way, ‘debt’ is withdrawn as short-term engineering shortcuts that help get a product to market quickly. It is repaid as ‘interest’ in the form of high maintenance costs, cybersecurity risks, productivity loss, talent loss, and more.
Beyond the financial costs of technical debt lies a more critical risk: the potential for software failure caused by engineering shortcuts. Below, we outline some common examples of technical debt and how they can lead to such failures.
- Unscalable architectures: When systems aren’t built to scale efficiently —often due to a monolithic or overly complex architecture—they can become difficult to modify or extend. Much like dealing with a tangle of cables: you’re stuck with what’s already there, making it hard to add new features or adapt to growing user demands. While the system might not crash, its rigidity can severely limit future development.
- Frequent bugs and crashes: Software systems can also crash as a result of poor quality coding practices, such as hastily copy-pasting buggy code. Bad code means a profusion of bugs, leading to defects in the software product which either crash a system or require extensive and costly downtime to fix (when they should never have been left there in the first place!). The worst part? Having customers or users inconvenienced by these.
- Slow development cycles: When an organization carries around an unmanageable amount of technical debt (which is truer for more organizations than you might think), their software development teams are prone to become bogged down with maintenance and debugging tasks. It’s like walking around with a shackle. As a result, development cycles become glacial, and team morale plummets.
Reduced productivity: As McKinsey points out, teams in companies with unsustainable tech debt levels are forced to spend significant resources on low-impact fixes. The debt here diverts an IT team’s focus away from innovation and high-priority, high-value projects—a diversion that could prove the difference between the success and failure of a software product.
- Cybersecurity vulnerabilities: Lastly, technical debt can also be found in codebases as cybersecurity vulnerabilities: open doors for cyberhackers to exploit and, with malware, data theft or any number of other malicious actions, bring your IT operation to its knees.
Five real-world examples of software failures caused by technical debt
Technical debt arises from a range of suboptimal practices, including shoddy coding, messy architectural design, inadequate documentation, insufficient testing, and more. These practices often emerge under pressure to deliver quickly, and when repeated over time, they accumulate into significant organizational challenges.
It’s important to recognize that technical debt is a nefarious beast that rarely stems from a single decision or contributor. Rather, it tends to build up across entire teams and projects over months or even years, often as a result of systemic issues rather than individual missteps.
At its core, technical debt is most often the product of a toxic work culture: one which prioritizes immediate profit and quick fixes over long-term corporate sustainability. Until organizations create a work culture that implicitly understands the crippling long-term impacts of technical debt—and works to minimize these from the very earliest stages of the software development lifecycle (SDLC)—then no matter how many bugs you fix or personnel you change, the debt will continue to pile up.
Understanding this concept, let’s now take a look at a number of real-world software failure examples as caused by technical debt.
Example 1: The Y2K Crisis (1960s–2000)
All bar the very youngest members of your IT department will remember the extraordinary panic surrounding the year 2000. As the newly-emerged Computer Age neared the millennium, a sudden fear arose that the digital date-annotation system which had been in use since the 1960s—whereby developers stored dates as two digits rather than four (e.g., ‘1970’ became ‘70’)—would cause the failure of every software system in the world, come the year 2000 and a reversion to “00” at midnight, 1 January.
Of course, it’s easy to look back at the Millennium Bug scare now and laugh—after all, the expected disaster never came to pass—but in reality, it is a prime example of how technical debt can easily lead to eyewatering maintenance costs further down the line.
With the Y2K crisis, the technical debt had been intentionally ‘taken out’ by generation after generation of software developers storing dates as two digits to save on their storage costs. Without the foresight to recognize the issues this might cause come the year 2000, that same technical debt resurfaced in the late 90s, ultimately costing over $100 billion to fix—instantly erasing whatever savings had been made on memory all those years before in what has been hailed as “the most expensive peacetime catastrophe in modern history.”
Example 2: Knight Capital Group trading disaster (2012)
After 17 years of hard work and intelligent trading, by 2012 Knight Capital Group had built itself into the largest global trader of US equities, with a market share on the US stock exchange of around 17%. In other words, Knight Capital was a giant.
But in the early hours of 1 August 2012, all those long years of business growth and expansion were brought tumbling down around the C-Suite’s ears.
Knight Capital had been trialling some new features in their existing trading software, presumably, to streamline and enhance their investment operations. But with time tight to take it to market and pressure on developers to forgo proper documentation and testing methods, old code was repurposed—a debt that was about to be called with an interest rate the likes of which had never been seen!
As soon as the New York Stock Exchange opened on 1 August 2012, Knight Capital’s flawed trading software immediately began buying up stocks without the authorization or financial backing of the company. All in all, the flaw managed to purchase $7 billion of stock before it could be stopped, resulting in a whopping $440 Million loss.
Fast forward to summer 2013, and Knight Capital’s excruciating losses at the hands of a single example of technical debt had damaged it to such a degree that it was forced to sell to rival trading firm Getco LLC—marking the end of an 18-year journey in FinTech.
Example 3: Friendster – Missing the scalability mark (2000s)
Remember Friendster? If you don’t, that might be exactly our point! Back in the early Noughties, before ‘social media’ was even common parlance, various social media startups were competing for dominance in a fast-evolving industry. Friendster, however, was the only company with a first-mover advantage. Though rivals MySpace were hot on their heels, according to Friendster investor Reid Hoffman, “It was Friendster’s game to lose.” Yet lose they did…
Friendster’s tech stack was riddled with technical debt which had gone unchecked in the glow of the start-up’s early successes. But as demand quickly grew and increasing numbers of wannabe users headed over to the site, only to find out that they couldn’t actually use it: that technical debt emerged as criminally slow page-load speeds. So slow, in fact, was the Friendster website that users left in their thousands, migrating instead over to the much faster pages of MySpace.
To cut a long story short, the failure of Friendster’s software to deliver its users an efficient and engaging experience ultimately caused the failure of the business as a whole. The lesson? Even industry leaders can be brought to their knees by technical debt; it never pays to leave tech debt unchecked.
Example 4: Nokia – Failing to adapt to the smartphone era (2000s)
We may follow a similar story with another of the 2000s tech giants: Nokia. If you cast your mind way, way back into the distant “Before Times” of the 90s, you’ll remember that Nokia was one of the world’s forerunners in mobile phone technology. So much so, that the indestructibility of the Nokia 3310 has become something of a modern-day meme—a nostalgia for a bygone age in which phones were built to last longer than it took developers to bring out a newer version.
So why, you may ask, did Nokia fade into obscurity? Why is it that today we have Apple iPhones and Android smartphones built by Samsung, Oppo, and Google, but never Nokia? Well, surprise surprise—the answer is technical debt.
With a monopoly over the mobile phone market, Nokia neglected to review its many decades of technical debt. But then along came the world’s first smartphone, the iPhone, released in 2007. Naturally, Nokia tried to adapt, but the company instead soon discovered that technical debt had rendered its operating system (OS) impossible to port, scale, or modernize in line with the demands of this new smartphone hardware.
Soon, Nokia was outstripped by its competitors and was forced to sell to Microsoft. But the technical debt software failure nightmare didn’t end there. Instead, Microsoft inherited all of the same tech debt that had rendered Nokia unable to compete in the first place. Despite the company’s best efforts, just two years after the Nokia acquisition, Microsoft wrote it all off to the tune of $7.6 billion, almost 8,000 layoffs, and a further $8 billion restructure.
So, remember, no matter whether you’re fighting to break into a market or already have a strong monopoly in your field, it is never profitable to ignore the technical debt in your organization.
Example 5: Southwest Airlines – stranded by outdated systems (2022)
Our last technical debt example of software failure brings us roaring into the 2020s—a decade so replete with software advancements that technical debt management has never been more important.
For Southwest Airlines, technical debt in its crew scheduling systems was to prove the root cause of nearly $1 billion in compensation and fines—putting both a black mark on the company’s reputation and on its checkbooks.
When the holiday season rolled around in 2022, passengers of the popular US airline packed their bags and got ready to head off on holiday or return from their vacation. Little did they know that the increase in demand for Southwest Airlines came with increasing pressure on the software system used to assign crew to their flights. Riddled with tech debt, the system was unable to scale and instead crashed, ultimately stranding over 16,000 flights and all of their passengers.
Southwest Airlines was made to pay $600 million in refunds and over $140 million in financial penalties as a result.
The lesson once again being: neglecting your technical debt is like neglecting a ticking time bomb at the heart of your organization. Sooner or later, it’s going to cost you a lot of money.
The productivity impact of technical debt
As we’ve seen in the examples above, technical debt can lead to serious business and financial consequences. But beyond those headline-grabbing failures, there’s another critical effect that is often overlooked: the toll it takes on productivity.
Whether it’s slowed development cycles, difficulty onboarding new team members, or constant firefighting due to unstable systems, technical debt can significantly hamper not only your IT department’s efficiency but the productivity of your entire organization. Below, we explore how this hidden cost can quietly drain time, energy, and momentum from your teams.
- Developer inefficiency: Technical debt can force developers to go down a time-devouring rabbit hole of fixing bugs and maintaining the uptime of shoddily-built systems, compared to the time they have for creating new, value-adding features.
- Energy-draining context switching: Productivity is also derailed by technical debt when IT teams are constantly shifted from their planned, road-mapped tasks to sudden and urgent system issues. The ‘firefighting context switching’ here not only distracts software developers from their main tasks but can also be extremely demoralizing.
- Burnout and turnover: Speaking of demoralizing… This constant ‘firefighting’ demanded by technical debt can go beyond lowering a developer’s morale, wearing them down until either they are so tired that the chance of them making further mistakes and creating more technical debt than they can address increases exponentially, or so fed up that they even leave the company.
- Missed innovation opportunities: Lastly, it’s worth noting that when companies are forced by their technical debt issues to divert resources into software maintenance, they reduce both the time and money they have available for strategic innovation.
Conclusion: You really should prevent tech debt software failures in your own organization
Technical debt exists in every company, in every industry, all around the world. So long as there’s software involved in your offering—from the chatbots you use for customer service and your POS system to much more integral software systems like those governing your finances, data protection, and more—there is guaranteed to be some tech debt too.
The problem with technical debt is not that it exists, but that it is often hidden and misunderstood, its consequences underestimated and, as a result, ignored. Yet ignoring technical debt can be extremely dangerous. Just ask Nokia or the teams who had to clean up after the Y2K crisis. There’s a reason it’s known as “the silent company killer.”
Reducing technical debt is the most effective method you can employ for preventing software failures from happening in your business and avoiding the costly interest of tech debt issues emerging further down the line. To assess your tech stack for technical debt and get a head start on preparing your business for the future, book a Software Portfolio Scan today.
For more information on technical debt and its impact on global business, read more from the Software Improvement Group blog.
