Hidden IT costs a silent brake on business. They absorb up to 7 per cent of turnover

In every growing organisation, the same familiar feeling emerges. A sense of ‘digital debt’, where teams spend more time maintaining, integrating and patching existing systems than creating new value. It’s a frustrating feeling that, despite a growing number of increasingly powerful tools, the job is not getting any easier.

Until now, this has been mainly a subjective feeling, the subject of corridor conversations and sighs during project meetings. Today, however, we know what it costs.

We can call it the ‘complexity tax’ – the systemic cost of organisational and technological friction that every scaling company pays. The recent‘Cost of Complexity Report‘ conducted by Freshworks puts a tangible price on this phenomenon. And these are no small ones. The analysis, based on responses from 700 IT, finance and business professionals, shows that this silent brake is becoming a strategic threat to competitiveness.

Hidden R&D budget equivalent

Let’s start with the numbers, which should give any leader food for thought. The report shows that companies lose an average of 7 per cent of their annual turnover not through market failures or bad business, but through their own internal complexity of processes and systems.

This is not the ‘fault’ of the IT department. Rather, it is the natural entropy of growth – the larger the organisation, the greater the tendency to complicate structures. The problem is that this lost 7% is almost the exact equivalent of the amount that companies typically spend on research and development (R&D) budgets.

The conclusion is as simple as it is worrying: the resources that should drive innovation are being consumed by internal friction. Before a company can invest in the future, it must first ‘pay back’ the costs of its complicated present. In the US alone, these losses amount to almost a trillion dollars a year, showing that this is not a peripheral problem, but a global challenge for the entire digital economy.

The anatomy of friction, or the 15 application syndrome

How exactly is this ‘tax’ collected? At several levels.

The first is the ‘focus tax’, paid daily by employees. The report indicates that the average employee has to use an average of 15 different software solutions and four separate communication channels to complete their tasks. This generates a gigantic cost of context switching overhead. Employees lose almost seven hours a week to this – that’s almost one full working day given up to fighting the tools that were supposed to make this work easier.

The second level is direct budget wastage. Around 20 per cent of all software expenditure is simply wasted. From an IT perspective, it’s not just classic shelfware (licences bought and lying on the shelf). It’s also the cost of spectacularly failed implementations, forced integrations between systems that were never meant to talk to each other, and increasing redundancy – when different departments buy their own tools to do essentially the same thing.

The result? Digital silos are emerging. Almost half of the teams surveyed admit to working in isolation. A third suffer from a chronic lack of a central, reliable source of information. For technology teams, this means a degradation of role: instead of being architects of business value, they become ‘data plumbers’, spending their time thwarting information flows between mismatched systems.

When the technology stack hits the human stack

However, the biggest cost of complexity is not dollars or wasted man-hours. It is the human cost. Complexity is not a problem that stays in Excel or server architecture – it realistically affects people.

The report brings alarming data: as many as 60 per cent of employees are considering leaving their company in the coming year. When we look at the reasons, organisational overload, frustrating and inflexible processes and permanent exhaustion caused by constant adaptation to new systems appear alongside salaries.

This is a common pain point for business and IT. Almost one in five people surveyed admitted that they had witnessed someone close to them resign or suffer burnout due to a failed software implementation. This is a common failure. The company loses twice: once by a failed project, and a second time by losing a motivated and competent person who was fed up with fighting the system. This loss of knowledge and motivation undermines innovation in the long term more than any budget deficit.

Simplification as an investment, not a cost

For the past decade, we have been living in a ‘digital transformation’, often understood as an imperative to add more tools. The data clearly show that we are entering a new phase: ‘digital optimisation’. Continuing to add complexity is no longer delivering returns.

Simplifying the IT landscape and processes is not a ‘cost-saving project’ today. It is a strategic imperative to regain agility, respond faster to customer needs and, above all, retain talent within the company.

A company’s greatest innovation potential may not lie in the next expensive R&D project. It may lie in reclaiming that 7% of revenue – time, money and people energy – that is today wasted on a ‘complexity tax’. This is not cost-cutting. It is ‘refactoring’ the company’s operating model so that it can think about future growth at all.