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12 Dysfunctions of Application Software Business…

And What to Do About It

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Super-Symptom

Symptom

Root 

Root Root

Solutions

Poor Record for Performing As Promised:

Big SWR On Time, On Budget, As Promised Success Rate only 35%, 

Only 60% Of Promised Features Delivered on Average

Extreme Exec Frustration: 

• Cost/Benefit 
• Late
• Unmet Promises
• High Switching Costs
• Annual Price Increase with Little Value

Extreme frustration of IT Pros:

• Continual layoffs
• Projects not completed, effective
• Irrational demands on cost, dates

Lack of Scope / Change Control

Users Not Engaged

Weak Exec Sponsorship, Oversight

Can’t Hold IT Responsible – just get a new job

See below

See below

See best company solutions below

Levitt Problem: 

Hyper-Focus on Tech,  AI “What We Do” Instead of Customer Need

AI, Tech Hype Over Substance

AI Enterprise Pilots Failing

See below

See below

See best company solutions below

Fundamental Strategy Issue:  Compete On Extreme High Value For Narrow Customer Set instead of…

Product Features / Tech

or

Economies of Scale / Efficiencies 

End Customer Execs Won’t Pay to Fix Process, Define SWR Up Front

“No One Will Pay The 40% Needed to Figure Out What We Are Doing!”

Think can DIY process

Process takes time, hard work due to strategy, decisions needed

Ignore process until TECH purchase, then

• TECH applied to bad process
• Continual changes,  TECH rework until money spent, blow ups, bad outcomes…
• Waste money, time
• User frustration, credibility lost

Agile struggles… can’t fix

• Won’t pay for real users giving rapid feedback

Process under funded, under prioritized

Requirements never well defined, continuous change, lack of clear outcomes…

Fix The Process First!

Separate Process from Tech Purchase

Package SWR Industry Contaminated, Declining!?

Unprofitable, Too Much Debt, Bad Acquisitions

Investment, Decisions based on Speculation, Get Rich, Cash Out… instead of Profitability, Clear Value for Customers, Owners, Employees

Unprofitable since 2015

Only 11% beat ROIC of Cash in Mutual Fund

AI threat to Big SWR

SWR Vendors Disappear, Leaving Customers At Risk, Stranded, Vulnerable

Long sales cycles, difficulty selling, big discounts

Sell to IT because not credible with Business Execs

Poor Strategy:

• Tech / Product Feature focus
• “What We Do” focus 

Mistakes Trying To Pump Stock Price, Sell Company:

• Too much debt
• Too many bad acquisitions
• “Growth At All Costs” instead of early profitability

Initial Success With Early Adopter but Can’t Sell to Main Stream Customers 

Low barriers to competition

The Best:

• Narrow focus on Extreme High Value
• Have market power to resist irrational demands on dates, cost, features
• Usually industry focused – some exceptions
• Healthy customers
• High margins 
• Contain Process, Scope / Change Problems
• Use Cases, WBS, Architecture, Development, Integration, Testing, Security, Documentation Disciplines
• Sell to business side
• Best people on best accounts
• Shorter sales cycles due to solving UCN with Whole Product Solution at good margin
• Economies of learning, scale selling same solution to multiple customers
• Early profitability
• Using AI where effective

End Customer Execs Won’t Pay To Do SWR Effectively 

See Process Failures Above

Margins Too Thin to pay for good people, systems

Private Equity, Public Company Over Focus On Short Term, Cost Cutting Focus

Lack of Rational Cost / Benefit Priorities

Irrational demands on dates, cost, features

Too many acquisitions, poor funding for systems

Continually Changing Priorities / Direction

Delivery Team Burnout, Turnover

Financial Guys In Charge problem

Trying to do too much with too little

Leadership promises aggressive deadlines and features without rational think-through

Pursuing perfect when 60% quickly and improving is far more effective

The Best:

• Rational Cost / Benefit Prioritization
• Fix Process First
• Extreme High Value focus
• Strategy produces MARGINS for good people, good systems
• Actively Fight Complexity
• Iterate from MVP to Cost Effective Finished Product

Consultants’ Marginal / Poor SWR Results Record

Won’t say “NO” to bad business:

• Factors beyond their control
• Margins Too Thin
• Fundamentally Flawed Situations

Unfocused

Tech Fascination

Turnover

Long sales cycles, difficulty selling, big discounts

Sell to IT because not credible with Business Execs

Leadership:

• Tech bias:  “what we do” over what customer needs
• Short on business skills
• Ineffective at delegation
• Can’t create economies of learning curve, repeatable projects

Low Barriers to Competition

Only the best create enough value to charge good margins

The Best:

• Generally the same as best SWR companies

Technical Execution Common Failings

Architecture / Product Pipeline

• SWR ineffective, obsolete quickly
• Not cost effective to fix or improve
• Payback failure, negative business impact
• Too complex
• Fragile, inadequate testing
• Inadequate Cyber Security

Customization

• Overdone, ineffective

Integration Historically Difficult, Under Attended, Under Tested

AI / Code Generators Cannot Implement Big SWR alone

Authority / Responsibility / Competence Matching Problems

Too many acquisitions, poor funding for systems

Continually Changing Priorities / Direction

Intangible Nature of Software 

Immaturity of SWR Industry

Perverse Incentives 

• Paid for activity, not results
• Turnover evades accountability
• Tech in resume increase value, regardless of results

Development Traditional Problems

• Never say “No”
• Coding before requirements
• Testing, Security, Documentation…

End Customer Implementation Traditional Problems

• Data prep, migration, cutover
• Training, Documentation
• Bug fix, improve

Effective Delegation to Those that Are Competent and Close to the Work is a Learned Skill – Not Natural

Traditional Line / Staff Problem

In addition to above solutions:

• Implement baseline software, change business process
• See solutions to perverse incentives used by Warren Buffett / Berkshire Hathaway

Solutions will eventually emerge as industry matures

How Find Good Work in AI Age

SWR Labor / Jobs Impact

• AI reducing junior level jobs
• Offshore implications
• Good Jobs declining (e.g. BIG TECH), Bad Jobs (highly volatile, poor WLB increasing)
• Requires constant reskilling every 3-5 years. 
• Age bias and skill decay limits career post-50 for most. 
• Companies refusing to pay to train IT people

SWR Industry Evolution, Commoditization, Unhappy Customers Pushing Back:

Reducing pay, choices and job quality for many IT Pros

DEBATABLE:

Some argue demand for Business side / process / outcomes needed skills will improve as tech side is more delegated to AI???

Program Management???

Platform Ownership???

SOLUTIONS

Focus on CONTRIBUTION!

Avoid in General:

• Typical full stack development???
• Enterprise app implementations (commoditized)
• SAAS middle management

To Avoid AI Job Loss Focus On:

• Be sure your LINKED IN profile emphasizes AI skills
• Cyber Security / Security Critical Apps AI can’t do
• Production-Critical Systems AI can’t do
• Heavy Requirements Gathering
• Heavy User Interaction / Interface Needs
• Process / Workflows AI cannot handle
• DEBUGGING – where complex enough AI can’t
• Watch for Hype Cycle Backlash, Economic and Jobs Downturn
• Revenue side, clear efficiencies on Operations side, Compliance
• Local opportunities where face to face contact is big advantage
• Option: Get to industry focus with multiple employers close (tough).  Might consider moving
• Option:  Pick a niche to stick with:  Commercial product integration and customization, custom software, front-end design, data management (REGULATED, SQL, noSQL, big data, streaming, warehouse & analytics) cybersecurity, virtualizations, (machines, containers, serverless???) automations and AI.  BEST WILL EVOLVE
• Migrations

To help reduce offshore competition as well, focus where need:

• Clear communication
• Cross-functional leadership
• Strategy
• Industry knowledge

Other Areas to Focus On:

• Emerging infrastructure tech???
• Network engineering (need certifications)
• Higher-order activities (architecture, design, complex problems, patterns, approaches, tools)
• AI data / reliability / accuracy / testing / integration
• Apps / Workflows now cost-effective due to AI
• Real World Employers with capital, barriers to competition, real customers

COBOL, AS/400 RPG etc. still run critical systems in banking, government, insurance, manufacturing.  STUDY WHY to find place in AI

AI Areas to Study:

• Vibe coding
• Full AI coding
• AI Agents
• Design / Build / Test
• How build, train, maintain AI models

Unclassified – Add When Can

Threat / Changes to Big App SWR Business Model

“Buy Platform, Pay for Changes” May be Greatly Reduced

Unclear

Will reduce margins

Will reduce per user fees for development tools, anything where AI can replace a human

B2B Tools getting replaced by AI

AI Costs Hurting AI SWR Cos:

• Data Centers
• Training
• Security
• Compliance

Should reduce nonsense, ineffectiveness

Will reduce barriers to competition

Will reduce cost and time  to develop, deploy, maintain

All the above should improve for customers with industry maturity

How???

Narrow focus on things AI cannot due

Precedents show that speculation, big losses, big consolidation, commoditization with low margins will come. 

Some winners will emerge with barriers to competition due to a narrow focus on extreme high value for customers

Social Networking, Non Mass-Media Impact on Sales

Current model of boiler room of low end sales people trying to find big SWR leads through social networking.

Not sure working???