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12 Dysfunctions of Application Software Business…

 

And What to Do About It

Home Page

 

Intended Audience:  Senior Application Software People Looking for Good Work

ASSUMPTION:  We Compete for Jobs On Best Possible Value for Client / Owner 

See best tips for finding work in AI Age near the bottom…

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
  • Tech Churn
  • Extreme Cost of Customization, Upgrades

 

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 Solving Big Problems  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 helps but does not solve…

  • Process, Scope / Change Control
  • Real users giving rapid, effective feedback
  • Testing, Documentation

Process under funded, under prioritized

 

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

 

 

Fix The Process First!

 

Separate Process from Tech Purchase

 

Contain Agendas, Process Biases by Vendors, Consultants, Internal People

 

See best company solutions below

 

Package SWR Industry Contaminated, Declining!?

 

Unprofitable, Too Much Debt, Bad Acquisitions

 

Investment, Decisions based on Speculation, Get Rich, Cash Out… instead of Profitability, Solving Big Problems 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

 

Continual change of direction

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 – reduces margins

THE BEST:

  1. Narrow focus on Solving Big Problems for Customer
  2. Fixed the Sales Problem, have market power to resist irrational demands on dates, cost, features, big customer demands 
  3. Contain “Expectation Creep” between Sale and Handoff to Delivery
  4. Sell to business side,  Rigorous qualification
  5. Shorter sales cycles due to solving UCN (Urgent Compelling Need) with Whole Product Solution at good margin (see note [i] )
  6. Usually industry focused – some exceptions
  7. Healthy, real customers
  8. High margins 
  9. Fix Process First, Contain Scope / Change Problems
  10. EXECUTION DISCIPLINES:  Use Cases (see note [ii] ), WBS, Architecture, Development, Integration, Testing, Security, Documentation
  11. Status Reporting Effective, Penalties Enforced for Failures
  12. Best People (see note [iii] ) 
  13. Economies of learning, scale selling same solution to multiple customers
  14. Early profitability
  15. Using AI where effective
  16. Iterate from MVP (see note ii ) to Cost Effective Finished Product (Agile)
  17. Competition (see note [iv] )
  18. Containing Human Failings (see note [v])

Leader attributes in addition to above

  • Competence /  Authority / Responsibility Matched (examples in note [vi]) 
  • Responsibility enforced, penalized for non-performance
  • Avoids big traps (see note [vii])

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

 

User cannot tell you what they want

 

Continual change of direction

 

Technical debt of poor / acquired systems

FGIC Problem (Financial Guys In Charge – see note [viii])

 

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, (Includes Cycle Time, Quality, Human Factors)
  • Fix Process First, Contain Scope / Change Problems
  • Strategy produces HIGH MARGINS for good people, good systems
  • Actively Fight Complexity
  • Iterate from MVP (see note ii )to Cost Effective Finished Product (Agile)
  • Narrow focus on Solving Big Problems
  • High margins 
  • Contain Process, Scope / Change Problems
  • EXECUTION DISCIPLINES:  Use Cases, WBS, Architecture, Development, Integration, Testing, Security, Documentation
  • Using AI where effective
  • High Value Work Drives out Low Value
  • Boundaryless

Avoids big traps – (see note IV below)

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

 

Complexity feeds their self interest

Low Barriers to Competition

 

Only the best create enough value to charge good margins

 

The Best:

  • Generally the same as best SWR companies

 

Avoids big traps – (see note IV below)

Technical Execution Common Failings

Architecture / Framework / Road Map / Product Pipeline (see note [ix] )

  • 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, other human failings used by Warren Buffett / Berkshire Hathaway (in note [x])

 

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:

  1. Be sure your LINKED IN profile emphasizes AI skills
  2. Cyber Security / Security Critical Apps AI can’t do
  3. Production-Critical Systems AI can’t do
  4. Heavy Requirements Gathering
  5. Heavy User Interaction / Interface Needs
  6. Process / Workflows AI cannot handle
  7. DEBUGGING – where complex enough AI can’t
  8. Watch for Hype Cycle Backlash, Economic and Jobs Downturn
  9. Revenue side, clear efficiencies on Operations side, Compliance
  10. Local opportunities where face to face contact is big advantage
  11. Option: Get to industry focus with multiple employers close (tough).  Might consider moving
  12. Option: Pick a niche to stick with.  E.g.
  1.       Commercial product integration and customization
  2.      Custom software
  3.       Front-end design
  4.      Data management (REGULATED, SQL, noSQL, big data, streaming, warehouse & analytics)
  5.       Cybersecurity
  6.        Virtualizations, (machines, containers, serverless???)
  7.      Automations and AI. 
  8.      Migrations 
  9.         Best outcomes are AI tempered with human pushback, judgement
  10.         BEST NICHES WILL EVOLVE

 

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 solving big problems 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???

Quality of Young People

Overly Dependent on AI?

 

 

 

 

 

[i] UCN (Urgent Compelling Need) and Whole Product Solutions concepts were developed by Clayton Christensen, Geoffrey Moore and others to help software companies focus on solving big, important problems for customers with everything the customer needs – not just the product you sell.  See Consolidated Summary of Four Books on Marketing Software / High Tech (password required)

 

[ii]  Use Cases and MVP (Minimum Viable Product) work together to rapidly deliver software.  By defining the top five use cases and developing quickly, usually 60% to 80% of needed features can be delivered quickly – instead of aiming for 100% of use cases / features and taking years.

 

[iii] Best People Notes (selected tips from our research – not exhaustive)

 

[iv] Competition:  “No Decision” is by far the biggest competitor.  “Doing In-House” is often number two.  TIA has documented numerous successes where companies following these guidelines reported NO SUBSTANTIVE COMPETITION EXISTED.  Most competitors simply “add features and cut the price” (Michael Porter).  If we are following the right strategy, competition is manageable.  For exhaustive think-through See Consolidated Summary of Four Books on Marketing Software / High Tech (password required)

 

[v] Containing Human Failings:  The guidance above and below dramatically reduces human failings.  Keep a special eye out for

  1. Bright young people say "I can do that" when really can't.
  2. Ego thinks understand costs, risks, strategy – not true.
  3. Culture, bureaucracy crushes the new.
  4. Sunk Cost Fallacy (we keep going because so much has already been spent…)
  5. Persian Messenger Syndrome (It is death to bring bad news to the king.  Better to run – true situation never gets to those in power)
  6. Trying to do TOO MUCH with TOO LITTLE, TOO FAST.  There are very real limits on how fast you can ramp up, staff, effectively execute
  7. Activity Over Results
  8. Group think + desire for inclusion at top + misplaced loyalty demands = bad decisions by insiders. 
  9. Bad decisions due to looking good, saving face, power grasping, personal financial gain.  Jude 1:11

[vi] Authority / Responsibility / Competence Matching:  An age-old problem, sometimes called the “line / staff” problem.  Also discussed as effective delegation and “getting decisions close to the work”.  Note that the U.S. and Israeli militaries are unquestionably the best in the world at present, in large parge, because life and death decisions are delegated to competent non-commissioned officers.  This is a learned skill – not natural behavior and requires taking the risk of mistakes for the greater good.  Contact us to discuss this complex, critical topic further.  Positive and negative examples follow.  

  1.       Abdicating critical technical decisions instead of owning the competence to make a correct decision:  I watched $25 million wasted on a terrible product using Linux / open-source tools instead of a clearly superior Microsoft solution simply because the techies wanted to play with new toys and did not like Microsoft.  Leadership saw the problem but could not act to prevent it.
    1.        Also known as the “Technical MBA” trap.  MUST have someone who can make decisions that is technically competent to “nonsense” when heading down wrong path.  
    2.        One of the U.S. Navy’s solutions is a hard charging (line) commander paired with a technical (staff) first officer.  The commander cannot override or fire the first officer.   
  2.       Program or Project Manager is removed from project for enforcing change control.  Refused to agree to changes promised by sales that could not be met in available time with available dollars.  Happened to me multiple times.  Laid off twice.
  3.        Line Managers Held Accountable for Results of Process + Software.  Not allowed to shift blame to staff or consultants.  Resulted in a $40 million payback from $400,000 cost – the best win of my career.
  4.       Effective Demand Making.  Managers allowed to reward / penalize people immediately, but required to make sure the demand was doable.

 

[vii] Big Traps To Avoid:  

  1.       Ego, hubris, self promotion, know-it-all presumption is rampant.  Humility and continuous learning are required.
  2.       Selling Bleeding Edge while mainstream customer prefers steady, incremental improvement with effective implementation.
    1.        Easy sales to early adopters create illusion of market, but not viable.  (e.g. numerous companies building HR, CRM solutions when market already saturated.)
  3.        The Integration Devastation:  Taking on money losing, bad integration projects because easy to sell.
  4.       The illusion, temptation of expecting very high returns with minimal investment
  5.        Inadequate funding for Marketing (both strategic and tactical) and Sales.  Numerous sources show 25 to 35%+ of revenues required.  Strategic Marketing should define the target product and customers and provide a list of target contacts to sales along with key things to listen for to qualify customers. Very different from “here’s your PowerPoint pitch”.  
  6.         Long Sales Cycles create enormous financial pressure and lead to taking bad business.  See Consolidated Summary of Four Books on Marketing Software / High Tech, especially Documentum’s success at shortening sales cycles (password required).
  7.       THE SALES DOOM LOOP:  Must SELL, SELL, SELL, GROW, GROW, GROW or everything falls apart.  Can't be distracted with customers getting value promised or making a profit.
  8.       Selling to IT because can't get meeting with business unit Exec
  9.          Too many leads, too few sales, failure to qualify.
  10.          "Sales People Have Too Much Power", overrides value for customer, common sense – extreme risk.  (Classmate that witnessed the Enron / Anderson Consulting blowup.)
  11.        Failure to say “No”, "Never turning down a dollar of revenue"on bad, out of focus projects taken just to meet payroll, pay bills. 
    1.        Undercapitalization makes much worse
  12.          Attempting to fix sales problem by firing vp of sales, “just hire someone with a big rolodex”, etc. instead of fixing strategy problems.
  13.     Complexity creep, natural tech tendency to add features.
  14.       SILOS:  Allowing sales, product, service organizations to silo instead of focused cooperation.  (e.g. Service dept. knocks itself out to be customer intimate, fails because whole org. must buy in).
  15.       The Sharks:  Run Up Stock and Sell, Acquirer Can Raise Prices, Add No Value Due to High Customer Switching Costs, Self-Serving Entrenched Management "wiser in their deceptions..."
  16.       Interference, wrong decisions from above (acquisitions, tech, deadlines, people, cost, saying yes to customers)
  17.       Financial guy pressure to milk the cash cow and fail to invest as necessary to stay competitive for superior long term returns
  18.         Costs not understood, effectively allocated due to failure of above disciplines
  19.        Selling core product / project for a loss, make profit on changes, services, maintenance.  Solving big problems for a focused set of customers does not need these games.
  20.         Bigness, Complexity, Bureaucracy, Big-Bang Projects prevent effectiveness.  Small, effective teams, simplification are best solutions.
  21.       PROFITS EATEN UP by bad estimates, delays, customer satisfaction problems
  22.        Unhappy customers, no referrals / repeat business.
  23.      Cost Traps for Scaling Up:  Underlying licenses, viable for multiple customers, database / platform independent, security, redundancy
  24.        Overpaying for Tech Talent while margins declining, volatility 
  25.        Turnover, Especially in Leadership:  Risk of bad designs, architecture, dead ends, values dilution goes up dramatically
  26.        Looking at Competitor's Device instead of Whole Product
  27.   Being Only Slightly Better:  (Creates miss-focus on competitor, not customer.  False security, evaporates rapidly)
  28.   Markets that are easy to enter, impossible to acquire lead position
  29.    Costs Not Understood:  Opaque cross-subsidizing between software, hardware, services
  30.   Actual labor to develop software not understood or broken out

 

 

[viii] Financial Guys In Charge Problem:  The last 40 years have seen too much power accumulate to financial people who have no real understanding of effective software.  This runs in 40-60 year cycles according to Long-Wave Economic Theory.  See TIA Newsletter and search on FGIC for details.

 

[ix] Architecture / Framework / Product Road Map should be derived from solving big problems for a focused set of customers at high margin.  Includes enough margin for e.g. 5 year path for enhancements needed to stay competitive.  Guides critical decisions on customization, integration, changes, features.  Helps avoid Technology Churn.

  1. Bad Architecture / Single Genius Trap:  MUST have MARGINS sufficient to allow competing alternatives.  Don't trust the SINGLE GENIUS approach.  Prototypes and rapid initial solutions MUST be reworked for long term.  TOO MANY FEATURES, never saying "NO", failure to define and optimize modules, roadmap, remain clearly focused on high value for customer are devastating.

[x] Avoiding Perverse Incentives, Other Human Failings:  Buffett and Munger enforced numerous techniques such as retaining control, decisions based on present value of discounted future profits, executive compensation aligned with owner and customer interests, preventing consultants, managers, executives, bankers, deal makers, lawyers etc. from getting paid without adding real value.  Buffett was candid about his mistakes and demanded the same in his people.  (The After Action Review, used by U.S. military, is a chief reason Military leadership is superior to commercial leadership in some areas.)  For details click on Berkshire Hathaway, Warren Buffett, Charlie Munger Lessons for the Software Business (password required)