The 10x Software Development Gap: Why Some Organizations Win and Others Lose
You would think that larger organizations with more people, skills, and resources would innovate easier. So why can't they?
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Why are digital leaders (Facebook, Google, Amazon and friends) ten times better at rapidly delivering software than mainstream enterprise organizations?
Why are some of the world’s biggest brands — with all their resources, experience and established market share — unable to innovate with software or fight off software-driven disruption?
And, ultimately, why do some organizations win and others lose when it comes to software (and now, it always comes down to software)?
These are some of the core questions that we asked ourselves when we first formed the idea of founding an enterprise DevOps and cloud transformation consultancy. Many possible reasons have been put forward, but our extensive experience on the ground only supports some of them. In this post I will look at what these are.
The Innovator’s Dilemma
The first suspected cause is what Harvard Professor Clayton Christensen dubbed the innovator’s dilemma: the paradox that successful incumbent companies can do everything "right," yet still fail.
According to Prof. Christensen, this happens because these companies are so busy serving their existing, profitable markets that newcomers can innovatively disrupt the market and carve out a competitive advantage in a particular niche so quickly that the incumbents don’t realise what’s happening.
But this didn’t sit right with our real-life experience.
In our experience, successful enterprises know that they need to innovate and reinvent themselves in order to stay relevant. And we know that they always maintain a strong focus on improving their IT delivery engine. Finally, because of their scale, they should be able to understand any new opportunities at least as well as any newcomer, and be able to act on them aggressively.
And even if the would-be market disruptors have a flash of genius, why can’t enterprises catch up and overtake with better digital offerings (backed by their enormous resources) when they have realized that profitable markets are emerging?
The deck seems to be stacked entirely in the favor of mainstream enterprises. Perhaps they are simply too big to move fast enough?
Too Big to Innovate
The scale of established enterprises is another common premise for the lack of effective software-driven innovation. Everyone knows that large organizations move slowly, so maybe it is the sheer size of a big, complex, multinational organization that kills innovation?
Experience, again, suggests not. The digital leaders themselves are behemoths! Facebook has 1.19 billion active monthly users. Keeping them happy is quite a task, yet they manage to innovate while keeping the lights on. So how come enterprises are still so slow? Why do their technological efforts always seem to cost much more than they should? Why does the software development gap persist?
Technological Legacy and Technical Debt
Established companies have decades of legacy technology and debt that has built up in a largely ad-hoc fashion over decades into complex, interconnected layers and systems.
Digital leaders were born on the web, use more modern tools and platforms and know how to incorporate the quickly-learned lessons of how to effectively ship software at speed.
Enterprises, on the other hand, can be more aggressive in re-platforming but are faced with the huge problem of unshackling themselves from legacy technology at the same time as keeping the lights on. The result is that 70% of enterprise IT budgets are spent on maintenance rather than innovation. There is certainly a kernel of truth to technological legacy as a driver of the software development gap.
What’s more, in addition to technological legacy, enterprises also suffer from organizational and process legacy. Things have always been done in a certain way, and a more organizational form of debt accrues as organizational architecture atrophies.
Again, here we get closer to the root of the problem. Enterprise IT has become too process-driven, bureaucratic, and siloed to deliver the pace and agility that the market demands today. Significant changes to organizational structures and operating models are a key prerequisite of reducing the software development gap.
Skills and Talent
So why don’t more organizations pay back their technology and organizational debt if it’s such a source of pain? Skills and talent lie at the heart of this issue.
Securing hands-on technology talent and leadership is a real problem for mainstream enterprises. Their problem is that the software development gap, corporate environments, legacy technology, and risk-averse, change-resistant culture are feared to be more boring and tedious compared to the disruptive startup environments. As a result, they simply don’t know how to reinvent themselves.
Enterprise IT often relies on traditional "control-oriented" governance models that stifle opportunities for innovation and make it difficult to attract and retain the very type of development and operations talent needed to transform the organization. It’s a vicious circle that lies at the heart of the software development gap.
When talent is lacking internally, enterprises are forced to look outside for the skills they need. As a result, the global IT outsourcing market, which stood at $314.92 billion in 2015, is expected to reach $481.37 billion by 2022.
However, as every company becomes a software company and software "eats the world," much outsourcing has become less appropriate for modern business models, and enterprise IT departments have been left hollowed-out and dependent on suppliers who are not able to respond to their new needs.
But you cannot outsource your core competency.And make no mistake, software is now your core competency. If you wish to iterate on your software with speed, agility, innovation, and invention then you need to bring it closer to home.
It’s not simply a case of opening the check book and hiring in the skills, however. There is simply a shortage of digitally-mature skills in the industry, which drives the cost of talent up even if it can be sourced.
So What’s the Solution?
To reduce the software delivery gap, mainstream enterprises need to raise their game by transforming their own internal capability.
At the minute, enterprises don’t possess the means for their own reinvention. This stems from a lack of internal skills and talent due to a combination of technological and organizational legacy, technical debt, unattractive and frustrating work environments, and a resultant reliance on outsourcing, which leaves the enterprise hollowed out over the long run.
But traditional transformation projects aimed at fixing these issues often fail. They’re a recipe for a six-month-long series of paper-pushing that yields very little in terms of concrete results.
We founded Contino so that we could instead transform through delivery.
Our experiences have shown us that there is nothing stopping an established enterprise from innovating, inventing, and delivering software with the speed and agility of a startup. It requires bold leadership to tackle legacy issues, but by raising their own game and adopting disruptive technologies, enterprises can use their immense resources and experience to turn the software gap into a software gain.
Contino is a leading global DevOps and cloud transformation consultancy with global clients such as Allianz, Lloyds, Barclays, Adidas and HM Government.
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