Traditional companies are losing because they mismanage software engineers

Legacy companies are spending ever increasing budget on developers, but lack of key software management skills means they are wasting shareholder value

There might be a faster way to burn money than hiring and then mismanaging software engineers, but I haven’t seen it. The typical mismanagement playbook is to hire oodles of expensive software engineers, and then deploy plenty of project, product and other managers to make sure they don’t stray off the plan. Meanwhile at Apple, a company with a track record of creating new, amazing and valuable software, Steve Jobs said:

“It doesn't make sense to hire smart people and tell them what to do. We hire smart people so they can tell us what to do.” — Steve Jobs

Conversely, Anti-Steve Jobs, running traditional companies, somehow ignores the working example above and says instead:

“We hire software engineers and make sure they stay on track with daily status meetings called standups.” — Anti-Steve Jobs

Steve Jobs’ personality problems aside, he really was onto something with his willingness to listen to smart people. It is almost as if he realized at some point that he was way better off having an organization of people thinking about how to create some of the best gadgets ever instead of waiting for him to come down off of the mountain to tell them what to do.

Hint: Deploying a project + product + engineering management organization designed to keep engineers on track is a good way to signal to the developers that their job is to implement, not create or innovate. And if you are investing in a company that has significant software R&D spend and they aren’t innovating — I’m so sorry for your impending loss.

Anti-Steve Jobs on the other hand is far more concerned with just jumping to the part where people give his company money. Innovation is messy, and frankly Anti-Steve can’t figure out why you wouldn’t just tell people the right thing to build and skip all the trial and error that comes with innovation. Anti-Steve and his board of directors that keep him in place fundamentally believe that they know what needs to be built. Or at least that they can hire the messiah that will come down off the mountain and tell everyone what to build. There is no such messiah. The cult of Jobs might have elevated him to that position, but watch this video describing Jobs interacting with the developer who created the iPad keyboard prototype, and then tell me that is how someone who already knows what needs to be built behaves. Don’t get me wrong, Steve Jobs was clearly a gifted designer, but even he said:

“Great things in business are never done by one person. They're done by a team of people.” — Steve Jobs

Anti-Steve is taking the shareholders for an expensive ride, deploying tried and true traditional management techniques to drive release schedules that are mostly missed or delivered heavily descoped. There will be plenty of talk of innovation, often mixed with terms like feature parity with a competitor — as if copying a competitor is innovation! Fat executive bonuses are handed out for hitting meaningless milestones. And, in the end, the CFO is left with the dubious pleasure of communicating just how little incremental revenue came from copycat features that customers already get from a preferred vendor. But Anti-Steve didn’t have to get out of his comfort zone and engage in messy innovation, so at least someone is happy.

There is an argument to be made that if the company doesn’t have a software engineering CEO at the helm, then it has no business engaging in expensive software R&D — ok maybe that’s a bit much, but not really. Clearly millions of investors think something like this, as the top companies by market cap are dominated by software engineer founded companies. I’m not actually sure why this is, but I do think that shareholders should strongly consider divesting from companies that are spending heavily on software R&D with the wrong kind of leader at the helm — especially if the company DNA manifests chronically anemic software R&D execution.

If the above list by market cap isn’t enough to convince you that something important is going on, how about this revenue growth comparison between Amazon and Walmart? Or the fact that JP Morgan is predicting that Amazon will eclipse Walmart to become the largest retailer in the world next year.

* figures in billions, source: company revenue comparison tool

All up and down the Fortune 500, hordes of computer nerd run companies are rapidly eclipsing traditional companies at an accelerating pace. It isn’t just in software companies either, the rule of thumb seems to be that if high quality execution on business automation to delight customers really matters, the legacy company competition is toast! So not only is traditional company shareholder value being eroded by bad management of software R&D, but good management of software R&D is causing exponential growth. This exponential growth causes even more erosion of shareholder value as the smart money exits these traditional companies that just can’t seem to figure out how to cash in on the digital revolution.

So what can influential shareholders at traditional companies do? I believe that shopping for a new CEO that has a technical innovation background is in order. Your ideal candidate will have spent 4 to 8 years professionally writing software, and then moved into management for another 4 to 8 years. She should have a reputation for rubbing traditional MBA trained managers the wrong way. Not because she has Steve Jobs’ personality problems, but because she is disgusted at how badly traditionally trained managers are mismanaging software R&D.

In the end, well done management of software R&D that reliably automates the business to provide best in class service for customers will save your favorite traditional company from the dustbin of history and, more importantly, just might save your nest egg from being shorted out of existence.

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