Bad relationship...

The backlash against the software industry continues. But the feeling seems to have drifted from anger to disappointment to bewilderment. At SandHill Group's Software 2005 conference last week, representatives of the corporate IT world expressed their view that software companies are totally failing to address the challenges and priorities of their customers.

"The quality of software I'm getting from you people is abysmal," said David Watson, Kaiser's chief technology officer. "I'm looking for you all to have skin in the game with us. When it doesn't work, you all tend to wall yourselves off with warranty provisions."

One McKinsey study showed that the percentage of spending devoted to packaged applications and services had actually fallen in recent years relative to internal software development. Validating such findings, Watson said he manages an IT department that is growing by 12% to 15% a year as it invests in the IT enablement of health-care services. Most software companies, however, are not even breaking double digits.  

Offering a potential solution, John Leggate, CIO and group VP of digital and communications technology for British Petroleum, argued that software fees should be tied solely to business results. He noted that vendors should collaboratively engage their clients as opposed arguing over licensing contracts. "We're spending an amazing amount of man hours negotiating and squabbling," he said. "That's no way to have a relationship. We want to get past the discussion about the money."

Leggate explained that a mere 12% of BP's $2 billion annual IT budget is earmarked for software. Of that $120 million, $90 million is tied to the renewal of existing licenses while only $30 million goes to new software investments.

That is the environment that today's service-oriented product and solution providers are stepping into. One hopes they will ultimately perform better than the previous generation of software companies.