In no particular order: inadequate preparation, internal divisions, and incompetent leadership.

Inadequate preparation: Holger Herwig in The First World War: Germany and Austria-Hungary 1914-1918 notes, "Around 1800 Napoleon Bonaparte allegedly had claimed that Habsburg forces were always one army, one year, and one idea behind; in 1900 they were several defense budgets behind the major European powers. As late as 1903 Austro-Hungarian subjects spent as much on tobacco and more on beer and wine than on defense. In terms of per-capita expenditures on the defense budget of 1906 in Austrian Kronen, Britain spent 36, France 23.8, Germany 22, Italy 11.6, Russia 9.8, and Austria-Hungary 9.6. Despite a dramatic 64% increase in defense spending between 1906 and 1914, the 16 corps commands of the Dual Monarchy fielded fewer battalions of infantry (703) than in 1866 -- notwithstanding a twofold increase in population over that half century. in fact, Austria-Hungary annually trained a smaller percentage of its population (0.29%) than either its ally, Germany (0.47%) or its potential adversaries, Russia (0.35%), Italy (0.37%), and France (0.75%). Put differently, the Habsburg Monarchy each year trained only between 22 and 29 percent of draft-eligible males; the corresponding figures were 40 percent for Germany and 86 percent for France. And while the peacetime Army consisted of 415,000 officers and men, the imperial bureaucracy boasted 550,000 servants. At the time of the Second Hague Conference on Disarmament, Conrad [von Hotzendorf, Chief of the General Staff] had seriously suggested that Austria-Hungary not send a delegate because it was already in a state of de facto disarmament! And during the Second Moroccan Crisis of 1912, Vienna could not even pay the costs of mobilizing its forces, and had to borrow heavily for this from New York money markets."

Internal divisions: Austria-Hungary was rent with ethnic divisions -- eleven ethnic nationalities, divided among three bureaucracies speaking three different languages (German, Hungarian, and Croatian). Not only was the language barrier a problem, so was asking many of their Slavic citizens to fight against other Slavs, like Serbia or Russia.

Incompetent leadership: The aforementioned Conrad von Hotzendorf had unfortunate characteristics that made him an inadequate commander for the Austro-Hungarian side. Herwig expounds, "Conrad's calculations were based on wishful thinking. As the historian Gunter Rothenberg has put it, 'On paper Conrad's plans always had an almost Napoleonic sweep, though he often lacked the resolution to carry them out and also forgot that he did not have the instruments to execute them. Quite apart from the fact that in 1914 his forces would be about a dozen infantry divisions inferior to those of his adversaries, Conrad ignored that Russian mobilization schedules had been cut down dramatically by the extension of the Russian rail network in Poland. In fact, Moltke warned Conrad in February 1914 that Russia would complete mobilization of two-thirds of its forces 18 days after a declaration of war. Austria-Hungary's mobilization pace of 153 trains per day would be dwarfed by Russia's rate of 360 trains per day." As an example, Herwig criticizes Hotzendorf for his "visceral hatred of Serbia," which clouded his judgment in the early days of the war; Hotzendorf planned to "'settle accounts' with Serbia before turning north against [Russia]," plans for which he did not share with political leaders. Despite having knowledge that Russia would mobilize, Hotzendorf did not mobilize against them, claiming their position remained "unclear" and that "operations proceed against Serbia." When Russia did enter the war, Hotzendorf panicked and "demanded his railway staff halt the 12 divisions bound for the Serbian frontier and reroute B-Staffel [a strategic reserve force] at once." This, along with self-imposed limitations on the train system -- that "all trains were to roll at approximately the same speed ... about 10 miles per hour"; "absurd braking requirements"; orders "that all trains stop each days for 6 hours for victualling and water resupply." Many troops were forced to march to the front on foot; "it is estimated that the four Habsburg armies in Galicia undertook daily forced marches of almost 20 miles between 19 and 26 August just to reach the Russian border."

Source: Holger Herwig, The First World War, Germany and Austria-Hungary 1914-1918 (Arnold, London, 1997)