Getting Serious about ERP
Microsoft has finally put together a strategy for its Dynamics business applications and is pumping major resources into the product line. Partners need to be ready for what's coming.
This is the next big thing.
a group of disparate business applications cobbled together through
a series of acquisitions, Microsoft Dynamics is finally coming together
as a cohesive offering of enterprise resource planning (ERP) and
customer relationship management (CRM) products. A new advertising
campaign and serious talk of product roadmaps are signs that partners
should pay attention to what's happening in Redmond's once-marginalized
Microsoft Business Solutions (MBS) division. Bottom line: Microsoft
has arrived on the ERP scene, and there's money to be made.
But in order to make it, many current partners will need to overhaul
their strategies. Forthcoming changes in the product line will require
them to rethink how they approach selling and supporting Dynamics.
None of this activity will happen overnight. Still, now is the time
to prepare for what's coming.
From Troubled Child to Favorite Son
Microsoft Business Solutions was once the company's black
sheep, with its collection of acquired applications that were largely
devoid of the Microsoft look and feel. During the division's five-year
history, it has grown its product base through the acquisitions
of Great Plains and Navision in 2001 and 2002. Previously, Great
Plains had purchased Solomon Software, while Navision had acquired
the Axapta application (see "A Microsoft Dynamics Timeline").
Dynamics, a brand name unveiled at a Microsoft conference last
fall, is a suite consisting of the Microsoft CRM application (now
known as Dynamics CRM) and the four acquired products, Dynamics
GP (from Great Plains), Dynamics NA (from Navision), Dynamics SL
(from Solomon) and Dynamics AX (from Axapta).
Cobbling Dynamics together since those acquisitions hasn't been
easy. The four ERP suites' functions overlap in many ways -- for
instance, all four offer portals and e-commerce solutions -- and,
at first, many of their functions didn't integrate well with other
Microsoft applications. None of them, for instance, offered the
familiar Microsoft appearance and functionality. However, Microsoft
has significantly increased cross-integration of the products' features,
particularly for the 2006 release cycle, says Joe Wilcox, senior
analyst at Jupitermedia Corp., a Darien, Conn.-based IT research
Microsoft Dynamics Timeline
2001: Microsoft acquires
Great Plains Software of Fargo, N.D., (a few years
after Great Plains bought its major competitor,
Solomon Software of Findlay, Ohio).
2002: Microsoft acquires
Navision, of Vedbaek, Denmark, for $1.4 billion,
providing an entry to the European market. Navision's
product lines were XAP, Attain/Financials and
Axapta, which the organization acquired when it
bought Damgaard in the Netherlands in 2000.
2003: Microsoft launches
the initial release of Microsoft CRM.
announces re-branding of Microsoft Business Solutions
products as "Dynamics."
2006: Microsoft announces
it will integrate Dynamics applications with Office
2006-2009: Microsoft will
combine best-of-breed functionality from its overlapping
ERP suites and produce single-platform Dynamics
suites tailored for small and larger enterprises.
Now the company is pumping money into an advertising blitz to promote
Dynamics and spell out how the product will evolve over the next
few years. Microsoft has also made it clear that Dynamics is a chief
component of its massive push to target midsize companies, which
it defines as businesses with between 50 and 1,000 employees.
Bill Gates, Microsoft's chairman and chief software architect,
has emphasized that Dynamics will focus on ease of use and implementation,
characteristics not usually associated with ERP. "A new generation
of software has to step up and provide capabilities in a way that's
incredibly reliable, easy to set up, and brings the information
to the right people," Gates said at the first-ever Microsoft Business
Summit for midsize companies last fall.
With 1.4 million midsize companies worldwide, Microsoft is chasing
a potentially highly profitable audience. Many of Microsoft's past
business offerings -- as well as those of its competitors -- have
overlooked these companies, typically challenged by limited resources
of time, budget and personnel. Microsoft officials also have argued
that the market is under-served by ERP giants such as Oracle Corp.
and SAP AG, which focus more on large enterprises.
Analysts say that bridging the midmarket gap is critical for the
success of the MBS group, which consists primarily of the Dynamics
applications. "In the last five years, Microsoft has attempted to
grow the [Business Solutions] business, and it has not grown as
fast or as successfully as Microsoft hoped it would," says Chris
Alliegro, lead analyst at Directions on Microsoft, a Kirkland, Wash.-based
research and consulting firm. "It did some soul-searching to ask
why products weren't selling faster and how to make costs less than
revenue. This is what's driving the focus on the midmarket."
MBS executives say Microsoft is poised to cash in on an ERP revival.
"We believe the market is at the verge of a major implementation
wave," says Tami Reller, corporate vice president of the Microsoft
Business Solutions marketing group. "In the late 1990s, just prior
to Y2K, many customers patched or implemented new systems. [Now]
these systems are aged or aging, and we see customers moving to
their next-generation solutions."
Dynamics is already showing promise as a contender for that business
-- and for a more favored position within the Microsoft family.
The long-struggling MBS group remains in the red, and Redmond doesn't
expect the division to be consistently profitable until fiscal year
2007, according to Microsoft CFO Chris Liddell. However, MBS did
post an impressive 17 percent year-over-year revenue growth in the
second fiscal quarter of 2006 and racked up a 21 percent increase
in Q3, from $179 million in Q3 2005 to $216 million in Q3 2006.
In addition, a November 2005 report from Boston-based AMR Research
Inc. showed MBS as the No. 1 vendor on companies' evaluation lists
for future ERP purchases, with 58 percent of respondents saying
they'll look at Microsoft Dynamics. In the report, MBS just nudges
Oracle (57 percent) and solidly beats SAP (49 percent).
And Microsoft is just getting started. MBS is still the second-smallest
revenue producer among Microsoft's seven main divisions, but the
company's renewed commitment to pushing Dynamics to the midmarket
indicates that there's plenty of room for growth. Furthermore, when
Microsoft gets serious about a market with enormous potential --
think back to the Internet Explorer initiative of the mid-1990s
-- it's got a track record of success.
The Dynamics push is based on a coherent message. Earlier this
year, Microsoft launched a major new ad campaign touting Dynamics
as "people-ready" business applications. The idea behind the tag
line: Software should empower employees to solve their own problems,
become more efficient and move their businesses forward. The message
fits with Microsoft's much-publicized role-based approach to software
development, which focuses on providing functionality tailored to
users based on individual jobs and needs.
Jon Pratt, senior director, product marketing and partners, Microsoft
Business Solutions, draws a distinction between IBM Corp.'s "On-Demand"
message and Microsoft's "people-ready" stance. "[IBM's message is,]
‘You have a problem, press the button; we can solve it.' [Microsoft
says,] 'Your people can solve it. You already have the brains in
your organization to get that done.'"
Following are the new names of Microsoft Business
Microsoft Business Solutions-Great Plains: Microsoft
Microsoft Business Solutions-Solomon: Microsoft
Microsoft Business Solutions-Axapta: Microsoft
Microsoft Business Solution-Navision: Microsoft
Microsoft CRM: Microsoft Dynamics CRM
Waves of Change
Microsoft, in a strategy it detailed at MBS's Convergence
conference in Dallas in March, plans two waves of improvements for
Dynamics. The first is crashing on the ERP shore now, and the next
will roll in over the next two to three years. It's that second
wave that threatens to wash some Dynamics partners away if they're
not prepared for its arrival.
As part of that initial wave, Microsoft is already integrating
the four Dynamics ERP products into Windows and Office. That effort
will continue as the company introduces Microsoft Windows Vista,
Office 2007 and new versions of Dynamics applications over the next
two to three years. Such integration is designed to provide users
with a unified view of all four ERP applications within a familiar
Microsoft interface, something the products previously lacked. Microsoft
officials call such integration consistent with the company's "people-ready"
Microsoft is banking on ease of use and its role-based approach
serving as the primary competitive advantages over offerings from
better established and more advanced ERP rivals, such as SAP and
Oracle. For partners, simplicity and native integration into Windows
and Office are key selling points.
Curtis Jones, senior business consultant at Vis.align, a Microsoft
Gold Certified Partner and Dynamics specialist based in King of
Prussia, Penn., that provides IT deployment and operational services
to midmarket companies, says the human side of complex ERP implementations
-- often the most important element of an implementation because
of the importance of user acceptance -- will be easier with Dynamics
natively integrated into Office applications. He predicts that the
percentage of employees using the ERP systems in most companies
will jump from 10 percent to 50 percent or higher before long. Jones
also says integration and a focus on ease of use will be key differentiators
for Microsoft, despite projects such as the Microsoft-SAP Duet effort
that integrates SAP applications with Office.
"Microsoft will quickly surpass those guys because none of them
will focus on the user experience," Jones predicts. "SAP is not
even integrated with itself. The time that it will take the other
ERP firms to move toward integration based on user experience is
huge. Microsoft is focusing from the user experience back to the
underlying systems. When you do that, you see a much wider view
of applications that impact people."
So while Wave One of Dynamics can be viewed as positive for partners,
Wave Two may require some individual reflection and analysis from
partners. Due to hit in 2008 and 2009, with iterative releases for
each product along the way, the second chapter in the Dynamics product
strategy involves combining all four ERP products on a single platform.
That move will eliminate the current functionality overlaps, as
Microsoft officials say they will pick and choose the best features
from each application for that single final product. Officials expect
to offer different versions for large and smaller businesses.
Microsoft officials maintain that single-platform Dynamics will
lead to easier implementations through a true best-of-breed approach
that will eventually benefit companies more than the current overlapping
This, however, is where the work comes in for partners. Many, if
not most, Dynamics partners are focused on just one of the four
ERP products -- perhaps dating back to the days when the companies
that made them were still independent of Microsoft. During the second
round, when the best elements of all four are combined into a single
suite, having deep expertise in one product will obviously lose
The Only Way Is Up
The answer? Verticals. Instead of being Navision or Axapta
resellers, for instance, partners will need to re-focus providing
solutions in vertical industries such as health care or finance.
Reller says it's the way Microsoft is moving -- and partners should
move that way, too. Microsoft's goal is to assign 50 percent of
its current partner base into one of 14 verticals by June 30, 2006,
its fiscal year end.
"Microsoft is increasingly adopting a vertical strategy and focus
to better address the needs of its customers and create additional
opportunities for partners to deliver rich solutions using Microsoft's
products," Reller says. "The key to profitability is the same as
it has always been -- specialize to be successful."
Alliegro says partners can line up in vertical industries as well
as create practices and specific applications around vertical industries.
"That's where the opportunities lie for partners," he says. "Where
they don't lie is moving down-stack and trying to provide general
platform capabilities." Microsoft integrated public-sector accounting
capabilities into its products, for example, after purchasing a
company last year with this solution. Customers at a lower platform
level can now do public sector accounting, whereas partners used
to provide these specific modules to accompany Dynamics GP. Alliegro
says partners should always be wary of playing too close to the
Reller also says Microsoft will be there for partners making the
transition. The company is pumping money into retaining existing
Dynamics partners and training new ones and has established several
programs to help partners deal with refocusing their strategies
- Microsoft Solution Finder, a Web-based tool that helps
customers search for and connect with Microsoft partners worldwide
based on their industries, locations or specific Microsoft products.
- Microsoft Partner Solution Profiler, which allows partners
to describe their company's offerings and gain exposure to customers
and other Microsoft partners through several online systems, such
as Microsoft Solution Finder and Microsoft Partner Channel Builder.
- Microsoft's Partner Channel Builder, an online tool that
allows all Microsoft Partner Program Registered Members to collaborate
on new business opportunities.
Still, for companies that have spent years becoming product-focused
experts, shifting to a vertical strategy won't be as easy as dropping
in on a few Web sites. Columbus IT Partner, a Gold Certified Partner
based in Brondby, Denmark, and 2005 Global Partner of the Year,
acquired in January another partner focused exclusively on the food
and chemical industries. Columbus IT, which has 900 employees in
22 countries and develops part of the Dynamics AX application, has
been preparing a vertical strategy for years, says Jim Bertschneider,
the company's managing director.
"It's not an option whether we want to do it or not," Bertschneider
says of that effort. "We have to do this. The challenge is going
to be for the smaller partners. There's huge potential, but also
Nevertheless, Bertschneider remains positive about Dynamics. "We
have no disappointment in what they're doing," he says of Microsoft's
push into that area. "We have concerns, but no disappointment. This
is definitely going to be good stuff for partners."
As long as partners are prepared.