Microsoft Dynamics: Stepping onto Large Enterprise Turfapi.ning.com/.../MicrosoftDynamicsSteppingontoLargeEnterpriseTurf.pdf · able to handle their complex financial reporting requirements

Produced exclusively for Constellation Research clients

Quark: Market Trends

How Microsoft Dynamics’ Expanding Capabilities Create New Choices for Large, Multinational Firms

Microsoft Dynamics: Stepping onto Large

Enterprise Turf

By Frank Scavo

Vice President and Principal Analyst

Content Editor: Dr. E. Brent Kelly

Copy Editor: Maria Shao

November 30, 2012

© 2012 Constellation Research, Inc. All rights reserved. 2

Executive Summary

Long known as business management software for small and midsized organizations,

Microsoft Dynamics is increasingly being used in large and multinational enterprises. This report outlines four customer needs that are driving Microsoft Dynamics up-market and

three ways in which Dynamics has become capable of serving these large organizations. We conclude with examples of customers that illustrate the move of Dynamics into the enterprise market and recommendations for large enterprise buyers who are considering

Microsoft Dynamics.

This report offers management insights into one of Constellation’s primary research

themes, Technology Optimization.

Microsoft Dynamics Steps into Large Enterprises

In the early 2000’s, Microsoft jumped into the business applications market by making

acquisitions that brought Great Plains, Solomon, Navision and Axapta into its product portfolio. These products, aimed at small and midsized businesses, established the perception that Microsoft was aiming its business applications primarily at smaller

companies. When it came to enterprise applications for global organizations, Microsoft was viewed as out of its league. Those were markets for players such as SAP, Oracle and other

vendors with multinational capabilities.

But the market landscape is changing. Over the past year, the Microsoft Business

Solutions (MBS) division has been demonstrating that it is capable of delivering two of its business applications—Microsoft Dynamics AX (the descendent of Axapta) and Microsoft Dynamics CRM—to large and multinational organizations. Moreover, Dynamics product

enhancements now rolling out will accelerate this trend.

Market Trends Drive Upward Move

The MBS division continues to offer software that is aimed at small and midsized

businesses (SMBs), those with single-site operations or with limited international presence. Microsoft reseller and systems integrator partners often introduce Dynamics

NAV (formerly Navision), Dynamics GP (formerly Great Plains) and Dynamics SL (formerly Solomon) in these situations, sometimes in combination with Microsoft Dynamics CRM for

customer relationship management.

Nevertheless, MBS has also found itself in deals involving larger companies or those operating in multiple regions of the world. There are at least four market trends that are

driving this repositioning, as shown in Figure 1.


Figure 1. Four Customer Needs Driving Microsoft Dynamics Up-Market

1. SMBs Demand Multinational Localizations

It used to be that only large companies had to worry about compliance with multiple sets of country-specific regulations and ways of doing business. But no more. Today, it is not

unusual for U.S. businesses of less than $100 million in annual revenue to have contract manufacturing operations or even captive production facilities in Asia or distribution operations in Europe. Likewise, some SMBs based in Europe or Asia also have operations

in North America. There may also be complex subsidiary, partnership or joint venture relationships among entities in multiple regions of the world.

It is not possible, therefore, to segment the business applications market into providers that serve large multinational organizations and those that serve small single-country customers. Multinational capabilities are needed by companies of all sizes.

2. Organizations Want to Pool Resources Worldwide

Organizations of all sizes not only have operations in international markets, they also want to integrate those operations. For example, a U.S. business with manufacturing in China does not want to treat its Asian subsidiary as an arms-length supplier, on a

separate system, with weekly or monthly exchange of supply and demand plans.

Businesses today compete on speed, and managing their supply chains with periodic

updates of Excel workbooks does not provide the same degree of agility as having integrated systems. Likewise, professional service firms often do not want to manage their service delivery personnel separately in each market. Increasingly, they view them as


resources available worldwide. Managing each country’s operations with a separate software system or system instance, therefore, is not an optimal solution.

3. Businesses Seek Simple Ways to Have Consistent Processes Worldwide

Organizations with global operations often localize their business processes within each

international market. In some cases, this is necessary to support differences in how business is conducted in different regions. But in other cases, it is simply happenstance or

the result of the personal preferences of local managers. This is especially true when international business units or subsidiaries are added through acquisition.

Letting each business unit develop its own business processes in isolation leads to

strategic and long-term competitive disadvantage. It makes operational metrics less transparent to corporate management, slowing reaction time and increasing risk. Publicly

held companies can find it difficult to maintain internal controls in compliance with regulations such as the U.S. Sarbanes-Oxley Act. Finally, having inconsistent processes among business units lowers productivity and makes it difficult to move personnel

between regions.

In response, many organizations have launched strategic initiatives with titles such as

“One Company X” and “Single View of the Customer” to align business processes and practices worldwide. But accomplishing consistent business processes can be difficult when international business units have separate systems or system instances. Although

master data management systems can be used to synchronize key data, these add another layer of complexity to the applications portfolio.

Sharing system instances across multiple business units can be a simpler way to drive process consistency worldwide and increase the visibility of operational data throughout the organization, while still accommodating necessary differences in customs or local

regulations.

4. Traditional Solutions Are Often Too Large for Small Business Units

Large global enterprises often face a dilemma. For the most part, there have only been two core enterprise resource planning (ERP) systems—SAP and Oracle—that have been

able to handle their complex financial reporting requirements. At the same time, SAP and Oracle are too large, cumbersome and expensive to use within their small and midsized

operating units and subsidiaries in various regions around the world. Complicating the picture is the fact that large enterprises have often customized their core ERP systems or built complex integrations with other applications, making it difficult, expensive and risky

to replace them.

One approach that is gaining in popularity is to adopt a two-tier ERP strategy. SAP or

Oracle is retained for corporate financial reporting requirements or selected shared services such as human resources or global procurement, while a second smaller-footprint ERP system such as Microsoft Dynamics AX is selected to support operational


requirements of the business units. If the second-tier ERP system can also run as a single instance or shared instance for multiple business units, it can also facilitate the resource

sharing and standardization of business practices discussed earlier.

How Microsoft Dynamics’ Enterprise Capabilities Are Expanding

All of these factors create an opportunity for Microsoft Dynamics to better support large

and multinational businesses. MBS has seen this opportunity and has been executing a strategy to move more aggressively into the enterprise market. Specifically, it has now enabled Microsoft Dynamics AX to operate as a single global instance. Second, it is

offering its AX and CRM software as both cloud and on-premises systems. Finally, Microsoft is building out its enterprise support offerings to better serve global

deployments. We now examine each of these initiatives in detail below.

1. Ability to Deploy a Global Single Instance of Dynamics AX

With its roots in Europe and with many partners around the world, Microsoft Dynamics AX has always provided good support for businesses outside of the United States. However,

until recently, large multinational organizations considering Dynamics AX came up against one show-stopper: AX had excellent localizations for dozens of countries, but most of these were delivered as local partner customizations. For example, if a large organization

had operations in the U.S., Europe, China and South Africa, it would most likely need to implement four instances of AX, each supported by different local partners with their own

localization code. It was generally not possible to layer these partner localizations on top of one another, as they were developed independently and were often unable to co-exist.

In real-world vendor evaluations with multinational companies, we have found prospective

buyers initially to be quite interested in Dynamics AX. But once they understood the limitations of AX in supporting multi-country deployments, they would drop further

consideration of AX in favor of systems that have true multinational support in their base systems.

This limitation has now been overcome. With the release of Microsoft Dynamics AX 2012 R2, Microsoft has now completed its incorporation of 36 country-specific localizations into the core program code. Customers can now support operations in all of these countries

with a single global instance of AX. Of course, customers may still choose to deploy country-specific instances, for whatever reason. But they now have the choice to deploy a

single global instance, centrally managed. For many companies, a single global instance of AX or a small number of shared instances is cheaper to maintain, provides tighter control over system configuration and encourages standardization of processes throughout the

organization.

2. Cloud Deployment Provides Additional Options and Flexibility

Cloud-based ERP systems provide additional flexibility for organizations looking to roll out applications to multiple business units. By eliminating the need to deploy computer


servers and software on-premises, cloud ERP is often a more agile and cost-effective choice for smaller business units that are part of a global enterprise.

The cloud deployment roadmap for Microsoft Dynamics is in transition. The Dynamics CRM product can be deployed on-premises, in Microsoft data centers, or hosted by partners.

Customers can deploy the Dynamics AX product on premises or have it hosted by a Microsoft partner. MBS has indicated that with the next major release of Dynamics AX, deployment will also be available in Microsoft’s Azure cloud.

Today, multinational customers can deploy Dynamics AX and Dynamics CRM in a hybrid cloud environment, implementing systems for some business units on-premises, while

choosing cloud deployment for other business units. As discussed in Constellation’s April 3, 2012 report, Market Overview of Cloud ERP: Part I, hybrid deployment is attractive in certain situations. For example, a multinational organization may have some business

units in regions where the public Internet infrastructure is deficient, or where integration with on-premises systems, such as factory data collection, warehouse management or

manufacturing execution systems, require lower latency than can be achieved over the Internet or a wide-area network.

Microsoft’s growing ability to give customers a choice between on-premises or hosted

deployment on a location-by-location basis is another factor that enables Microsoft to better support global organizations. When Dynamics AX is available on Microsoft Azure,

customers will have yet another deployment option.

3. Microsoft-Direct Options for Enterprise Support

In keeping with Microsoft’s business model, MBS delivers nearly all of its products and services through its partner channel. Although this has served Microsoft well throughout

its history, this strategy does carry some limitations when it comes to serving large multinational customers, who often expect to see a direct role by Microsoft in

implementation and ongoing support.

To address this need, Microsoft in recent years has been expanding its Premier Support offering, which is targeted at the enterprise-level market. Reporting up into the Microsoft

Consulting Services group, Premier Support delivers services in three areas:

Reactive support, in which Microsoft directly responds to customer incidents.

Proactive support, which includes workshops, on-site assessments, remediation services and account management services.

Mission-critical support, in cases where the customer is deploying Microsoft

products for mission-critical applications. Here, the Premier Support program offers an even higher level of customized services. Microsoft collaborates with the

customer to perform a risk assessment and evaluation of the customer’s global complexity. Based on this assessment, Microsoft designs a tailored support program with the appropriate level of proactive and reactive support along with a service

level agreement.

http://www.constellationrg.com/research/2012/04/market-overview-cloud-erp-part-i


Premier Support is another way in which Microsoft is now better able to win large enterprise deals. Large multinational organizations do not want to assume all

responsibility for coordinating the activities of different Microsoft partners in various regions. Even in cases where the customer retains a large, global system integrator to

manage implementation and ongoing support, large enterprises still expect Microsoft to take a direct role. Microsoft’s Consulting Services, with 6,000 consultants, and its Premier Support services, address this expectation.

Evidence of Microsoft Dynamics’ Move Up-Market

Although some of Microsoft’s capabilities described in this report are still being rolled out,

there is already evidence that large and multinational organizations are finding Microsoft Dynamics a credible option for ERP and CRM. Here are just a few examples:

Carrefour S.A. Though not well-known in the United States, Carrefour is the

world’s second-largest retailer after Wal-Mart, with annual sales exceeding $100 billion in 33 countries, 411,000 employees and nearly 10,000 retail stores.

Carrefour is rolling out Microsoft Dynamics AX for omni-channel order management.

Nissan Motor Company Ltd. Nissan is the sixth-largest automaker in the world with annual revenue of more than $100 billion. Nissan is using a combination of

Microsoft Dynamics AX and Dynamics CRM to build its next-generation dealer management system, which includes functionality extensions being built by

Microsoft partner Technosoft.

Würth Group. Würth is a $12 billion-a-year European distributor of industrial products with 400 subsidiaries in 84 countries. The company has deployed

Dynamics AX in its subsidiaries to streamline order processing and fulfillment, while retaining SAP for certain corporate office functions.

Ball Corporation. This well-known manufacturer of packaging products has annual revenues of over $8 billion. Ball uses Microsoft Dynamics CRM Online in two divisions in North America and one in Europe and is planning to make it available to

its operations in Asia and South America. Ball uses the service to provide consistent processes and to coordinate account management across organizational and

geographical boundaries.

AB Agri Ltd. This worldwide provider of agricultural products operates through 15 subsidiary businesses, generating annual revenues of more than $1.5 billion. AB

Agri reports implementing Microsoft Dynamics AX in its smaller business units in 10 weeks or less. Its larger businesses also implemented Dynamics AX with more

sophisticated integration and some customization. The company is now rolling out Dynamics AX in its North American, South American and Southeast Asian

businesses.

Shell Retail. Shell is the world’s largest auto fuel retailer, with fuel cards in 37 countries. In 2011, Shell consolidated all of its card businesses under its

commercial fleet unit and standardized its systems on Microsoft technologies,


including Microsoft Dynamics CRM. The goal of the project was to more easily target higher-value accounts and to improve customer service levels.

Microsoft. Microsoft itself provides a good case study for how Dynamics AX and Dynamics CRM can serve large and multinational organizations. Although Microsoft

still relies upon its customized SAP software for its corporate financial and human resource management systems of record, it has replaced many operational systems with Dynamics AX and Dynamics CRM. For example, Microsoft’s worldwide sales

force of over 40,000 people has migrated from Siebel to Dynamics CRM. Furthermore, Microsoft has deployed Dynamics AX for its operational systems that

support DVD production, Microsoft retail stores, XBox production and expense management.

Finally, though not yet authorized for public disclosure, one of the world’s largest public

companies reportedly has made a recent decision in favor of Microsoft Dynamics CRM. A major factor in this firm’s decision is reported to be Microsoft’s hybrid cloud option: the

ability to deploy Dynamics CRM in the cloud for some business units while allowing others to implement on-premises.

Challenges to Microsoft’s Move Up-Market

Although there is mounting evidence that Microsoft Dynamics deserves consideration in the large enterprise deals, there are still several obstacles to Microsoft’s strategy to move

up-market.

First, the dominant vendors in the large enterprise space—SAP and Oracle—are not ready to cede the subsidiary-level market to anyone else. SAP has its own Business One and

ByDesign products that can be run in subsidiaries of large enterprises and interoperate with SAP’s Business Suite. Oracle, likewise, can offer its J.D. Edwards product as a

credible option for subsidiary operations, interoperating with its Fusion or E-Business Suite offerings at the corporate level.

Furthermore, Microsoft is not the only enterprise systems provider seeking to participate

as the second tier in a two-tier ERP strategy. Infor, Epicor, and UNIT4, for example, also have hybrid cloud solutions and global services organizations that can compete for these

deals.

Finally, in certain industries, other midmarket players such as IFS have long had good support for international business requirements and can support multinational

organizations with a single ERP instance.

Large and Multinational Organizations Should Consider Microsoft Dynamics

Microsoft’s improved capabilities to support large and multinational organizations give

such companies additional choices for enterprise business applications. Although the traditional players in this market—SAP and Oracle—have taken steps to improve their

total cost of ownership, they still carry a reputation of being expensive and difficult to


implement, especially for smaller companies. MBS, on the other hand, has a history of providing smaller footprint systems, which are less expensive and easier to implement.

This history, combined with Microsoft’s emerging capabilities for supporting multinational businesses, give large enterprise buyers good reasons to now consider Dynamics as part

of their applications portfolios. The following recommendations provide additional guidance in evaluating Microsoft

Dynamics for large enterprise and multinational applications.

1. Select the right partners along with the right software. Although Premier

Support is available directly from Microsoft, the company’s strategy is still to provide services mostly through partners. Partner selection, therefore, is critical and should be done in parallel with software evaluation. Large systems integrators

such as IBM, HP and Accenture now have Microsoft Dynamics practices with global reach, but these come at a higher cost versus smaller regional partners. On the

other hand, engaging with smaller partners may mean having to coordinate the activities of multiple partners worldwide.

2. Develop alternative scenarios for two-tier ERP. There is rarely just one

architecture that works for large organizations considering a two-tier ERP strategy. Devising the best approach often means readdressing decisions on corporate

shared services versus allocation of business functions to the operating unit level. In some cases, distributing functions back to the business units with a second-tier

ERP system such as Dynamics AX can make the business units more accountable and easier to manage. This may allow the first-tier ERP system to be “walled off” for corporate functions that truly require a higher level of customization. Flexibility

and agility when buying or selling individual business units can be a side benefit of this technology strategy.

3. Retail industry buyers especially should take a hard look at Dynamics. Many of the early success stories for Dynamics in large multinational organizations are in the retail sector. In the view of MBS, large retailers have been underserved

by existing solutions and are ripe for sales of Microsoft’s small footprint, well-integrated solutions at the store level. Enterprises with significant retail operations

may, therefore, want to take a closer look at Dynamics as part of their applications portfolio strategy.

4. Align deployment plans with Microsoft’s product roadmap. Large

organizations that decide to go forward with Dynamics should take advantage of the Premier Support program to receive regular briefings on Dynamics product

roadmaps. MBS has indicated that there will be further improvements in the coming years that will benefit its customers of both on-premises and cloud deployments. Understanding what is coming down the road can help large enterprise customers

avoid enhancements that may become unnecessary with future releases.

As indicated in this report, Microsoft Dynamics is not the only mid-tier enterprise systems

provider that can serve large and multinational businesses. However, with its expanded capabilities to support a single global ERP instance for multiple countries, its global


partner network and its evolving cloud capabilities, Microsoft Dynamics already has an impressive list of large company references. This means more choices for enterprise

buyers and increased competition in the large enterprise market.

Disclosures

Your trust is important to us, and as such, we believe in being open and transparent about our financial relationships. With our clients’ permission, we publish their names on our

website.


Analyst Bio: Frank Scavo

Frank Scavo is Vice President and Principal Analyst at Constellation Research, Inc.,

focusing on IT strategy, IT management metrics, enterprise applications and business process improvement. He is especially skilled at formulating and communicating IT

strategy, developing the business case for new systems and facilitating the selection of enterprise systems, such as ERP, CRM and supply chain management. He is also an expert in benchmarking IT spending and staffing levels for end-user IT organizations.

Frank was one of the first tech bloggers, beginning in 2002 with his launch of the Enterprise System Spectator providing independent analysis of issues and trends in

enterprise applications software and the strengths, weaknesses, advantages and disadvantages of the vendors that provide them. Frank has been quoted as an IT expert in numerous business and industry publications such as The New York Times, The Wall

Street Journal, Computerworld, CIO Magazine, ZDnet, eWeek, Datamation, CFO Magazine and many others. He is a frequent speaker to professional societies such as APICS, the IT

Financial Management Association (ITFMA), the Manufacturers Alliance, National Association of Purchasing Managers (NAPM), AICPA, California Society of CPAs and the Software Council of Southern California, and at various industry events and user group

meetings.

Frank is a graduate of the University of Pennsylvania. He is a Certified Fellow in

Production and Inventory Management (CFPIM) and is Certified in Integrated Resource Management (CIRM) by APICS—The Association for Operations Management. He is a GLG Scholar, denoting his rank in the top 20 percent of council members in the Gerson

Lehrman Group, a Wall Street investment advisory firm. He is also recognized as a leading tech blogger, beginning in 2004, when he was ranked in the top 10 independent tech

blogs by the Techweb Network Readers Choice award. His Enterprise System Spectator blog is currently listed in the top 100 of Jonny Bentwood’s Technobabble 2.0 Top Industry Analyst Blogs.

Frank is a co-founder of Strativa, a California-based management consulting firm providing independent advice for business and technology decisions. He is also the

President of Computer Economics, an IT research firm founded in 1979 that provides metrics for IT management, including IT spending and staffing ratios, IT outsourcing statistics, IT salary benchmarks and customer experience metrics for new technologies.


About Constellation Research

Constellation Research is a specialty research and advisory firm that serves business leaders who

seek to unleash the power of emerging and disruptive technologies. Our research analysts start by

understanding the business objective, applying real world experience and insights and then

incorporating disruptive technologies and innovative business models as appropriate.

We cater to boards of directors, C-suite executives, and line of business leaders looking for an edge

in business model and technology innovation. We help our clients combine disruptive and

traditional technologies in solving the tough business problems. Most importantly, our research

outputs always provide an insightful buy-side point of view. We look forward to serving you with

Insight, Inspiration and Impact.

We’re business-leader and business-value focused. Constellation Research differentiates itself by:

1. Focusing on the boardroom and C-suite point of view. Our research addresses the needs of

boards, CEOs, CFOs, CIOs, CMOs, CHROs, CPOs, CSCOs, and COOs.

2. Addressing the business problem first. Research starts by addressing business value and

then applying the appropriate disruptive and emerging technologies.

Organizational Highlights

Founded and headquartered in the San Francisco Bay Area, United States, in 2010.

Named Institute of Industry Analyst Relations (IIAR) New Analyst Firm of the Year in 2011.

Serving over 150 buy-side and sell-side clients around the globe.

Growing firm with 35 members including 14 research analysts and futurists, 7 sales

professionals, 4 professional staff, and a board of 10 industry-recognized advisors.

Experienced research team with an average of 21 years of practitioner, management and

industry experience.

Creators of the Constellation Supernova Awards - the industry's first and largest recognition

of innovators, pioneers and teams who apply emerging and disruptive technology to drive

business value.

Organizers of the Constellation Connected Enterprise - an innovation summit and best

practices knowledge-sharing retreat for business leaders.

Website: www.ConstellationRG.com Twitter: @ConstellationRG

Contact: [email protected] Sales: [email protected]

Unauthorized reproduction or distribution in whole or in part in any form, including photocopying, faxing, image scanning, e-mailing, digitization, or making available for electronic downloading is prohibited without written permission from Constellation Research, Inc. Prior to photocopying, scanning, and digitizing items for internal or personal use, please contact Constellation Research, Inc. All trade names, trademarks, or registered trademarks are trade names, trademarks, or registered trademarks of their respective owners.

Information contained in this publication has been compiled from sources believed to be reliable, but the accuracy of this information is not guaranteed. Constellation Research, Inc. disclaims all warranties and conditions with regard to the content, express or implied, including warranties of merchantability and fitness for a particular purpose, nor assumes any legal liability for the accuracy, completeness, or usefulness of any information contained herein. Any reference to a commercial product, process, or service does not imply or constitute an endorsement of the same by Constellation Research, Inc.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold or distributed with the understanding that Constellation Research, Inc. is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Constellation Research, Inc. assumes no liability for how this information is used or applied nor makes any express warranties on outcomes. (Modified from the Declaration of Principles jointly adopted by the American Bar Association and a Committee of Publishers and Associations.)

Andalucia | Belfast | Boston | Brussels | Chicago | Colorado Springs | Denver | Geneva | Irvine | London | Los Angeles | Madrid | New York | Pune |

Sacramento | San Francisco | Santa Fe | Santa Monica | Salt Lake City | Sedona | South Portland | Sydney | Tel Aviv | Tokyo | Toronto | Washington D.C.

http://www.constellationrg.com/

mailto:[email protected]

mailto:[email protected]

Documents

Microsoft Dynamics: Stepping onto Large Enterprise Turfapi.ning.com/.../MicrosoftDynamicsSteppingontoLargeEnterpriseTurf.pdf · able to handle their complex financial reporting requirements