Dynamics 365

Microsoft is putting energy, money and development dollars into the ERP/CRM market and are calling it Dynamics 365. Microsoft is setting some high bars for themselves in the way they are marketing this new release, which is set to launch on November the 2nd. So far, the market has heard:

“Microsoft Dynamics 365 for Financials is a business management solution that’s connecting people and processes like never before.”

“The next generation of intelligent business application.”

“Dynamics 365 lets you evolve business processes in real time.”

“Dynamics 365 provides an immersive user experience with Office 365 and this experience is offered across the web, mobile devices and the PC.”

(Source: Websan.com and Dynamic 365 site)

Why I Am Really Excited

Mid-Market ERP solutions have been slow on the evolution train in the past 15 years. For those of you that have been around this space for that long you will remember that back in the year 2000, the ERP solutions we sold were not a great deal different to the ERP solutions on the market today. While technology has made massive leaps around communication (Skype), Mobility (Smart Phones), Social and the internet in general, ERP has remained primarily stagnant.

ERP solutions in the early 2000’s included all of the core accounting functions around invoicing, collections, paying invoices, GL management and reporting. To that we all added modules where necessary for handling multi-currency, inventory management, accounting for projects, sales tax management, accounting for manufacturing, HR management, payroll processing, as well as requisition and purchasing management. We also wheeled our data warehouses, cubes and very attractive graphical displays of data.

In 2016 the core of the ERP solution has not really changed. One of the primary reasons for the static nature of ERP is that accounting and business administration is not a rapidly changing discipline. Invoices need to be generated and mailed to customers. Sure some of us are advanced and email those invoices to our customers. Better still some of us have our customers pay those invoices online with a credit card. Whichever way you invoice your customer, the payment needs to be matched to invoices and all of that ends up in general ledger. Statements are generated and reconciliation completed. Fixed assets are depreciated, inventory valued, revenue recognized and financial statements are produced.

 

Microsoft’s vision for Dynamics 365 is a refreshing change. Microsoft is selling the vision of a very tightly integrated environment that incorporated all the very best of Microsoft products and makes them work together – seamlessly. This is something that I hoped would happen shortly after Microsoft purchased the Navision, Great Plains and Axapta ERP solutions more than a decade ago in 2001. While Microsoft added some surface level interactivity between their ERP’s and other Microsoft tools they never did anything revolutionary. In fact, for many years there were competitive ERP’s that claimed confidently that they worked better within the Microsoft stack than Microsoft’s ERP solutions.

In the last 5 years Microsoft’s focus has moved almost entirely to the cloud. This was tricky for the ERP space as none of Microsoft’s ERP offering was cloud compatible. We certainly had hosting options and semi cloud experiences – but there was nothing that could truly be described as a cloud ERP on offer from Microsoft. ERP was getting a little left behind as Microsoft put all their money and effort into cloud, and there was not much left for the old on premise ERP solutions.

BUT as 2016 comes to a close, Microsoft has come forward with a brand new offering. An offering called Dynamics 365 which delivers ERP in the cloud. This is fair dinkum wonderful news. In fact they have come out with multiple offerings of ERP in the cloud, one for small and medium business and another for large enterprise level business. ERP in the cloud adds greatly to Microsoft competitiveness in the cloud ERP space.

BUT Microsoft is offering much more than just cloud software. They have committed to bringing all their business facing tools together into a single seamlessly integrated cloud platform. This includes their traditional tools of Office 365, ERP, CRM and then adds to it a myriad of new technologies like Power Apps, Power BI, Flow, CDM, Graph and other solutions. This is seriously exciting stuff and may just provide the evolutionary leap that business has been hoping for to push business management software to the step in the chain.

Microsoft are now positioned to deliver Business software in a box. Everything you need all wrapped up into one solution in the cloud.

 

The Logistics

For those unfamiliar with Dynamics 365 let me explain its bones. Dynamics 365 Business edition is based upon Dynamics NAV and Dynamics CRM Online. Dynamics 365 Enterprise is based on Dynamics AX and CRM Online.

While I have long held Dynamics GP to be my favorite Microsoft ERP, I am not at all miffed that they chose NAV as the tool to take to the cloud. NAV is a very strong solution that was well suited to a cloud based transition. Mid-market ERP customers will be very well served by the functionality of Dynamics 365 Business Edition.

The CRM components of Dynamics 365 are delivered via the existing Microsoft CRM online solution. CRM is a very good, powerful, flexible and scalable tool.

Being aware that there will always be functionality gaps and verticals for which Microsoft cannot provide all the solutions, they have released their own APP store where software developers will be able to list all their add-ons to the Dynamics 365 offering. These add-on solutions will be able to install directly into the base solutions and give a very streamlined way for customers to enhance the base offering with 3rd party add-ons.

There are a number of what appear to be totally under developed tools that Microsoft are pitching as part of this solution. From my first look it appears that the marketing train has left the station long before the new products were ready. Power apps, the ability to build simple data capture fields on a mobile, is a clever idea, and may one day be great, but is currently so limited in functionality it would be difficult to implement it in a truly useful way for many businesses. The CDM (or common data model) is a place to store the data you capture with power apps, but has not yet been developed to deliver anything near the marketing story. The idea is that this data store becomes the central repository for all common data threads across multiple apps. This is for data such as contacts, customers, items, orders – and the theory is that the same contact lists is used across Outlook, CRM, ERP and anywhere else that a contact is referenced. CDM does not provide this functionality yet. Power Apps, CDM, Flow, Graph and other components may one day be great but they appear to be 1-2 years away from matching the marketing hype.

Notwithstanding that some of this apps need work, this is an exciting time and the vision of the future that Microsoft is describing is really exciting.

 

Can Microsoft Execute?

I really truly hope so, but it will not be easy. For the first time in a long time Microsoft is putting the money, resources, energy, marketing (lots of marketing) and focus on delivering a new and improved Business Solution package. This ERP and CRM offering aligns perfectly with Microsoft’s corporate strategy (which has not previously been the case for ERP).

One thing I am concerned about is whether Microsoft understands and cares for the accountant. The recent demo’s I saw showed all the sex and sizzle. Modifying quotes inside of an email. Seeing pretty graphs overlaid by demographic data. Cortana telling the purchasing office how much to order. (Purchasing officers will take a great deal of convincing to trust a talking computer). While this a great demo and may inspire a CEO, it does not address any of the things that ERP users do every day. Accountants are not inspired by what is new and flashy, and yet are key to choosing which ERP solution a company should use. Microsoft needs to ensure that they develop practical functionality for the everyday user of the software.

Seamless is a word used repeatedly in Dynamics 365 marketing. This sets a huge expectation, a little bit like ‘make America great again’ – nobody is sure what it means and there is no way to measure it, but at the same time everyone has their own belief in what it will deliver. Integrating all these systems together will be challenging to say the least. When it comes to ERP and CRM any integration is tied intimately with business process. In the mid-market every business has a unique business process – that’s what allowed them to grow to be a mid-market business.

I am retooling eOne products and investing heavily in Dynamics 365 so I really hope that Microsoft delivers completely in this space. That said I know there will be gaps and ISV developers like eOne Solutions will have an important place in the ecosystem.

 

The Market

This is where I do not think Microsoft is yet to deliver a very clear plan, as to exactly which segment of the market they are aiming at. I suspect that this will become clear once sales are made and they discover which businesses are most attracted to their offering. There is a great deal of talk about Dynamics 365 being for small business. One reseller is pitching it to:

  • Businesses that currently run financials in Excel
  • Those that have outgrown QuickBooks
  • Those wanting seamless connectivity between Accounting and Sales

This covers a wide range of businesses and many that I feel would not be ready for the leap to a mid-market solution like NAV and CRM. To work for people moving Excel, the user interface, configuration options and setup would need to have been simplified in a big way. My initial looks have not seen a dumbing down or simplification transformation this great.

Companies outgrowing QuickBooks (or other small business accounting solutions) will be a good market, but a tough one. QuickBooks has been around for a longtime and provide functionality ideal for small businesses – that will be hard to match. Once you have outgrown QuickBooks the jump to a full mid-market ERP is a big one and usually is triggered by the employment of a full time accountant who has big ideas and plans. The implementation is complex and expensive.

Seamless integration between Sales and Accounting. First, the sales components are not available until spring 2017 so this gets tricky. I have had 10 years’ experience at integrating CRM and ERP solutions. I am yet to find a single integration that can be delivered “out of the box.” Every business process is different. Integrating systems is essential to success, and I am very interested to learn more about how Microsoft has come up with an integration to serve everyone’s needs.

Another target is to move Microsoft’s large existing ERP customer base to Dynamics 365. Microsoft had originally indicated that this was not their intention, but having spent 2 hours showing Dynamics 365 at a recent customer conference, it is reasonably clear that the existing base is one of their target markets. This is not a bad thing and is a good way to keep these customers on Microsoft software and convert them into monthly subscription customers.

Can Dynamics 365 be Monetized?

Monetizing your existing customer base is a very sensible strategy. Migrating existing customers to the new platform will be a challenge – especially if there are functionality changes and gaps between the current offering and Dynamics 365. Value Added Resellers will be important in providing a smooth and cost effective transition for those companies wanting to make the jump.

In short, I fear that Dynamics 365 might to too complex for a tiny business. It might be ideal for a QuickBooks upgrade but this is only possible with a relatively expensive business mapping and implementation exercise. The trick is to convince a customer that is paying $400 per month to also spend $20,000 – $200,000 on implementation services. Migrations from other mid-market solutions will be a good market, but not many of those are ready to take a good working on-premise solution and migrate that to the cloud until there is a very strong trigger to make them jump.

 

Future of Dynamics NAV, GP, CRM and AX

Microsoft has very much positioned Dynamics 365 as a new offering. A new SKU, not as something to replace the existing ERP offering but another solution to compliment what is available now.

Microsoft have committed to the current offerings and making them available for the foreseeable future. GP on premise will still be available for a long time. NAV on premise will still be available for a long time. These are great solutions and are a perfect for large portions of the mid-market business. I would not be surprised to see sales of these solutions remain constant or even increase.

What this means is that Microsoft has positioned themselves to beat ALL the competition by having the most complete ERP, CRM and business software offering in the market.

  • Microsoft has small to medium businesses covered with Dynamics 365 Business edition.
    • Bundled with Office 365 and the other business automation, workflow, and reporting apps this is a very attractive package.
  • Microsoft has the larger mid-market covered with Dynamics 365 or their traditional fully functional offerings of GP and NAV.
    • CRM is critical to this offering and may be purchased online or by selecting the on premise module via Dynamics 365 enterprise.
  • Microsoft has large enterprises covered with their enterprise offering of AX and CRM.
    • This opens the markets for large global retailers, large manufacturers, large corporations for global financial service companies.

With Oracle’s recent purchase of NetSuite, Microsoft is set to go head to head in multiple markets on the ERP front, although Microsoft likely wins in the small/mid-market CRM space.

Microsoft will continue to go head to head with Salesforce, although with the recent acquisition of LinkedIn I think Microsoft is positioned to win this battle also.

 

Does the World Want a One Stop Software Vendor?

The way people and businesses buy software has changed dramatically over the past 15 years. Cloud apps and phone apps have changed everything. When you want a new help desk ticketing app you simply open Google and do a search. You will find a myriad of good solutions. You might call a friend to see what they use and then you make a selection and put your credit card in.

Microsoft is banking on the fact people want a single supplier for most of their software – CRM, ERP, Office, communication, cloud storage, reporting, app building and more. There are thousands of great software developers in the market and I do not believe Microsoft will form a monopoly and own the space. Dynamics 365 will become an important part of many business’ software solutions – but these companies will still select many software products from outside of this stack. These apps will be integrated via tools like SmartConnect that we develop here at eOne.

 

Conclusion

I believe in what Microsoft is doing with Dynamics 365. It is a great idea and has been a long time coming. Business software needs to make this evolutionary step. It will be a bumpy and at times painful road. There will be confusion, missteps, failed implementations and frustrations. There will be some great success along the way.

At the end of the road there will be a great software offering for business. There will be a community of VAR’s that learn how to thrive in this market. There will be 3rd party developers like eOne Solutions that will enhance what Microsoft is doing. There will be businesses that grow and thrive from having good software to help them.