By Chris Alliegro [bio]
Posted: Jul. 24, 2006

• Sidebar: Consolidation Progress Report
• Sidebar: Evolving Approach to Consolidation
• Illustration: Dynamics Wave Two UI Prototype

The following is the full text of an article published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

Along with updates to each of Microsoft's four enterprise resource planning (ERP) applications, a new ERP product could emerge as part of Dynamics Wave Two, the second phase of a project designed to bring consistency across the Microsoft Business Solutions portfolio and lay the foundation for eventual consolidation. The new product will combine functionality from all four existing ERP applications, but its architecture, services, and programming interfaces will probably most resemble those of Dynamics AX, formerly called Axapta. This could make the transition to the new product difficult for customers and partners of products other than AX.

One ERP Product the Goal

Shortly following the acquisitions of Great Plains in 2001 and Navision in 2002, Microsoft began discussing plans to consolidate the four separate but similar ERP products—now called Dynamics AX, GP, NAV, and SL—that those acquisitions netted. A single ERP product serves several business objectives for Microsoft Business Solutions (MBS), which has only recently attained profitability despite steadily increasing revenue. (Microsoft's financial results for the fourth quarter of its fiscal year 2006 are summarized in "Volume Licensing Strong in Q4'06".) Most obviously, it will eliminate the redundant development efforts that exist today among the group's four overlapping product lines. In addition, a more coherent strategy centered on one product should simplify Microsoft's marketing and partner efforts and improve the efficiency of its sales channel, allowing it to attract new customers and partners.

Originally conceived as a ground-up rewrite called Project Green, Microsoft now presents the effort to consolidate its ERP products as two "waves" of releases—officially referred to as Dynamics Wave One and Two—over the next five or more years. Dynamics Wave One, nearly complete, has delivered some user interface (UI) and technology consistency across what are still fundamentally four separate products. (See the sidebar "Consolidation Progress Report".)

According to current plans, the second wave will run from 2008 to at least 2009 and deliver at least one additional major release to each of the four ERP products. These releases will bring additional consistency to the UI, platform technologies, and programming interfaces of those products along with refinement of each product's core features. Perhaps most significantly, the second wave will also debut a new product that Microsoft claims will include the "best-of application functionality" from its four existing ERP lines; this "best-of" library will be the foundation of Microsoft's future, consolidated ERP product.

(For a brief history of the evolution of Project Green, see the sidebar "Evolving Approach to Consolidation".)

Based on AX

When it was announced in 2005, Microsoft hinted that its planned "best-of" library would somehow merge capabilities from its four existing ERP products into a single code base that would form the basis of its eventual, consolidated product. However, recent comments from senior MBS employees suggest that Microsoft's long-term, single ERP product will evolve primarily from the services, data model, programming interfaces and languages that make up AX.

Using one of its existing products as the foundation for its future ERP product strategy is probably Microsoft's most practical choice. A ground-up, .NET-based rewrite, as planned in the original Project Green, would be costly and difficult. On the other hand, merging all the existing ERP products into a usable code base is probably technically impossible, as each product contains a completely different set of runtime services, development tools and languages; programming interfaces; and proprietary business logic that works with its own data model.

AX presents a strong case as the foundation for a consolidated ERP product—it is the most scalable, flexible, and extensible of the four existing ERP products, making it applicable to the widest range of customer scenarios and market segments. Furthermore, it is functionally strong in one of the most important market segments for ERP applications: manufacturing and distribution. Nonetheless, GP, NAV, and SL each have unique functional advantages. For example, GP provides modules for public sector accounting and offers the best accounting and financial management functionality for many North American companies; SL excels at accounting for project-driven companies (construction firms, for instance). The "best-of" library will eventually include equivalent functionality, according to Microsoft's plan. However, because its four ERP products are fundamentally different, the code providing that functionality must be rewritten to be compatible with the architecture of the consolidated product.

Wave Two Further Refines UI, Development

Along with the emergence of a new product, Wave Two specifies several common design guidelines that extend a similar set of guidelines specified by Wave One. As was the case with Wave One, Wave Two product releases also will include many application functionality enhancements in each of the individual ERP products.

Microsoft has not described how each ERP product will reflect the Wave Two guidelines in specific features, but general directions include the following:

Further user interface refinements. The Dynamics ERP products will converge on a common, role-based UI that presents users with data, processes, and screens specific to their jobs (sales manager, for instance) and resembles Office 2007. For example, a navigation "ribbon" similar to the Office 2007 ribbon will provide users with context-sensitive menu options, which will make it easier to find relevant commands and menu options. In addition, Wave Two client applications will build on Microsoft's strategic UI platforms—for example, the thick client UIs for NAV 5.0 (planned for 2007) and AX 5.0 (planned for 2008) will be based on Windows Forms, the .NET Framework's graphical library for creating forms-based client applications. (For a prototype of the next-generation Dynamics UI, see the illustration "Dynamics Wave Two UI Prototype".) This is a significant change: although recent Dynamics releases share a common design and some building blocks (such as controls), each product ships its own distinct client and implements other major UI operations, such as rendering of forms, in product-specific ways.

Standard programming interfaces. Wave Two releases will help developers more easily build custom Dynamics applications that model complex business processes involving both humans and machines—Microsoft refers to this goal as "workflow and process-centric design." Specifically, Wave Two releases will round out the subset of Web services programming interfaces introduced in Wave One, which will further help developers use the .NET Framework and programming languages and other recent (or soon-to-be-released) technologies to extend Dynamics products. For example, Microsoft has demonstrated a self-service application built on Windows SharePoint Services and the Windows Workflow Foundation—a workflow platform that will be built into Windows Vista (planned for the end of 2006) and "Longhorn" Server (expected in 2007)—that guides a group of workers through the process of paying invoices tracked in AX. Presumably, such applications would use the Workflow Foundation to orchestrate human activities (such as reviews and approvals) and AX Web services to extract and update data (or documents, such as invoices) without requiring developers to use AX's proprietary development language and tools.

Easier development. Finally, Wave Two will provide features to support what Microsoft calls "model-driven development." Although the company has been vague on the term's precise meaning, several directions seem likely. For instance, a set of Visual Studio tools for Dynamics applications (such as graphical designers and templates) could simplify the development of custom extensions, such as the workflow process described above. Such tools, employed today in Microsoft products such as BizTalk and SQL Server, allow developers to visually represent the activities and flow of information in a process, and can often reduce the amount of handwritten code developers must create. Wave Two could also bring other Visual Studio-based features, such as tools to help partners and customers create custom Dynamics UIs (to create a UI for a specific job role, for instance). This is a notable change: although Wave One specified role-based user interfaces, the ability for developers to add or customize roles is limited.

Challenges Ahead for Microsoft, Customers, Partners

Microsoft finds itself balancing competing goals and conflicting priorities as it attempts to rationalize the MBS product portfolio and align it with other Microsoft corporate strategies. On one hand, pressure to reduce costs would push the group to eliminate redundant development and channel efforts (although this pressure could soon be strictly internal, as Microsoft will stop reporting financial results for MBS as a stand-alone business segment after the June 2006 quarter).

On the other, the group hopes to continue growing MBS revenue and market share and preventing competitors such as Epicor, Oracle, and Sage from gaining ground in a market that today lacks clear vendor leadership. To do so, the company must plot a course that attracts new customers and partners without alienating existing ones—including customers or partners devoted to one of the four product lines. At least for the moment, Microsoft appears determined to capitalize on existing opportunities, even if it means carrying the overhead of an overlapping product portfolio for five or more years.

Ideally, the company hopes to perform this balancing act without creating insurmountable forward-migration problems for existing customers and partners. Nonetheless, migration to a new, consolidated ERP product will undoubtedly be more difficult for some than others. For example, it appears that the programming interfaces and libraries, runtime services, and data models of the company's next generation ERP application will most resemble those of AX. Although Microsoft will provide tools to help companies move to the new product, the process will almost certainly be more difficult for customers of GP, NAV, and SL than it will be for customers of AX.

Similarly, partner applications and extensions built using the legacy programming tools, languages, and interfaces of GP, NAV, and SL will likely need to be completely rewritten to work with the new, consolidated product.

Moreover, partners skilled in selling and customizing today's MBS products will need to think about how those skills fit in a future world. Those specialized in the proprietary programming tools, languages, and interfaces of GP, NAV, and SL could face a steep learning curve as they migrate to the new product. To mitigate the risk, such partners should ramp up on the new Web services programming interfaces as they are introduced and lean toward .NET languages and the Visual Studio development environment for extending Dynamics products.

Finally, some recent programs and releases suggest a most-favored status for AX. For example, Industry Builder (announced in Mar. 2005) is a Microsoft certification and support program for partner-developed AX solutions. In addition, in Feb. 2006 Microsoft released a set of four programs called Snap that allows users to access data and functions in AX and Dynamics CRM, the MBS customer relationship management application. (Microsoft has said that other MBS products may join the Industry Builder program and that it may ship Snap programs that work with other MBS ERP products, but no formal announcements have been made.) Thus, despite Microsoft's intentions to support all MBS products through 2013, customers could see slowing feature improvements in some of the ERP lines as AX and the new consolidated product increasingly attract the lion's share of research and development effort. Likewise, partners focused on those products could see opportunities dwindle over the next several years as Microsoft increasingly emphasizes AX in its marketing and channel activities.

Resources

The Dynamics home page is www.microsoft.com/dynamics/default.mspx.

The strategy and future roadmap for MBS is outlined in "Business Solutions: ERP Support, CRM, and Retail Roadmap" on page 22 of the June 2005 Update and "Business Solutions ERP Roadmap 2005" on page 17 of the May 2005 Update.

For a previous discussion of Project Green, see "Project Green Details Trickle Out" on page 23 of the Nov. 2005 Update.

For more information about Dynamics AX 4.0, the most recent release of AX, see "Axapta Exits Wave One" on page 30 of the July 2006 Update.

The MBS Snap Programs are discussed in "Office Front End for Dynamics AX, CRM" on page 22 of the Apr. 2006 Update.

For more information about the Industry Builder program, see "Certification Program for Axapta Solution Providers" on page 21 of the May 2005 Update.

Windows Workflow Foundation is described in "Workflow Strategy Takes Shape" on page 15 of the Nov. 2005 Update.