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Microsoft Dynamics AX 2012 makes play for high-end ERP

Analysts say the Microsoft ERP flagship could take its customizable user interface and model-driven vertical applications into enterprises now dominated by SAP and Oracle.

Analysts say Microsoft is targeting larger businesses with the planned August release of Dynamics AX 2012, a major upgrade for the flagship of the four-product Dynamics ERP family. 

But they also say architectural changes in Dynamics AX 2012 could make upgrading from previous versions anything but a simple update, and that some users are voicing disappointment over the lack of mobility features. 

“This is a really important release for them,” said China Martens, an analyst at Forrester Research Inc., based in Cambridge, Mass. “We kind of see it appealing to companies with $500 million to $2 billion in revenue. I think they [Microsoft] are very interested in occupying that kind of upper midmarket verging on enterprise.”

Dynamics AX 2012 more customizable, model-driven
Analysts confirmed Microsoft’s claims that it has redesigned Dynamics to appeal to global enterprises, with more user-friendly, role-based screens; a customizable, model-driven architecture; and beefed-up core ERP for human resources and financials, among numerous other changes. The upgrade also has pre-built, extensible applications for the manufacturing, distribution, public sector, professional services, and retail industries.

“In two releases, they have basically doubled the functionality,” said Christian Hestermann, research director for ERP at Gartner Inc., a research firm based in Stamford, Conn. “They have actually done a nice job of combining process manufacturing, discrete manufacturing and lean manufacturing in one product. Most other products don’t do that.” 

Hestermann said he is also impressed with the software’s pervasive business intelligence and analytics features and the easier method for incorporating data sources into the Microsoft Office-like user interface. Microsoft has also improved Dynamics’ project-oriented accounting and manufacturing capabilities, which should appeal to such project-oriented industries as aerospace and construction, he said.

The user interface seemed popular with Dynamics customers at Microsoft’s Convergence conference in April, Martens said. Nontechnical users can modify applications more easily, specifying their organization’s business processes and data sources without writing code, which will further blur the traditional lines between the front and back ends, she said.

Hestermann said the opinions he heard from Microsoft Dynamics AX users and Microsoft partners at Convergence were generally very positive. “The partners have not expressed any major concerns,” he said.

But both analysts deemed the lack of robust mobility features in Dynamics AX 2012 to be the only major shortcoming noted by users at Convergence. Hestermann said Microsoft has not explained how it might leverage its Windows Mobile platform in the Dynamics ERP line. He said SAP and Epicor, co-leaders with Microsoft in Gartner’s latest Magic Quadrant rankings of midmarket ERP vendors, both have better strategies for mobile ERP.

Hestermann said the usefulness of the upgrade’s role-based user interfaces, which are more customizable than those in the previous two major upgrades (Dynamics 4 and 5), largely depends on a company’s size.

“The smaller, midmarket companies, they need to understand that in their case, roles are not as clearly defined,” he said. “They need to be able to very flexibly and dynamically switch between roles.” Such companies will have to decide whether the predefined roles in Dynamics AX are a good fit. The good news, he said, is the Microsoft ERP software has made it easier to mix and redefine roles.

Companies that used model-driven applications in previous versions will probably have to rearchitect, and in some cases reimplement, the applications to get them to work in the 2012 version, Hestermann added.

One reason, he said, is that while the service-oriented architecture (SOA) of Dynamics AX has been improved, it still lacks a distinct separation between its workflow-based design tools and the underlying rules engine for executing business processes. The architecture was improved, however, by replacing Dynamics AX’s proprietary database with a standard, SQL-based one.

They have actually done a nice job of combining process manufacturing, discrete manufacturing and lean manufacturing in one product. Most other products don’t do that.

Christian Hestermann, Gartner Inc.

“Most customers, and especially those that have customized solutions, will probably need to do a reimplementation,” Hestermann said. The number could be significant because most Dynamics AX users skip a version when they upgrade, but Microsoft has “put quite some amount of thought into making that upgrade easier,” he said.

Martens said the hassle of upgrading could be worthwhile for many companies. “It allows them to get rid of a lot of customizations they’ve had with previous versions,” she said.

Changing partners
One of the most discussed aspects of Dynamics AX 2012 has little to do with the software itself. Microsoft said it has been working to bolster its network of partners who develop and integrate vertical-market applications on Dynamics AX.

“In the end, they will probably have [fewer] partners, but better ones,” Hestermann said. “The big effect will kick in in early 2012.” He advised manufacturers with complex ERP requirements to hire a Microsoft certified partner to implement Dynamics AX.

The partner initiative will be crucial in Microsoft’s attempt to move upmarket. “The product, from a scalability view, can move to the enterprise base -- the partners cannot,” he said. Large-scale integrators such as Accenture, IBM, and KPMG have been more focused on Oracle and SAP, but Microsoft is working to build on a foothold it has with those companies and should be able to announce major deals within a year.

Microsoft Dynamics family’s cloudy picture
Hestermann praised Microsoft for finally announcing its cloud computing plans for Dynamics at Convergence, an issue on which he has criticized them in the past. The company said that starting after Dynamics AX 2012, each major new release in the Dynamics family will have a cloud version, starting with Dynamics NAV next year.

Still unclear are Microsoft’s plans for releasing a multi-tenant Software as a Service (SaaS) version of Dynamics AX 2012, which can provide economies of scale by serving multiple customers in the same instance of the software.

“It is not 100% clear that each and every version of Dynamics will be multi-tenant,” Hestermann said. “They did not put out a clear roadmap,” in part because the release dates for the four Dynamics products, which also includes Dynamics GP and SL, have not been specified. What is clear, however, is that the cloud versions will run on Azure, Microsoft’s cloud database platform, Hestermann said. He advised companies interested in cloud deployment to consider the hosted versions of Dynamics that are likely to be forthcoming from Microsoft partners.

Martens said Azure hasn’t evolved far enough to support ERP, “but it’s getting there. We’re still waiting for good SQL-izing of reporting.” But she noted that Microsoft partners Acumatica and Epicor use Azure for cloud versions of their ERP, and in a post-Convergence Forrester report that she co-authored, said Azure is maturing rapidly and Dynamics AX has apparently been rearchitected for multi-tenancy.

A true SaaS version will give a major boost to Microsoft’s efforts to promote the Dynamics family as a pillar of customers’ two-tier ERP deployment strategies, according to Martens. Microsoft itself uses SAP for its back-end financials but has begun to deploy Dynamics more aggressively in retail and manufacturing locations, she said.

So far, companies interested in two-tier ERP have tended to fill the second tier with products from other, more SaaS-based vendors, including NetSuite and Epicor. Meanwhile, SAP has been rolling out its own SaaS versions.

“I think it [a SaaS version of Dynamics] really gets them into the larger business. Some customers might consider it instead of SAP Business ByDesign. But if they’re at $2 billion and up -- and growing -- they would need SAP and Oracle.”

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