Monday, September 26, 2005

Reorg highlights troubles at Microsoft Business Solutions

If you haven't heard, Microsoft had a major reorganization last week, creating three major divisions out of what were formerly six business units. The new organizational structure once again calls into question Microsoft's efforts to increase its share of the enterprise system market.

The reorganization
First, let's look at the three new Microsoft divisions:
  • The Microsoft Platform Products & Services Division, which will include the existing Windows Client, Server and Tools division along with the MSN division.

  • The Microsoft Entertainment & Devices Division, which will head up Microsoft's development of entertainment and digital devices, such as IP television, Xbox, and other consumer devices.

  • The Microsoft Business Division, comprising the existing Microsoft Information Worker group, including Microsoft Office, and Microsoft Business Solutions (MBS), the unit that manages Microsoft's ERP, CRM, and other business applications.
The reorganization puts Doug Burgum, head of MBS, reporting to Jeff Raikes, the new President of the Business Division. Interestingly, Doug Burgum used to report to Raikes until last year, when Microsoft moved him to report directly to CEO Steve Ballmer. It's hard to view the latest move for Burgum as anything but a demotion.

Furthermore, one has to question Raikes' experience in developing and selling enterprise systems. Basically, he doesn't have any. Raikes is a long-time Microsoft executive, coming up through the ranks from the MS Office line of products. But developing and selling major business applications is not at all like selling shrink wrapped software, which is Raikes' frame of reference.

How MBS got here
Clearly, Microsoft needs to do something with its ERP and CRM business, which has not done well since Microsoft created it out of its acquisitions of Great Plains and Navision several years ago. Burgum was CEO of Great Plains when it was acquired by Microsoft, and he has stayed on to lead MBS since its inception.

When Microsoft got into enterprise systems, many observers predicted that Microsoft would quickly dominate the market, especially the small and mid-tier. I recall many comments to the effect of, "Microsoft dominates any market that it chooses to enter. Look what happened to Novell and Netscape." There were even predictions that Microsoft posed a major threat to SAP.

None of those predictions have even remotely come to pass. SAP is going gangbusters, while MBS has languished. The unit has not shown a profit since inception. Its vision for a unified product, Project Green, has faltered, with Microsoft eventually redefining it as an evolution of its existing offerings (i.e. Great Plains, Navision, Axapta, Solomon, and Microsoft CRM). Earlier this month it renamed those offerings as Microsoft Dynamics--nothing more than a branding exercise.

MBS's problems are not limited to its own organization. Its reseller channel is still inadequate. Great Plains has had a decent channel program for many years, as long as a prospect is interested primarily in its financial modules. But it's hard to find very many implementation consultants that can work with the full range of Great Plains functionality outside of accounting. The problem is even worse for Axapta, which is Microsoft's higher end ERP offering. With roots in Europe, Axapta still has few trained implementers in North America, and with few new sales here it is unlikely that the population will grow quickly.

Grumbling in the ranks
None of these problems are hidden from employees working within MBS, and complaints are starting to pop up on message boards and blogs. It's easy to write off such complaints as coming from disgruntled employees. But the tone of many of the comments that I've read don't sound like sour grapes.

For example, this one:
Some have opinioned that fixing the problems in MBS/Dynamics is as simple as reducing the offerings from 4 to 1. That won't work. These products are not like Office but more like Windows. Each of the 4 products has a large eco-system of ISVs building on the respective platforms. To simply pull the rug from the ISVs and the customers all at once will do nothing but disrupt existing customers and prospects even more. People buy ERP systems for the long run. The mindset of most buyers in this market is "if it ain't broke don't fix it". Once they have an ERP system in place that they have spent upwards of 1 million dollars implementing, they will NOT simply switch. And anything less than a clear direction for moving forward will only push prospects to competitors.
I would like to see MBS succeed. The systems that MBS acquired are good products. Small and mid-sized businesses need a strong provider that can offer cost-effective, easy to implement solutions backed up by a strong, stable network of VARs and resellers.

Fortunately, Microsoft has pretty deep products, and it's unlikely that it would give up on the enterprise systems market. But I don't see anything in the latest reorganization that points toward a turnaround for MBS.

Related posts
Microsoft to put enterprise applications on the auction block?
Is Microsoft dying?
Microsoft wants PeopleSoft customers but doesn't have much to offer
Microsoft eats more humble pie in enterprise software business
Microsoft: selling enterprise software is a "humbling experience"
First look at Microsoft's Axapta ERP system
MBS is setting the stage for big-time channel conflict among resellers

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