Microsoft reorganizes for speed, but where does Dynamics fit in?

OVUM VIEW

Summary

On July 11, Microsoft CEO Steve Ballmer announced “one Microsoft”, a new strategy to focus on devices and services. This will be supported by a major restructuring, with the aim of speeding up innovation and delivering more compelling and consumer-like experiences for both consumer and enterprise customers.

What is less clear is the firm’s intentions regarding Dynamics and how it fits into this strategy. All Ballmer said after announcing the four engineering divisions, OS, Apps, Cloud, and Devices, was: ”We will keep Dynamics separate as it continues to need special focus and represents significant opportunity.” With no further clarification forthcoming, Ballmer has opened the door for unhelpful speculation that is certain to concern enterprise clients that have heavy investments in the Dynamics platform.

Our view is that Dynamics remains a safe bet, but that Microsoft needs to make its intentions much clearer and explain how the Dynamics portfolio fits within the new paradigm.

From silos to coherence

If we look at Ballmer’s announcement it is clear that Microsoft is attempting to orchestrate an environment for organizational coherence, and this bodes well for a successful transition. Any transformation must be handled with care and a high degree of transparency, not command and control. A positive and emotional commitment fueled by aspiration to a common purpose is essential for speed and success. Providing that common purpose is at the top of the announcement, creating a company wholly focused on the vision to enable customers to achieve the things they value most.

It is a vision focused on outcomes not products, although the enablers outlined in this announcement come under the heading of devices and services, which raises questions about the part Dynamics will play in this world of devices and services.

Dynamics provides the glue and the sandbox for devices and services

Generation Y is typecast as demanding instant gratification, and not engaging unless it’s fun and tactile. These caricatures contain some truth. Having experienced the fun stuff in their personal lives, they want consumerized enterprise applications and more engaging devices.

Despite this, any enterprise will still be part of a value chain or network, and will still have to perform both mundane and more involved activities. The need for Microsoft Dynamics along with other enterprise application vendors will remain until the clouds are filled with apps or worklets that can be instantly downloaded and automatically connected with other users to perform tasks that today require the support of enterprise applications.

Until then, Dynamics provides the corporate glue between mission-critical processes and a perfect sandbox to support experimentation with Microsoft’s new engaging and consumer-friendly devices and services.

Will Dynamics be sold off?

The rumor-mongers will latch on to the vague messages contained within the announcement regarding the Dynamics portfolio. A previous generation offered a similar prognosis when Lou Gerstner took the helm at IBM and recognized the need for influence, scale, and reach, and this is what Dynamics brings to Microsoft. In addition, all product lifecycles end in commoditization, and 10 years from now, if not sooner, devices will be commodities. A 100% focus on devices means Microsoft would risk locking itself in to a low-margin business, unless it can keep on innovating at pace, and it is this that is behind the restructuring.

It also needs to keep competitors at bay. If Dynamics were sold off as a business, Microsoft would potentially be vulnerable to third-party device providers getting into bed with other ERP vendors and being first in the queue for selection.

Positive news for enterprise clients on the Dynamics platform

The reasons for the new strategy and restructuring include the fact that the current structure has created a drag on Microsoft’s ability to innovate and offer a more coherent message to its customers. Innovation speed is now critical and just as important as delivering a satisfying customer experience. The realignment around four business units all aiming in the same direction should reduce this drag and aid faster, more continuous, innovation.

The functional value chain alignment versus replication of functions for each business unit is also an essential component that supports speed in execution, greater productivity, and efficiency gains. Once the transformation is complete this should greatly enhance speed, ensure a balance of supply with demand, and reduce overall costs.

Recommendations for Microsoft

First, greater clarity is needed regarding the future of Microsoft Dynamics and its part in the emerging Microsoft story, or the rumor-mongers will continue to chip away and impact market confidence.

Second, the ability to speak directly to the workforce and gain emotional commitment through aspiration not fear is essential. The way this transformation is communicated, coupled with demonstrable concern for the wellbeing of those going through it, will be major factors in its eventual success. Shutting down the rumors quickly will help, along with greater transparency and compassion for those embarking on this transformational journey.

We look forward to greater clarification around Microsoft Dynamics.

APPENDIX

Author

Jeremy Cox Principal Analyst CRM and Research Lead for Customer-Adaptive Enterprise

jeremy.cox@ovum.com

Further reading

The Customer-Adaptive Future, IT015-001822 (December 2012)

“How customer-adaptive is your organization?”, IT015-001858 (April 2013)

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