5th March 2007
With the formal release of Microsoft PerformancePoint scheduled for later this year, Microsoft finally sheds its technology image. What started as a tentative foray into the world of business applications with the acquisition of leading accounting and mid-market ERP systems is now nothing less than a fully committed plan to compete at almost every level of business software. Through a combination of technology stack, office productivity tools, accounting and performance management systems Microsoft is in the final throes of completing its metamorphosis from the tools vendor that dominated the desktops of the nineties to a formidable business solutions vendor for the 21 st Century.

Microsoft first gave notice of its intention to play in the business applications market with the acquisition a few years ago of Navision, Axapta, Great Plains and Solomon Software, now re-badged under the Microsoft Dynamics brand. After a period of gestation, during which Microsoft really started to appreciate the true significance of what it had acquired, it has embarked on a broadly based strategy “the people ready” business designed to increase worker productivity by reconnecting users with their office systems and liberating them from functional fiefdoms that pervade ‘modern' business.

Key to Microsoft's strategy in the mid-market ERP space has been the development of roles-based processing and the ‘taming' of informal workarounds and processes by embedding Microsoft Office and other collaborative technologies at the centre of their ERP solutions. Rather than business transactions being driven by the ERP systems, Microsoft's approach recognises the reality that Microsoft Office applications, especially email and Outlook are what make the modern enterprise tick.

Giving people a familiar Microsoft Office environment with which to address their ERP applications reduces the learning curve, encourages worker mobility and reduces the cost of doing business. It is this mantra that is now being ported to the information management world. Afterall if it worked with transaction systems why shouldn't it work with performance management as well?

So it should come as no surprise that PerformancePoint leverages the full panoply of Microsoft end user computing capability, for example, SharePoint and Microsoft Offfice as well as the underlying technologies such as SQL Server, Analysis Services and Integration Services. From an applications perspective PerformancePoint has all of the solutions that one expects from a fully fledged BPM (Business Performance Management) solution with perhaps the exception of an industrial strength or high end financial and statutory consolidation tool. But by any other measure Microsoft says it is competing on equivalent terms with leading BPM vendors such as Hyperion and Cognos.

Microsoft's initial announcements drew the expected flak that PerformancePoint is a collection of tools – an understandable viewpoint given the formidable array of elements that go into any modern performance management suite and of course the company's heritage that is steeped in technology. But the criticism appears to be without foundation. As if to emphasise the matter, the PerformancePoint suite is marketed and sold as a complete solution, comprising all of the applications such as scorecarding, analytics, business modelling, planning, budgeting, forecasting, consolidation and financial reporting.

The budgeting, planning and processing was built from scratch based on a specification developed by the company's own finance function where it has been extensively trialled and tested. By implication, if it meets the complexity of Microsoft's revenue forecasts then it should stand a chance of meeting the needs of other multinationals. (FRx, a predecessor budgeting product acquired some time ago will continue to be supported and users will be offered a migration path to PerformancePoint in due course).

The idea that PerformancePoint can compete at the Enterprise level is a significant shift in strategy since the Microsoft Dynamics products have been firmly positioned in the middle to upper end of the mid-market rather than large scale corporations. However, recent success with Microsoft Axapta, suggests that the company is making inroads into the higher strata of the ERP market, competing for the first time in established SAP and Oracle territory.

It is therefore logical that PerformancePoint will be made available as an integrated offering astride Microsoft Dynamics Ax as well as a standalone BPM offering. The company is promising ‘out of the box' capability which recognises the metadata (structural information about data) directly from an Axapta database, a move which is designed to ease implementation effort and keep a lid on costs. To this end, Microsoft is determined to price PerformancePoint very competitively. A server version of the licence is around $20,000 and a per seat licence is around $200. This makes the product affordable even for mid-market companies.

It also means that at the high end of the market, with potentially thousands of users, the solution becomes seriously price competitive especially as Microsoft seems prepared to contemplate even keener pricing to win business at this level.

But where are the skills going to come from to allow Microsoft to deliver on its strategy? There is already an acute shortage of skills in the Dynamics space and some dealers (re-sellers) are over-stretched and under resourced, added to which the skills shortage is a global phenomenon. The Office Business Applications (OBA) division, which is charged with delivering PerformancePoint is developing a dedicated global sales and implementation team but Microsoft has no plans to enter the consulting business. Potential recruits are being attracted from established BPM vendors and Microsoft already has about 60 on board with the appropriate domain expertise. But there is a very limited pool of experienced BPM resources and Microsoft is going to have to rely on its dealer network to make most of the running. This could be act as a brake on progress in the short-term.

So who should be worried about the competitive threat? Clearly, pure play business intelligence suppliers should feel the most uneasy, but most have them have anticipated the Microsoft threat and accordingly have branched out into performance management applications. Nevertheless, they remain vulnerable because of Microsoft's formidable fire power in underlying technology, (databases, ETL tools, operating systems) office systems and now applications as well. However, global players such as SAS and Oracle, who similarly have a broad spread of technologies and applications are unlikely to feel the heat.

ERP vendors, especially at the high end of the market are also unlikely to be fazed by developments. In fact SAP and Microsoft already work together in many areas such as “Duet”, which allows information workers to use a familiar Microsoft Office environment to access selected SAP business processes and data.

BPM vendors who work collaboratively with Microsoft for a part of their solutions are equally unlikely to feel disadvantaged. But those that merely leverage Microsoft technology are going to feel competitive pressure in the medium term as they struggle to differentiate their product set from ‘standard' Microsoft offerings.

Whether Microsoft can press home its advantage depends to large extent on the availability of skills. Designing and implementing performance management solutions is a specialist and skilled area requiring a unique blend of business, accounting and technology skills. Microsoft is already asking a lot of its re-sellers and it will be interesting to see whether they can once again rise to the challenge.

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