FSN: Microsoft and SAP will tough it out in mid-range ERP market.

Microsoft and SAP will tough it out in mid-range ERP market.

20th June 2005
Whilst global companies turn automatically to the established ERP vendors such as Oracle and SAP to meet their needs for large scale computing, the choice of solution for smaller subsidiaries and divisions within these groups is usually less obvious. Microsoft Business Solutions has established a significant presence in this space but can expect increasing competition from SAP.

Smaller business entities within a larger group often come low down the pecking order when it comes to implementing the group's preferred ERP system which can leave them waiting a very long time for a solution. It is usually easy to pick off the larger and more material businesses for implementation but deploying resources to smaller business entities scattered across the globe can be a resource draining and challenging endeavour.

Jon Hughes, partner group director at Microsoft Business Solutions says that large global ERP implementations have stopped short of the medium sized entities in many larger groups. This presents a significant opportunity. "We believe a number of these companies bought local solutions five or six years ago and are now looking to replace them with mid-range ERP solutions," he told FSN.

Microsoft is well positioned in this segment following the acquisition a few years ago of the popular, GreatPlains, Navision and Axapta products as well as Solomon Software in the U.S. which together are marketed under the Microsoft Business Solutions (MBS) banner. "There is no doubt that the Microsoft brand has lent credibility to these products and larger companies are now prepared to consider these mid-range solutions rather than the alternative of a 'cut down' ERP or locally based solution." To illustrate the point Microsoft estimates that their global enterprise customers have deployed Microsoft Business Solutions in more than 8,000 subsidiaries, divisions and branches and the opportunity is growing steadily as the replacement market comes to the fore.

Another reason for this apparent success is that the solutions not only offer good integration capabilities with familiar desktop applications such as Microsoft Office, but also with business solutions commonly used in enterprise headquarters (such as SAP R/3 and Oracle Financials) leveraging integration technologies that include .NET Web Services and BizTalk Server 2004.

In addition, ERP functionality in the mid-market has reached maturity and is well able to cater for the requirements of mid range companies. On the other hand, cut down versions of popular large scale ERP implementations are still often seen as a sledgehammer to crack a nut.

"The growing number of business solutions implementations is a clear indication that customers recognise the low cost, flexibility and rich functionality provided by Microsoft, and that we remain a premier choice for small and midsize businesses, as well as for many subsidiaries and divisions of enterprises," said Tami Reller, corporate vice president of marketing for the Business Solutions group at Microsoft. "Our experience has shown that a centralised deployment that forces divisions to work in a predefined way is limiting and does not build better corporate connections and improve productivity. Our solutions are designed from the ground up to meet the tailored needs of businesses and divisions of organisations aspiring to be more competitive in the marketplace."

Customers selecting Microsoft Business Solutions for their divisions have also noted the value of flexible solutions that fit the needs of each individual division.

"Although our company headquarters was using SAP, the Nordic countries chose Microsoft Business Solutions--Axapta with a common setup and common server, which covers all of Boehringer Ingelheim business processes and supports real-time information flows between departments and across sites," said Jens Nielsen, CFO of Boehringer Ingelheim Denmark A/S, one of the world's top 20 pharmaceutical companies. "The cost of the Microsoft solution was also less than half the cost of alternative solutions, and the implementation of Microsoft
Axapta in Finland took only 21 days. It was great to have so little disruption to our business."

Metabo, a leading electric power tool manufacturer headquartered in Germany also points to the way they benefited from a Microsoft solution yet were able to satisfy group IT standards. "Until recently Metabo's international subsidiaries were running various custom-made solutions tailored to suit Metabo's sales needs, but after 15 years of use this technology was getting old. We had to decide whether to upgrade this system or change to a standard solution, and since Metabo headquarters is running SAP ERP applications, any new technology had to integrate with this system," said Thomas Raith, vice president of IT and Processes at "We wanted to see sales and financial data across all subsidiaries from one place and needed a feature-rich system that would grow in size and functionality at a reasonable cost. Microsoft Business Solutions--Navision business management technology best met our needs. This solution has integrated well with SAP, and helped us provide transparency across our organisation and share best practices. And it not only increased customer satisfaction; because of its ease of use, our employees really enjoy working with the system, and this is an important factor for determining if a project is successful."

However, Microsoft can expect a fresh challenge from SAP which is making renewed efforts this year to establish its credentials in the mid-market. Ciaran Rafferty, of SAP acknowledges that the company has not got it right in the past. He told FSN, "Realistically, SAP played with the channel and the mid-market in the past but we're investing heavily in the mid-market now by bringing in the people and skills to deliver sales in companies below £750m turnover. We have studied the market and are going to make it easier for partners to work with us and for them to make money" he said.

"We believe our Business One and All-in-One products compete well with Navision and Great Plains . People are not aware that they can buy an SAP solution for £15,000 to £20,000," he said. "Microsoft has not experienced the challenge from us in this market but they certainly will in the future," he added.

In an interesting move which could bind more companies into SAP, Rafferty says they are not only targeting the subsidiaries of their large corporate customers but are also approaching these subsidiaries' customers and suppliers. "There are efficiencies to be gained in lining up processes between all of the subsidiaries and their customers and suppliers in a sort of ecosystem," says Rafferty.

Rafferty and Hughes agree that implementing ERP systems in the mid market is different primarily because of the level of hand-holding required from implementers and consultants. Text book implementation methodologies are often inappropriate because smaller companies simply do not have the resources to configure, for example, formal project boards, project offices and quality control procedures. Whilst these factors are essential in all financial implementations regardless of size, it is important to find a style of implementation that is sympathetic to the culture of a smaller organization yet does not leave out important steps.

Microsoft Business Solutions says it can offer significant choice in implementation partners. "We have literally thousands of dealers and implementation partners around the world. If a group wants local implementation partners for each of its subsidiaries this can be arranged but equally if it requires a single global implementation partner then there are a number of well known systems integrators with MBS practices. CapGemini would be a good example," Hughes told FSN. Rafferty on the other hand says that SAP is choosing its implementation partners carefully. "We don't want thousands of implementation partners," he says.

Large domestic software suppliers could be the wild card that upsets both SAP's and Microsoft's ambitions in the middle market. Hughes concedes that large country specific suppliers, such as Sage in the UK are still a formidable force in the market though he expects many others to fall by the wayside or be absorbed by the continuing consolidation of software vendors in the sector.

It seems that for the moment Microsoft Business Solutions is riding high but they face challenges in addition to SAP and large domestic players. With four major software packages within the MBS portfolio large corporates are still faced with the potential prospect of having to support several packages within the organisation. Microsoft has embarked on a program of convergence but this will not be delivered for some time. In the meantime companies will have to make the best choice they can based on their requirements.

As for SAP they still have work to do to convince the mid-market that they can operate as effectively in this space as they have in the large corporate segment. The market needs a degree of healthy competition to drive improvement and value for money. It remains to be seen whether SAP have got it right at last. Nevertheless, it seems that both SAP and Microsoft Business Solutions will have a major role in defining the shape of the market to come.

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