Four enterprise resource planning (ERP) product lines will continue to be developed despite tough economic times, according to plans released at Microsoft's 2009 Convergence conference. The four Dynamics lines—AX, NAV, GP, and SL—offer small and midsize organizations financial management functions integrated with operations such as production planning, human resources, and customer relationship management (CRM). The products help Microsoft and its partners sell strategic platforms such as SQL Server and SharePoint, which in turn helps slow platform competitors in the midmarket. However, some of the products could see cutbacks as the economic downturn continues.

Parallel Development, Shared Technologies

Microsoft's ERP business consists of two product lines sold globally (Dynamics AX and NAV) and two sold primarily in the Americas (Dynamics GP and SL). (See the chart "Dynamics ERP Products at a Glance"). The company also offers three other products in specific local markets, although it is encouraging customers of these products to migrate to AX and NAV. (For more information about these products, see the sidebar "Local ERP Products".) All of the Dynamics products are limited to organizations with up to 7,500 employees. In particular, none is designed to serve as the hub ERP product for a large global company such as Microsoft (which runs SAP ERP). However, Microsoft promotes Dynamics AX as a subsidiary or divisional solution for organizations where the ERP function is decentralized, and Microsoft uses Dynamics AX itself in some divisions.

Officially, Microsoft will continue to develop all four of its major ERP lines at least through 2013. Assuming the company's stated two- to three-year release cycle, that means at least two more versions of each product. (For a graphical roadmap, see the illustration "Dynamics ERP Roadmap Overview".)

Microsoft no longer discusses its former plan (code-named Project Green) to move all of its ERP offerings onto a common code base. However, the company has continued to move all four products onto shared technologies. All four now have the following:

• Office-like "role-tailored" user interfaces built on a common set of controls and design guidelines
• Reporting and end-user report design tools based on SQL Server Reporting Services, although each product also retains native reporting tools
• SharePoint Web portals for browser access to data
• APIs or Web services to support development with the .NET Framework and Visual Studio.

The products don't all use these technologies to the same degree: for example, some products have a larger selection of predefined reports on their native reporting technologies than they do on SQL Server; many development tasks will require use of a product's native APIs and tools and are not supported with the .NET Framework and Visual Studio. However, all of the products are to expand their use of the shared technologies in future releases.

Dynamics AX

Dynamics AX is Microsoft's high-end ERP product and is aimed at multinational companies or divisions of large companies with 200 to 7,500 employees and complex manufacturing or distribution needs. Dynamics AX is sold in roughly 40 countries and is the fastest-growing of Microsoft's four ERP products. It is also the only ERP product in which Microsoft is investing in major increases in scope. For example, the company plans to add support for public sector organizations in the product's next release. Dynamics AX was formerly known as Axapta and came to Microsoft with the 2002 acquisition of Navision, which had itself acquired the product when it bought Damgaard.

Significant recent and planned versions include the following:

AX 2009 (formerly referred to as AX 5.0), which shipped in June 2008, delivers major updates to the product's user interface, as well as new role centers—customizable home pages preconfigured to display data, reports, alerts, and tasks associated with various jobs and roles in an organization. AX 2009 also supports document approval workflow, such as the approval of purchase requisitions, via a combination of new features in its developer tools and runtime engine, and integration with the Windows Workflow Foundation, a workflow engine that ships with the .NET Framework. In addition, AX 2009 offers new features for large, distributed organizations, such as multinational manufacturing companies and holding companies. Most notably, new features will help organizations manage operations and inventory in multiple locations. AX 2009 runs on Windows Server 2008 (and is supported on Hyper-V) as well as on Windows Server 2003. The product's client application requires Windows Vista or Windows XP SP2. A service pack (SP1) for AX 2009 shipped in Nov. 2008. In addition to bug fixes, the service pack adds support for SQL Server 2008, which shipped in Aug. 2008.

AX Updates in 2009. A series of updates to AX 2009 and other existing versions are planned in 2009. Already released is a free Environmental Sustainability Dashboard, which enables organizations to calculate carbon emissions from data such as energy bills, which is important to comply with new regulations in many jurisdictions. Other planned releases for 2009 include a Project Time Management update that supports self-service entry of time worked for employees in project-oriented organizations such as consulting firms; an Intelligent Data Management tool for defining and executing archiving and purging policies for AX data; and a Lean Manufacturing module that supports the manufacturing optimization and management method (originally popularized by Toyota and other Japanese firms).

AX 6.0. The next major version of Dynamics AX (not yet officially named) is planned for 2010. Current priorities include new components for public sector organizations, as well as enhancements for retail, professional services, manufacturing, and wholesale/distribution organizations. The product will deliver improved financials, including updated receivables and payables modules, and will ship enhancements for managing supplier, customer, and employee relationships, as well as expense reporting. Microsoft hopes to simplify product setup and other initial implementation processes and continue to tailor the user interface for users in specific roles. AX 6.0 will adopt SQL Server Reporting Services as its primary reporting system and might not include the existing MorphX system—previous versions shipped the two side-by-side, with MorphX providing a larger set of predefined reports. For developers, AX 6.0 will expand customization with the .NET Framework and Visual Studio and access to the product's functions through Web services. AX 6.0 will probably get an updated portal based on SharePoint 2010, the next version of Microsoft's collaboration server.

Microsoft hopes to improve AX's suitability for operations by service providers in hosted configurations and to integrate AX with online services (such as payment processing) from Microsoft and other vendors. Microsoft says it does not plan to host AX or other ERP products itself for customers, leaving this role to partners.

Dynamics NAV

Dynamics NAV (formerly Navision) provides ERP for firms with up to 1,000 employees. It is particularly strong in manufacturing and distribution. Dynamics NAV is sold in about 40 countries and, with over 1.25 million users, it is the most widely used Dynamics ERP product by number of seats. NAV became a Microsoft product after the company acquired Navision in 2002.

Dynamics NAV is not due for major increases in scope from Microsoft: for example, the company is not developing specific NAV modules for public sector organizations, nor for major new business functions, such as human resources (something that was under consideration). However, the company can rely on a sizeable group of ISVs who have already extended Dynamics NAV to specific industries, such as public sector and retail.

Notable recent and planned releases include the following:

NAV 2009, the latest version, was released in Nov. 2008. It offers scant new ERP functionality but delivers a major technical overhaul that delivers a role-tailored user interface and takes advantage of strategic Microsoft products, enabling both the Dynamics NAV team and its customers to benefit from development effort elsewhere in Microsoft. The most significant update in NAV 2009 is a new role-tailored client and interface that show data, menus, and tasks appropriate for a specific job function, potentially speeding routine operations and making important status information more readily available. NAV 2009 also adopts SQL Server Reporting Services as its primary reporting engine, giving developers a more complete report design platform than NAV's native reporting platform (although that tool is still available).

NAV 2009 adopts a three-tier architecture in which the product's business logic is centralized on a middle-tier server and accessible remotely by Web services. This architecture could ultimately streamline maintenance, support integration with other applications (such as CRM systems or e-commerce sites), and enhance customization with Microsoft's Visual Studio tools and .NET Framework platform (which include many features for working with Web services). However, the product still supports a two-tier (client/database) architecture, and the "classic" client used in that architecture is required for some tasks, such as viewing reports created with the old reporting technology and developing custom business logic.

NAV 2009 SP1, planned for the second half of 2009, will deliver fixes and include tools to help partners extend the new role-tailored client with additional content. For example, a partner might add a mapping element to the client to plot customer locations.

NAV 7 and NAV 8. The next two NAV releases (code-named NAV 7 and NAV 8) will appear between 2010 and 2014, assuming that Microsoft maintains its planned two- to three-year cycle for releases. In general, NAV will continue to focus on small and midsize manufacturing and distribution businesses, with ISV partners supporting other types of customers, such as retail organizations.

Key priorities for NAV 7 include a new SharePoint portal that will support a larger subset of the full client's functions and that will simplify installation and configuration compared with the current portal. Microsoft hopes to make NAV easier for service providers to host and to integrate with online services (such as payment processing) hosted by Microsoft and partners. Like Dynamics AX, NAV could gain environmental sustainability features, such as tools for calculating an organization's carbon footprint. By NAV 8, Microsoft will probably have eliminated the need for the classic client and moved to a single development platform, based on the new platform introduced in NAV 2009. However, the pace at which the company moves will depend on how rapidly customers adopt the new NAV 2009 role-tailored client and platform.

Dynamics GP

Dynamics GP (formerly Great Plains) provides ERP for firms of up to 5,000 employees. GP, which Microsoft gained in the 2001 acquisition of Great Plains Software, has historically been popular with public sector organizations and professional services companies (such as consulting or accounting firms), as well as manufacturers, wholesalers, and retailers. Dynamics GP has a strong emphasis on financials and a reputation of being easier to use out of the box than Dynamics AX or NAV, which are usually more extensively customized. Dynamics GP is sold primarily in the Americas and is particularly strong in the United States.

No major changes in scope or geographic reach are planned for Dynamics GP, but further integration of its existing modules is in the cards. Important recent and future releases include the following:

Dynamics GP 10.0. Released June 2007, the latest version of Dynamics GP delivers a new user interface modeled on Office 2007, which is designed to make the product easier for workers to learn and use. Workflows (built on Microsoft's Windows Workflow Foundation platform) and enhancements to its Web portal enable employees to participate in processes such as approving purchase orders without having to log into GP. GP 10.0 also delivers many incremental enhancements, such as support for two-step stock transfers (which give companies more precise control over inventory transfers, such as moves between warehouses), the ability to reverse manufacturing order receipts if orders are incorrect, and processes for retroactive pay and wage garnishment in the payroll module. The product incorporates Web services APIs originally introduced as add-ons for Dynamics GP 9.0.

The current GP 10.0 service pack is SP3, released in Oct. 2008; SP2 or higher is required to run the product on Windows Server 2008 or SQL Server 2008. A June 2008 feature pack, released separately from the product's service pack series, delivered many small improvements in reporting, field service, project accounting, and development, as well as new tools for installing and configuring the product and migrating data from Intuit's QuickBooks small business accounting product.

Dynamics GP 10 updates in 2009. GP 10.0 SP4 is planned for 2009 and will deliver some new features: for example, the Extender forms-design tool will gain the ability to create completely new forms rather than just extensions to built-in forms. Separately, Microsoft plans a Dynamics CRM adapter to integrate Dynamics GP 10.0 with Dynamics CRM 4.0 (the existing GP-Dynamics CRM adapter integrates only with Dynamics CRM 3.0). Among other features, the adapter will enable bidirectional synchronization of customer and order information between GP and Dynamics CRM, as well as export from GP to Dynamics CRM for other types of data, such as price lists. Customization tools will let partners extend the adapter for additional synchronization features, but the tools will not be available in the initial release of the adapter. (Dynamics AX and NAV have their own CRM modules, although some customers use the products with Dynamics CRM.)

Dynamics GP 11. The next version of Dynamics GP (not yet officially named) is planned for 2010. Current plans call for reporting improvements, such as the ability to export documents (e.g., quotes and invoices) to Word. An e-mail feature will also enable users to quickly generate mailings with attached GP documents in Word, PDF, or XPS format. (XPS—XML Paper Specification—is Microsoft's PDF-like electronic document format.) Microsoft will deliver an improved system based on SQL Server Reporting Services for tracking key performance indicators (KPIs), such as profitability: for example, users will be able to drill down through a KPI and see the underlying GP data used to calculate it. GP's SharePoint-based business portal, which provides access to GP data for browser users, will include preconfigured customer- and vendor-facing variants of the portal for supply chain management tasks, such as reviewing order history and updating contact information, reducing the customization work currently required to make data externally accessible to customers and vendors. Also planned are workflows for hiring and terminating employees and further expansion of the product's Web services interfaces.

GP 11 will probably include many improvements to business process functions, such as more complete integration of purchase order approval with encumbrance (which tracks future spending commitments, important in public sector organizations); incorporation of blended overtime calculation (U.S. rules for overtime pay of workers with variable pay rates), and enhanced integration of field service labor charges with payroll.

Dynamics SL

Dynamics SL (formerly Solomon) targets companies of up to 500 employees doing project-based work—professional services companies and construction firms, for example. Like GP, it is sold predominantly in the Americas. Microsoft gained SL in the 2001 acquisition of Great Plains, but has since outsourced Dynamics SL product development and support to Plumbline Software, a company created by the three founders of Solomon Software.

Notable recent and planned releases include the following:

Dynamics SL 7.0, the most recent version, became generally available in Aug. 2007. Like GP 10.0, it delivers a new user interface that can be tailored to specific job functions. However, unlike GP, the user interface more closely resembles Outlook 2003—controls such as GP's Action pane, which resembles the Office 2007 Ribbon, do not appear in the product. SL 7.0 is also integrated with SQL Server Reporting Services—users can view Reporting Services reports from within the SL client application. However, more than 800 preconfigured reports for Business Objects' Crystal Reports make it the main reporting engine for SL. SL 7.0 has also been rewritten in the most recent version of Visual Basic, thereby making Visual Studio and .NET languages, such as Visual Basic and C#, the default development tools for partners building custom SL solutions or extensions. The previous version of SL was written in the now-deprecated Visual Basic 6.0, as were most custom SL extensions and applications.

SL 7.0 also delivers a variety of incremental enhancements. SL 7.0 users can access and update project and task-tracking data via the product's SharePoint portal rather than with its client application. In addition, a "pay-when-paid" feature allows companies to wait until they receive payment on customer invoices before making payments to subcontractors.

The most recent service pack is SP2, delivered Nov. 2008. A separate feature pack that shipped at the same time as SP2 delivers all the fixes of SP2 but adds features, such as support for "hard close" of accounting periods (preventing subsequent changes to the period's data), support for Web-based timecard entry (acquired from Sandler*Kahne, a partner), and other improvements to the product's field service, payroll, and project management features. The feature pack also delivers a SharePoint document repository, for posting SL-generated documents, such as invoices, to a SharePoint site, and automated e-mail and fax generation for new types of data (such as accounts receivable statements).

Dynamics SL 8, the next version (not officially named), is planned for 2010. Many improvements are planned, including further integration of the product's project management with distribution and field services (for example, enabling field services work to be charged to specific projects); and finance and payroll enhancements, such as additional options for voids and reversals. The product's SharePoint portal will allow entry and approval of more types of data, including purchase requisitions and project budgets. SL 8 will deliver a set of Web services to enable integration with CRM systems, e-commerce sites, and other applications, as well as a toolkit for partners to create additional Web services. Interface improvements that will permit working with multiple companies are also planned.

Downturn Clouds Future

The recent economic recession raises a question: Will Microsoft continue to invest in all four of the ERP product lines? According to Microsoft, the Dynamics business as a whole (including Dynamics CRM) billed over US$1 billion and was growing 21% annually in the previous two fiscal years, but it saw an 8% year-over-year decline in the quarter ended Mar. 31, 2009. Compared with many of Microsoft's other products, the Dynamics ERP products have relatively long sales cycles and require considerable customization by partners. Consequently, the ERP products are probably marginally profitable compared to products such as SQL Server and SharePoint Server. (Business Solutions, a business segment that included these ERP products, Dynamics CRM, and revenue from the Microsoft Partner Program, made 3% profit margins in its only profitable reported fiscal year, which ended June 30, 2006. Microsoft stopped reporting Business Solutions as a separate segment after that fiscal year.)

The downturn has already slowed Microsoft's efforts on accounting products for small businesses. The company has cancelled Dynamics Entrepreneur and Small Business Financials (small-business management products based on Dynamics NAV and GP, respectively), and is limiting additional development of the Office Accounting line to maintenance. The company faces a difficult environment, with entrenched local competitors, such as the popular Intuit QuickBooks. Rather than tackling these competitors directly, Microsoft is moving to slow their expansion upmarket. For example, it is offering competitive migration promotions and significantly improving the Dynamics GP QuickBooks migration tools.

For Microsoft and its partners, the Dynamics ERP products have clout that exceeds their direct revenues or margins. Notably, they pull through sales of Windows Server, SQL Server, and SharePoint Server to small and midsize organizations. They also help block competitors such as Oracle and SAP, who might use ERP installations as beachheads to compete against these and other Microsoft products in midsize organizations.

Consequently, Microsoft is unlikely to abandon any of the four major ERP product lines before 2013, the date through which Microsoft promised to continue developing them. However, it may concentrate the bulk of its development on AX and NAV, which are the fastest-growing products, with the largest geographic reach. Dynamics AX will get particular attention, as it reaches the widest range of industries and could eventually be a contender for the hub ERP role in large organizations.

Enhancements to Dynamics GP and SL, in contrast, will probably be funded by maintenance revenue rather than by customer growth, and Microsoft could cut costs by offshoring or outsourcing development of GP. Beyond 2013, the company could begin to nudge GP and SL customers to migrate to Dynamics AX or NAV, as it is doing now with its local ERP products.

Resources

Dynamics AX 2009 was previewed in "Dynamics AX Continues Upmarket Push" on page 3 of the Sept. 2008 Update.

Dynamics NAV 2009 was outlined in "Overhaul for Dynamics NAV" on page 5 of the Jan. 2009 Update.

Dynamics GP 10.0 and Dynamics SL 7.0 improvements were summarized in "Office-like UIs for Dynamics GP and SL" on page 5 of the Aug. 2007 Update.

The Microsoft Dynamics Web site is www.microsoft.com/dynamics.