In-Depth

Microsoft Gets a New Man at the Middle

As Burgum steps down and Nadella steps up, Microsoft continues its mid-market roll.

• By Ed Scannell
• 11/01/2006

Burgum, who officially leaves the company in June 2007, will be replaced by Satya Nadella, a longtime colleague of Burgum's who most recently was in charge of the development teams at MBS. Together, the two have worked closely to draw up the development roadmap for the complex integration of the business applications of Great Plains and Navision with Microsoft's productivity applications over the next several years, as well as formulated midmarket strategies that move the products upstream against the higher-end offerings of SAP and Oracle.

Both sat down with Redmond Editor Ed Scannell to discuss the progress of re-architecting the four lines of applications that make up the Dynamics series, their visions for how the company's Live offerings might fit in and how they collect research from SMBs to shape the design and function of products. Burgum even offers up a few little-known facts about that thriving metropolis known as Fargo, N.D., where the Dynamics division is based.

Redmond: Over the first few weeks, how has the transition process gone between you two?

Burgum: The transition is off to a very smooth start. One reason is Satya has been here for five years, so he and I have had a chance to travel together extensively and to work together as part of the leadership team to drive the strategic and operational directions of the business.

Another reason is Satya has led our development efforts and brought a wealth of capabilities to that role. He is really the leader driving the success behind our current roadmap and the product releases we have been having the last couple of years.

Satya, you have been in the wings since Doug announced last November that he was leaving Microsoft. Why did it take so long for Microsoft to appoint you to the position?

Nadella: We wanted to make sure we had a comprehensive transition process, where we looked hard internally as well as externally. That was something Doug and [ President of Microsoft Business Division] Jeff Raikes were very committed to. We wanted to make sure we took the time to explore every option and to make the right decision.

B: There were a lot of external candidates we took at a look at, but in the end, we felt Satya was the right person for the job. I am sure it was more reassuring for Satya that we went through that process, which will help him lead with the confidence of knowing he is the best person for the job.

One of the bigger challenges Microsoft faces is how it will reconcile its traditional on-premise business applications with the Live services model. How do you see the two being balanced?

N: When you look at our products today, our software is being offered with the Software as a Service [SaaS] model by partners. In the case of our CRM products, we have many third parties that take our software and add vertical content. So for a pharmaceutical, banking or financial service, they offer it to customers as a SaaS deployment option. The same thing is happening even with our ERP products. Tele Denmark and Deloitte & Touche in Holland are taking our ERP products and offering up our accounting as a service to small businesses in those geographies.

Beyond that, Microsoft will also provide choices for those deployment options. With our CRM Live announcement this summer, we are taking the same product and offering it up both as an on-premise product deployed by partners and as a service by Microsoft. In each case, even as the service as provided by Microsoft, [it] will have a business model around it that is supported with our partner channel that allows customization. Our fundamental message when it comes to SaaS and Live offerings will be around choice.

As you re-architect the four major products that make up the Dynamics line, what sort of technical adjustments do you have to make to incorporate the Live offerings?

N: This is something we anticipated. We talked about our roadmap happening in waves and we are now in the first wave. We have done a solid job in launching major releases of all our ERP products and CRM offerings. One of the things we had to decide was how to do portals across all of our products. Each product had its own portal architecture but now all of our portals are available on top of SharePoint. We always had proprietary reporting and analytical products and now they are all based on SQL BI. We now have a similar look and feel for the products. One of the key advances regarding Live is we have a complete Web services-based framework across all of our products, with common features which allow for integration. As we go into calendar [year] 2008 you will see us take advantage of all the advances of CRM Live when it comes. That will become available starting with our ERP products and third-party hosters.

How is the integration of Dynamics down to one code progressing in terms of the timeline you have set? And how should customers expect to benefit from this?

N: When we talk about our march towards a single code base, it's really a march towards delivering additional value to customers, which we have done in Wave One with the portals and analytics. Getting to a single code base as fast as we can is not the primary goal.

Another thing we did was merge the design of our products with the design of Office. When we did research among SMBs, we found people deployed ERP and CRM systems, but not many used them because the usage metaphors were tough. They ended up just using Office. So when you look at any of our products -- the navigation metaphors and menu structures -- they are all like Office. So we have a fair amount of consistency already.

Next step up for us is to take the core business logic itself and bring the best of functionality to all our products like Dynamics GP, SL, AX and our NAV products [formally known as Great Plains, Solomon, Axapta and Navision]. So the business logic and data models of these products, which form the outer layer, come first, then the inner layer is what we will work on in Wave Two.

What sort of delivery schedule are you looking at for all this?

N: The way they will get this, irrespective of the product they have, will be in minor and major upgrades. Minor upgrades will be in 12- to 18-month time frames, [with] major ones every 24 to 36 months. And behind the scenes, each upgrade will share a lot of technology and code with the upgrades for the other products. Our customers will eventually get the converged code, but they will really be measuring us by how predictably we ship our products and how much value they are adding release over release.

How technically hip are SMBs to the Live offerings?

N: With the Live offerings, there are a couple of interesting things happening. For very small businesses, deploying desktop products with great offline capabilities is still the best way to reach them. For example, 18 months ago, with Office Small Business Accounting 2006, we offered a small business product under the Office brand but built by the Dynamics team. It was meant to complement the Office footprint in small businesses because most users still use Word for invoicing and Excel for inventory. But getting them into the world of accounting software with full double-entry bookkeeping is something we are starting to get a foothold on. I believe a desktop-based productivity app is still predominantly the way people consume on the low end. But as you scale up, you will see that when people deploy servers, they are beginning to ask, 'Should I really deploy a server and take all the administrative costs to the server, or should I outsource that cost to a service provider?' This is where there will be multiple options available. Some will go direct with vendors like us and others will turn to service and hosting providers.

How do you convince midsized companies with mixed environments to switch over to Dynamics?

N: We will never try to force homogeneity in terms of infrastructure in selling our CRM or ERP products. We can attach to other databases and we have a good Web services-based integration framework to help with that. It goes back to why did Microsoft get into business applications and what are we aspiring to?

There are three dimensions. First, if you are already using Office, you will find that the roles-based user experience we deliver through Dynamics is a seamless way for users to get ramped up on how to use CRM and ERP systems.

Second is adaptability. If you look at it from both a Great Plains and Navision perspective, those products were always sold through channels, so people paid a lot of attention to the adaptability of the software while also thinking about the upgradeability. But it has to be customizable and adaptable software that keeps pace with changes in business because business processes never remain constant. We are marrying the core attributes of upgradeability and customization of these products with the strengths Microsoft has in its broadly available frameworks and tools.

Third, when we talk about our footprint of infrastructure -- and this is the key way to differentiate from an Oracle and SAP [infrastructure] -- we don't require you to install a bunch of new middleware for your portal, or a bunch of middleware for getting your reports out or doing analysis.

How modular is Dynamics and how easy will it be to adopt the products a piece at a time? Is that how you expect most users will buy in?

N: That is one of the key technology changes that we are in the midst of doing. We want to implement the technology advances of SOA in our products so we can make them more modular. We have a rich metadata, or model-driven, development environment, and that makes the customization easier, but it also makes it easier to adopt the software in a more modular way. The success we have had with CRM and Web services-based integration of CRM with our ERP systems is an example of how we are making stuff more modular for SMBs to consume. They don't have to rip and replace an entire infrastructure stack or business applications footprint.

With the features overlap in the Dynamics line, some users wish they had a more simplified method of selecting the right Dynamics products for their individual needs.

N: If you look at what and how customers are buying, it's more solutions through partners than individual products. At some level, there needs to be some product positioning that is clearer, and we have made some great strides there. But it comes down to partners and customers picking the product that serves their industry and their IT philosophy the best. We can get better and it is something we continuously try to do in terms of offering better guidance.

How do each of you get face time with smaller companies to get a feel for their day-to-day operations and some of the problems they face?

B: There are a number of mechanisms in place to make sure we have a customer-centricity to our approach. The central element we have is the roles-based approach. Some of the ways we have identified those roles is to take a number of senior marketing and development people and put them into a situation where they meet such people. We went in depth with over 800 companies, spending multiple days at each company visiting with everyone from the shop floor to manufacturing to accounting to the CFO. We brought along digital cameras and took pictures and watched them work.

A few things came from that. One, we got very crisp about the roles people play in these companies. So in all our development organizations in Redmond or Fargo or Copenhagen, everyone has the same roles-based map on the wall with a picture of a real person with a name, [and it says that] these are the key processes that these individuals worry about. In Fargo, when I walk into a place, there are still a bunch of faxes sitting there and Post-it notes all around their screens. They are managing all this ad hoc information outside their system and trying to get it to relate to the actual structured business process inside the system. This is one of the key strategies that we have at MBS, which is to tightly integrate these things with the business processes because that is the way people work.

Do you expect that some larger accounts will be interested in Dynamics products, and how will you handle that situation?

N: One way to segment is by size, but at the same time, many large companies are federations of subsidiaries or business divisions [that] are loosely federated. So in many cases, what they want are IT systems that are more agile and flexible, and in those situations, we fit very well. Aside from the headquarters of some of the largest Fortune 1000 companies, we have many other instances where our products are being used by large companies. Inside Microsoft, we historically deployed SAP and Siebel, but now, for instance, our Puerto Rico manufacturing facility is using Dynamics to manufacture all of the media for Windows Vista and Office 2007, and our XBox silicon operations team is also using Dynamics. So that type of scenario is something we see across all large companies with many business units and subsidiaries.

What are the business goals for MBS? You are at about $1 billion in sales. How much more can you grow this business unit over the next two or three years without coming up against sales of your own enterprises group?

B: Before you look at the enterprise, consider that there are some 41 million small and medium businesses, and many more in the SoHo [small office/home office] space. Many of them have not had even their first automation experience. So we think a combination of us broadening our geographic footprint by driving localization into more countries and the Live services will increase our reach to lots of small and medium accounts. Most enterprises already have big IT budgets and lots of business-process software. The question is, as they grow and look for better cost-effective solutions, where do we fit in the mix? Well, in CRM the last year, we saw 40 percent of our revenue going into enterprise accounts.

What tools do you have and what tools do you still need to develop to make it easier for some of these midsize shops to develop apps that work in mixed environments?

N: One of the big strengths we have is with our Web services infrastructure, which we have built around our products. There are developers in many cases that use Visual Studio as a development environment and use the .NET Framework to produce apps for mixed environments. They are running these mixed environments on top of Windows.

Doug, what is one thing about Fargo that people don't know that they might find interesting?

B: Well, Fargo is at the same altitude as Geneva, the same latitude as Paris, and it has the same amount of square miles as Monaco. Fargo is also a town based on technology. It was the highest piece of land on which the [Transcontinental] Railroad sought to cross the Red River.

Yes, indeed, a nice conversation starter at parties.

B: I think so [laughs]. Fargo was selected by a bunch of leading visionaries of their time, namely railroad surveyers. They picked out the town and named it after the guy that was from Wells Fargo, who sat on the board of directors for Northern Pacific. I like to say that Fargo was a town based on new technology.