The following article appeared on February 16 in MSDynamicsWorld.com.
Dynamics Outgrows Oracle and SAP in Recent Poll
In the current economic downturn, the market share of Tier II smaller ERP providers has risen significantly while those of ERP heavyweights SAP and Oracle have dropped proportionately and Microsoft Dynamics edged slightly ahead. According to a 2010 survey by vendor-neutral ERP consultants Panorama Consulting Group, the market share of Tier II ERP vendors grew from 23% to 30% last year while ERP leader SAP dropped from 35% to 31% and Oracle from 28% to 25%. Microsoft Dynamics held its own, growing slightly from 14% to 15% during the same period. Panorama’s 2008 survey was based on 1,300 respondents worldwide from 2005 to 2008 while the 2010 survey was tallied from 1,600 participants last year.
Panorama President Eric Kimberling said the market changes reflect that small- and medium-sized companies have been moving ahead with ERP implementations in the downturn while larger firms have been holding back on upgrades and modifications.
“Microsoft is a better fit and more appealing in a downturn,” Kimberling said. “It has a much lower cost and is very predictable (in implementation).” Even though the rise in Dynamics’ market share is slight, it is still significant in light of the declines for SAP and Oracle, he added.
The 2010 survey also ranked Microsoft Dynamics No. 2 behind SAP on ERP vendor short lists by prospective buyers and seventh of the top 10 in selection. In its 2008 report, the Denver, Co.-based consulting firm pointed out that the cost savings for Microsoft Dynamics is great, with an SAP implementation averaging $16.8 million in total costs compared to $12.6 million for Oracle, $2.6 million for Microsoft Dynamics and $3.5 million for Tier II applications. In that detailed study, Panorama concluded that Dynamics was gaining in popularity because of its markedly lower pricetag; Dynamics was favored by users, who like the familiar Microsoft interface, but less popular with executives, who cited a somewhat higher business risk.
One cause for higher risk worries in the earlier study was Dynamics’ lack of business intelligence tools, Kimberling said. However, Microsoft may have alleviated that concern with Dynamics’ addition of FRx financial reporting tool, he said. FRx is already slated to be replaced by Management Reporter and augmented with self-service reporting in Office 2010. Also contributing to a higher perceived risk factor with Dynamics is the small- to mid-sized market it serves rather than the software itself, he said. Smaller customers lack the sophistication of larger enterprises and often try to cut corners and/or implement the software without recognizing the need for specialized help, he said.
Project Duration and Cost
Comparative marks for project implementation in the earlier study also were a mixed bag for Microsoft Dynamics, which averaged two weeks to two months less than Oracle and SAP, respectively, but, on the downside, showed the largest variability in project completion. The major factors extending project duration for Dynamics ERP installs are large numbers of modules and/or users and complex business processes, Kimberling said. In the latter case, companies often are too quick to customize the software to existing business workflows rather than change their processes to accommodate the software, he said. While minimizing the ERP impact to the workforce, customizing software with alterations to the source code delays the project and complicates maintenance down the road, he said.
In its 2010 report released early this month, Panorama concluded that more ERP implementations last year took longer than expected (57%) and cost more than expected (59%) but, on the plus side, they consumed 20% less as a percentage of annual revenue (6.9% in 2009 vs. 9% in 2008). However, the “savings” came with a price: 41% of responding companies failed to achieve at least half of the benefits they anticipated from their ERP installations. These results have not yet been broken down by vendor.
“The path to lower costs is cutting the scope or key project activities that are critical to success,” Kimberling said, citing factors like training, hardware and project management. “You don’t necessarily need to spend more but you need to have realistic expectations and take the right steps to make sure you succeed. This is even harder now with less resources.”
Managing Organizational Change
In addition, the 2010 study concluded that most companies do not effectively manage the organizational changes that ERP sets in motion, with nearly half citing poor communication between management and employees as a contributing factor. Many companies also were adjusting to a new CEO during their ERP implementations while significant numbers were coping with layoffs or a merger or acquisition.
The problem is that there is a management/employee “disconnect,” Kimberling said. New ERP systems impose change and stress on the workforce when employees are already worried about their future, he said. But management wants to push ahead with ERP systems now to retain “head knowledge” and increase efficiency to do more with less, he said. In this environment, some companies are cutting organizational change activities related to their ERP installs, which “doesn’t bode well” for their projects, he said.
Panorama’s latest survey found that SaaS (Software-as-a-Service) and hosted ERP solutions are faster to implement and cost less than on-premise applications. The downside: they are far more likely to exceed budget estimates due to excessive vendor hype, the report said. In addition, SaaS and hosted solutions tend to be more appropriate for small- and mid-sized companies and narrow functions such as CRM or purchasing, the report said. Microsoft Dynamics does not currently have a SaaS or hosted ERP offering (although various partners and resellers do offer hosted solutions), but Kimberling predicted that Microsoft will develop one because so many mid-market companies perceive that SaaS/hosted is a way to tiptoe into ERP without a big, upfront cost, he said.
Kimberling also predicted that IT budgets are beginning to loosen up and companies that skimped to get by last year are beginning to look at adding tools like FRx that can improve operations. As for other future trends, Kimberling said that SAP and Oracle will try to grow their respective markets by extending down from the enterprise to the mid-market. Although this will provide more competition for the Dynamics product line, Microsoft is already “well entrenched,” and has its name and branding on its side, he said.