Microsoft reinvents ERP into total enterprise integration

It has been nearly a year since Microsoft announced that it was incorporating its AI engine Copilot into its Dynamics 365 suite of enterprise software tools.

Claiming it as a “world first”, Microsoft was quick to capitalise on growing interest in generative artificial intelligence (GenAI) following the launch of OpenAI’s ChatGPT in late 2022. It wasn’t quite Barbenheimer, but it did set a tone for what was to come – Microsoft leveraging its investments to push forward this idea of total integration.

As Predrag Jakovljevic, principal industry analyst at Technology Evaluation Centers, told Computer weekly in January, there is an emerging concept this year where the enterprise resource planning (ERP) acts as a central system of record, while integrated tools enable a more connected workforce, serving as the system of action. 

“You’ll see a lot of ERP vendors fighting in that space with their own integration and automation platforms,” said Jakovljevic, “with the idea that being able to consolidate more of your data under the ERP platform is better than storing your data in Amazon S3, for example.”

It’s very Microsoft. The company has a history of prodding and poking its nose into new categories, reinventing markets, treading on toes and ultimately making a success of it, one way or another.

The cloud, in particular, has seemingly given Microsoft a new lease of life. Much like SAP and Oracle, Microsoft’s recent results have been encouraging when looking at cloud earnings, with Dynamics products and cloud services revenue growing 21%. Also, like Oracle and SAP (and Infor and Epicor for that matter), Microsoft is regarded as an ERP leader, according to Gartner’s Magic Quadrant for cloud ERP for product-centric enterprises. 

While Dynamics 365 is part of a broader industry push for greater cloud-based delivery of ERP services, Liz Herbert, vice-president and principal analyst at Forrester, believes that Microsoft has manoeuvred itself into a good position. She said that the Dynamics platform and collaboration have enabled Microsoft “to differentiate its business applications”. It’s not just the quality of the parts that matters, it’s the sum of those parts that will drive sales and customer experiences.   

“Its Dynamics portfolio leverages not only the popular platform (cloud infra, developer tools, etc.) and collaboration tools (email, Teams, etc.), but also more cutting-edge elements like HoloLens and Cortana,” Herbert added. “More importantly, there is a giant captive audience of Microsoft customers who already know the platform and tech and who already have contracts and a supplier relationship with Microsoft – which makes it easier to sell business apps.” 

This is key for Microsoft, which would never see itself as a direct competitor of Oracle or SAP, in the traditional sense. It is, of course, a partner of SAP. As Herbert points out, Microsoft Dynamics has not been as successful in large enterprise deployments, where SAP and Oracle still dominate.

She said: “Microsoft has a large partnership with SAP to power a portion of its RISE deployments and thus makes a lot of money and does marketing for SAP. Microsoft’s own CEO has been on stage with SAP promoting the partnership. Microsoft has historically run SAP itself as an ERP.” 

Rob Cottrill, technology director at digital transformation and integration business ANS, believes that Microsoft’s aim is to develop an ecosystem around Dynamics, adding: “Microsoft is working towards building an ecosystem of interconnected services and simplifying how the data moves around this ecosystem.  Data fundamentally underpins how we work, operate and make decisions.” 

Owning its own cloud service has been crucial here. Azure is fundamental in achieving this ambition. 

“It underpins everything that Microsoft offers and is the core building block for its services,” Cottrill said. “Microsoft wants users to be in its ecosystem, which then provides a simple cross movement to its other services. Almost all organisations use M365 now.

“The integration of services makes it an easy decision to adopt Dynamics 365 and then into Azure data services. Depending on what you’re doing with your data in CRM [customer relationship management] or into CRM if connected with other applications, you’ll also be relying on Azure services for the integrations.” 

Cottrill believes that Microsoft’s strategy is to provide what he describes as “an easy migration path for these services to their own services”. This is because migration is the most costly and risky part of adoption of any new service.

AI taking the reins

Like Oracle and SAP, Microsoft has also integrated AI into its ERP in the past year. Dave Colwell, vice-president of AI & ML at Tricentis, suggests, on paper at least, this can only be a good thing. 

“ERP applications are the central nervous system of a business, meticulously orchestrating every aspect of its operations,” said Colwell. “Generative AI integrates into this system like an advanced neural enhancer, significantly boosting its capability to process information, predict outcomes, and make decisions.” 

Colwell goes on to say that the role of GenAI in ERP applications is “transformative” as it enables levels of automation that would be difficult to reach with independent applications. And this is certainly where Microsoft wants to live.

As Cottrill at ANS points out: “Customers don’t really know what to look for when it comes to digital transformation, as it’s a confusing term that doesn’t accurately reflect the challenges and value of the task at hand. Customers undoubtedly want agility but also consistency and are starting to unify their applications while they digitally transform away from legacy systems.” 

This is prime Microsoft territory. Adam Stewart, Dynamics 365 finance and supply chain – go to market lead at Microsoft UK, said:  “As we usher in the era of AI, establishing a robust cloud foundation is imperative to equipping companies with the infrastructure necessary to leverage AI capabilities and embrace forthcoming waves of innovation.”