Microsoft – core and context

A recent article on Sandhill by Judith Hurwitz (of the former eponymous analyst company) on SAP, Microsoft and Salesforce.com has made me wonder where Microsoft’s product and platform strategy is going. As I said before, Microsoft seems to be getting into all sorts of different areas, similar to what IBM did in its heyday, and not necessarily doing it all correctly or well.

I was thinking of how Geoffrey Moore’s concept of ‘core’ and ‘context’ could be applied to Microsoft, and then I saw a blog by Stephen Walli on the same issue.

Moore proposed ‘core/context analysis’ as a framework for business to analyse and prioritise growth strategies. ‘Core’  is any activity which creates sustainable differentiation in the target market resulting in premium prices or increased volume. ‘Context’  is any activity which does not differentiate the company, from the customers’ viewpoint. Businesses all have core and context parts.

What is core today will be context tomorrow, since competitors eventually catch up. Therefore companies should always focus on new core. The problem is that companies create new core while keeping old context, resulting in inefficiencies and unproductive activities. The bulk of the people and the organisation are then focused on context activities.

As Stephen Walli describes it, Microsoft’s ‘core’ was the “ubiquitous desktop (now laptop) computing device” (as in ‘A PC on every desktop and in every home’) and “a software ‘appliance’ that runs on thousands of PC with thousands of devices attached, and successfully runs thousands of useful applications.”

That was the core that made it dominant. But as Hurwitz says Microsoft’s Office and Windows platform need  “to remain strong and dominant to keep the revenue machine moving in the right direction. A radical departure would not be in the best interest of shareholders.” In other words, it is now becoming context. 

If Microsoft went for the Dynamics (ERP and CRM) products because it would be new core, then it didn’t realise that a culture change was needed – ERP is far being a ‘software appliance’ and requires a different mindset. Where Microsoft has recently showed it is still be able extend the core is with Sharepoint; I would argue that is a software appliance. The one part of Dynamics that seems to be doing very well is CRM, but that again is a horizontal application much like an appliance.

Microsoft has shown that it is unable to divest itself of a product or division that isn’t core – consider Search, and perhaps recently Zune. So it is unlikely that Dynamics will be split off, even though other companies by now would be admitting it as a mistake.

Where is Microsoft’s core competence then? According to Stephen Walli it is “tied up in the capital (human knowledge and physical) and processes that enable the Windows and Office distros and support to be delivered through the global channel, and no longer in the source code base itself.”

I would say that it is in the integration of the ‘stack’ comprising server and desktop O/S (Windows), database (SQL Server), individual productivity tools (the Office suite), development tools (Visual Studio) and messaging and collaboration (SharePoint) that an organisation can deploy with a fair degree of confidence that they won’t have to deal with the integration hassles. That creates sustainable differentiation. The Dynamics products are just a side issue and, given the small market- and mind-share of the brand amongst customers, do not differentiate Microsoft among its customers.

If, therefore, Dynamics is a context part of the company, the reduced profile of the group and the loss of key management to other divisions, makes sense. The questions that ERP competitors will keep asking are,  will it become a larger or smaller part of the overall business, and will Microsoft continue to hold onto Dynamics.

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4 thoughts on “Microsoft – core and context

  1. Mistake? When Great Plains and Navision were put together to form MBS the group was probabbly a little under $500 million in revenue. About 5 years later the division is over $1 billion, growing organically, profitable (per the last MBS numbers), and outpacing any direct competitor of reasonable size over that timeframe. Or put another way, how does that $500+ million in increased revenue compare to Syspro’s total revenue over that timeframe? How about the number of Dynamics NAV customer adds in the last two years versus the total customer base of Syspro.

    It’s hardly a mistake, but the MBS group is nowhere near performing at its potential or up to the expectations Microsoft had when they bought GP and NAV. It speaks to how different the ERP market is than anything Microsoft had ever done. At many levels Microsoft is still learning it. South Africa was one market where MS may have dropped the ball more than others, as you could no doubt attest to based on your experiences.

  2. Good point about the revenue growth, but we don’t know from which products that comes from – CRM, GP? AX is still small. I can only comment on SYSPRO vs NAV in SA, and I know there were far more customer adds for SYSPRO than NAV last year.
    Now that Dynamics is part of the larger business group, are we still able to break out the numbers?

    As for MSFT still learning ERP, they have now been doing that for 5 years but still don’t seem to have grasped what it really means. In the meantime, the partner base has to struggle and suffer through each learning iteration. If MSFT had gone out and hired experienced ERP people from the start for the MBS division, could they have got over the learning curve by now?

  3. I won’t disagree with you on the lack of revenue details. After getting bashed for losing money for a few years, MBS finally turned a corner toward profitability, then got merged into the Business Division. Just when all the numbers were looking positive (profits, revenue growth ahead of the competition, etc), the stopped sharing them. It’s a good thing for a lot of competitors. They don’t have to compare themselves against those numbers and can create FUD over the unknown.

    Regarding customer adds, I don’t have specific numbers for NAV in SA last year, but have heard that globally NAV did add around 7,500 customers for Microsoft’s fiscal year ended June 30, 2006 – I’d guess that’s ahead of any directly comparable solution.

    Why didn’t Microsoft go out and hire experenced ERP people? Well, they did when they acquired Great Plains and Navision. The problem is a number of those people are gone. Some changing of the guard is expected, but when so many knowledgable people are gone before then can impart that knowledge to others (who in some cases didn’t want it anyway), you’ve got some recovery to do.

    At the end of the day I look at it this way. Microsoft will probably wind up being wildly successful in ERP in spite of itself.

  4. Pingback: Microsoft wins on the swings as well as the roundabouts « The Manticore blog

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