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.