After new analyst report, Microsoft Dynamics AX partner channel split on progress in services delivery

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Jason Gumpert in reporting on the latest Gartner report on the MS Dynamics AX channel.

Gartner released its Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies in late November 2014, with Microsoft Dynamics AX just outside the Leaders quadrant for the second year in a row. Dynamics AX remained almost exactly where it was in 2013 – below the report authors’ “ability to execute” threshold for the highest ranking.

Inside the Dynamics AX partner ecosystem, views on the Gartner report vary. Some feel the AX channel, which the report criticized for lacking enterprise services credibility, has made great strides as AX 2012 has matured with the AX 2012 R2 and R3 releases. Others agree with Gartner that progress has been too slow in incorporating the global system integrators (GSIs) that Microsoft wants to use to deliver more AX deals, especially for global companies.

Gartner’s view

The 2013 demotion of Dynamics AX reflected what Gartner perceived to be a drop in “ability to execute”. (Here’s a snapshot of the 2013 results in an IFS news post in Turkish.) In 2014, AX held onto its spot in the rankings, perhaps with a nudge up in “completeness of vision.” But the analyst firm sites some of the same concerns while also praising the software.

One main weakness, Gartner’s analysts report, is that the AX channel doesn’t have the maturity to serve large organizations that demand broad and deep industry expertise. From the report:

“Microsoft’s biggest challenge remains its constrained ability to service new opportunities with experienced direct or partner resources, especially for larger customers that expect industry and process depth and comprise extensive and complex requirements.”

Gartner sees Microsoft as working to improve the services constraints identified in their 2013 report, but negative input from AX customers in the new research led them to hold AX in its current spot, as they explain:

“Despite a number of complaints from customers of poor partner support, plus Microsoft’s narrow (and reportedly expensive) consulting services capabilities through its Microsoft Consulting Services team, the overall picture has slightly improved since the last Magic Quadrant.”

The AX services picture

These shortcomings are not a surprise to AX channel veterans, though many take issue with how the report assesses the present state of the market.

It is widely acknowledged that the release of Dynamics AX 2012 in August 2011 led to a series of issues for both customers and partners. The new version was a significant change architecturally from AX 2009. Early AX 2012 quality issues and problematic upgrade projects created a bad combination: unhappy existing customers and a partner channel scrambling to learn the new product and fill in gaps, especially in upgrade tooling. These issues don’t mean that AX 2012 was a mistake – it introduced needed improvements that would pay off in time. Over the last three and a half years as AX 2012 R2 and R3 releases have improved the product. And in that time, AX consulting practices have had a chance to re-organize for the new environment.

“I think Gartner missed the boat,” with this report, says Nima Bakhtiary, founder of Arbela Technologies, a veteran ERP and  Dynamics AX reseller. “Quite a bit of delivery strength has been added in the channel and at Microsoft. Compared to 2 years ago, I think as a collective we are able to deliver better and with more predictability, which is really a strength of AX.”

Bakhtiary says Arbela and other mid-sized AX partners have seen substantial improvements in their businesses in the last two years. Arbela, for example, has doubled in size and now operates globally, he says.

“We have not only more capabilities to deliver, we have expanded our services in areas including strategic services for large and multi-national implementations, supply chain and implementation assessment, and third party QA for other implementations. And we’ve seen that other partners we’re close to have equally grown. So incrementally I see big progress.”

He agrees that the demands of AX 2012 and of Microsoft’s partner strategy over the last two years have forced AX to adapt. Partners now have more sophisticated delivery skills and better discipline in building organizations. For example, Arbela has been organized around competencies.

“Now we’re more precise,” Bakhtiary says. “We have centers of excellence now to stay up to date on areas like data migration, upgrades, finance, and manufacturing. And those teams go across the organization. So the challenge has made us more innovative and organized.”

A services gulf?

While mid-sized VARs have made progress, one ISV executive working in the AX channel tells us that the differences he observes between the top tier of partners (companies like Avanade, HP, Hitachi, and IBM) and the next tier is noticeable. This executive believes many partners that do between $30 million and $100 million of revenue struggle to manage operational challenges resulting from the changes in margin that Microsoft instituted, as well as the use of enterprise agreements (EAs) with Dynamics AX.

To really alleviate Gartner’s concerns, this executive says, Microsoft simply needs more time to cultivate its relationships with global SI’s so those firms will invest, scale, and take on more of those enterprise opportunities.

“Selling AX to a $100 million company, maybe a family owned business, it’s a different sale from [a larger enterprise] with an executive management team of veterans who have seen it all before,” says this executive. “That’s a hard sell. To take sales in that direction, you are going into the eye of the tiger.”

According to this view, that next level of VARs just below the top tier of global system integrators will see industry-specific and regional AX opportunities. But for all Dynamics AX and CRM partners, this executive predicts, over time, “Microsoft will move to control more of the AX software sale and revenue” as partners adapt to surviving on services revenue alone.

Microsoft’s work to build an enterprise channel

Adjustments to the Dynamics AX enterprise strategy have been evolving for several years. A notable change came in mid-2012 when Microsoft announced that Dynamics AX could be sold under enterprise agreements. As we reported at the time. MBS vice president Doug Kennedy led the change.

“To meet customer expectations, Microsoft will have a higher level of activity in the sales engagement with our partners, and we are increasing investment and sales training in our own internal Solution Sales Professionals to back that up,” explained Doug Kennedy, the head of partner services for Microsoft Dynamics. “This licensing model will enable us to be fully engaged with partners, and we believe this will drive a higher level of partner opportunity and customer satisfaction.”

Kennedy sees this move as a measured response to the evolving AX market. “It is very specific and prescriptive. Now Microsoft solution selling professionals (SSPs) have a list of partners to be brought in with the SSP” for enterprise deals.

Then in March 2013, Kennedy shifted his role to focus on the enterprise segment of the Dynamics business. The move would help set the stage for a more specific set of goals and initiatives for the upper segment of the AX market.

Coming out of the October 2013 Fall Analyst Event, analyst Josh Greenbaum told that he felt Microsoft had impressed upon industry analysts the notion that there was a sound enterprise strategy in place for Dynamics AX and CRM. He said at the time:

“They have a very good story in place now for the lower end of large enterprise market,” he said at the time. “They emphasized [at the fall analyst event] that they have a direct sales team, and they are working with global SI’s, building out functionality, and they’ve very much legitimized all these investments. It’s impressive that they’ve gotten here, even if it’s taken longer than they would have liked.”

Doug Kennedy spoke with again in early 2014, explaining that different sales groups inside of Microsoft were continuing to work to find the right balance for leading enterprise deals for AX and CRM. They had identified an ideal balance at that time, he explained, but they were “nowhere close” to it yet. As we reported:

Over time, the new distribution of enterprise deals will reportedly see MCS handling 20 to 30 percent, GSIs handling about 50 percent, and the balance going to regional partners. The new approach stems from an updated understanding between MBS executive vice president Kirill Tatarinov and Kathleen Hogan, corporate vice president for Microsoft Services.

A competitive future

Veteran partners in the AX channel, say that the one of the most promising signs coming out of 2014 is the competitiveness of AX against SAP and Oracle.

“AX is easier to use and deploy [than SAP or Oracle],” says Arbela’s Bakhtiary. “And Gartner itself says in the report that SAP and Oracle pre-configured industry templates have made them too hard to implement and more expensive.”

And there is broad-based optimism about the upcoming AX 7 major release, even among those who disagree about the state of the channel.

“AX is an incredible platform and has an incredible chance to dominate this midmarket and lower enterprise space,” says the ISV executive. “The AX opportunity is not necessarily slowing down, I think Microsoft has to pull everyone toward their goal.”