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Does Azure cloud make Dynamics AX better for two-tier ERP?

This year Microsoft started offering Dynamics AX on its Azure public cloud. Experts explain what it means for SAP users considering a two-tier ERP strategy.

Conventional wisdom holds that consolidating and minimizing the complexity of IT systems will help companies operate more efficiently and save money.

But when it comes to ERP systems, Microsoft is bucking that trend. Aiming to get its foot in the enterprise door and sign on new business customers, Microsoft has been touting a two-tier ERP strategy and trying to convince SAP customers of the benefits of adding Microsoft Dynamics AX to their ERP deployments.

For a number of years Microsoft has hyped Dynamics AX as the perfect candidate for a two-tier ERP deployment with SAP. But the campaign to add Azure, its cloud platform, to the mix, began in earnest after the May 2014 launch of Microsoft Dynamics AX 2012 R3, which can be deployed on Azure via infrastructure as a service.

However, the question that remains to be answered is: Will Microsoft's Azure push make Dynamics AX an even stronger candidate for a two-tier ERP strategy? One consultant agreed that running Dynamics AX on Azure as part of a two-tier offering with SAP is a good strategy in theory, but it might be too soon to tell how it would work in practice.

Azure: No one wants to be first

"While we do have customers using a two-tier strategy, they are not doing it on Azure," said a consultant at a Microsoft partner who asked not to be identified. "I can say that Azure is still cutting-edge, especially with ERP leveraging. People are just dipping their feet into this market for the larger-scale ERPs." The problem is that no one wants to be the first to jump off the Azure cliff, he said.

"The natives (Microsoft) said it's safe and tons of fun. Everyone's doing it, just not on this exact spot on the cliff (Azure)," he said. "The more people that jump off that new cliff, the safer it is to do, and you can see where not to jump or what others did when they did jump into the wrong places."

Obviously, jumping equates to implementing the new ERP cloud-type model for Dynamics AX and using it in a two-tier model with SAP, he said.

"Microsoft is good at assuring success," he added. "It's just a question of who wants to be a front runner and assume that risk." The consultant said it's his opinion that Microsoft's long-term cloud model for Dynamics AX as part of a two-tier ERP strategy with SAP will work.

"From a technical standpoint, the infrastructure is built to adapt to next-gen technology," he said. "But [Microsoft] is innovating and adding functionality pretty fast, which can be a little unnerving for customers. Dynamics AX 2012 R3 looks nothing like AX 3.0, so that can make an upgrade look incredibly daunting to existing customers."

Satisfying business needs

For its part, Microsoft's two-tier message claims a single, large ERP installation doesn't work well for companies with different lines of business (LOB) that require different processes or accounting methods, have large and small independent divisions, or divisions that operate in different locations around the world.

As part of a two-tier ERP strategy, Dynamics AX satisfies the business needs of the smaller operating entities of SAP customers, rolling up financial or operational data into the SAP system -- not to mention, it's less expensive to purchase and maintain, according to Microsoft.

Companies with globally distributed offices -- including sales offices, support offices and distribution centers -- often don't have a lot of staff in countries other than their home countries, but they do have financial requirements, said Andrew Snodgrass, an analyst at Directions on Microsoft in Kirkland, Wash.

If those companies can leverage Azure for a Dynamics AX solution in conjunction with SAP, they can go global on the back of Azure without having to do their own deployments, he said. "Companies can then operate in foreign countries without setting up contracts with foreign providers," Snodgrass said. "So companies can contract with Microsoft to use Azure and deploy Dynamics AX in a single currency, in a single language, [which] they get to manage on a corporate level without having to set up foreign contracts. From an administrative side, that's a big deal."

The best of both worlds?

Dynamics AX can offer SAP customers "the best of both worlds: organizational agility and flexibility for your operations, while maintaining information visibility and transactional integrity in the core SAP systems," said Dynamics ERP general manager Christian Pedersen in a blog post earlier this year.

And since the release of Dynamics AX 2012 R3, Pedersen said customers can run their ERP systems on Azure, benefitting from, among other things, lower IT costs and faster deployment times.

"As a customer that is already running SAP, but perhaps looking for support on specific workloads like subsidiary or divisional ERP, or help with LOB strategies, having both solutions run on Microsoft Azure (SAP has also made its business offerings available on Azure) makes it even easier to connect than ever before," he said in another blog post.

Microsoft has targeted two-tier ERP for a while; putting it on Azure adds a huge benefit, which has to do with deployment and implementation. By deploying on Azure, companies can expand it up relatively easily, said Joshua Greenbaum, principal at Enterprise Applications Consulting in Berkeley, Calif.

Snodgrass agreed that it makes sense for Microsoft to push Azure for two-tier ERP because of its quick deployment and scalability.

The issue with deploying Dynamics AX on Azure is that companies are afraid of change, Greenbaum said.

Companies are reluctant to change

"You have elasticity in the cloud -- it lets you scale up and down and the truth is, everybody is looking at the cloud as the next deployment opportunity," he said. "Fundamentally, though, companies are reluctant to change, especially when you look at these subsidiary operations. But the moment there's a degree of business imperative to upgrade, to be able to do more complicated communications transactions, EDI, B2B, whatever you want to do, going to the cloud is a big imperative. It should be choice number one."

Although SAP has its own cloud line, that kind of enterprise cloud might be a little intimidating for customers in the subsidiary environments, he added. But Microsoft Azure is a public cloud with a low barrier to entry, so it makes a lot of sense that Azure is an offering Microsoft wants to put in front of these subsidiary operations.

One analyst, however, isn't sure Azure makes Dynamics AX a stronger candidate for a two-tier ERP strategy with SAP -- although it is an important option for customers.

"When we look at the example in CRM -- and ERP will follow the same pattern -- most people chose Microsoft CRM for the price and the option to be on-premises," said R "Ray" Wang, founder and principal analyst of San Francisco-based Constellation Research. "That gave it a lot of leverage in the marketplace. So not being cloud-only was actually a competitive advantage."

The same thing will ring true for two-tier ERP, Wang said. Having the Azure option is great for companies that need to be in the cloud, he said, but what is still happening -- a lot -- is that customers are continuing to buy on-premises ERP.

"I don't know if Azure makes Microsoft a stronger candidate for two-tier ERP, but when tied back to things like Office 365 and what's going on with the new version of SharePoint, and what's going on with a number of other things that are tied back to Lync and the other areas of Office productivity, it's definitely making Dynamics AX a candidate," Wang said.

While Azure is one part of a two-tier Dynamics AX approach, Power BI for Office 365 and the ability to get the report services is actually a bigger driver than Azure right now, Wang said.

Next Steps

Brewer finds benefits of using SAP in the cloud

Choosing midmarket ERP systems

Cloud models disrupt the software market

Get the facts on Microsoft Dynamics AX

This was last published in October 2014

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