Rethinking The Midmarket - InformationWeek

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9/9/2005
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Rethinking The Midmarket

Microsoft is redesigning its business applications for midsize companies with an employee's role in mind

When Microsoft looks out on the $215 billion market for software and consulting at midsize companies, it sees a great opportunity, fragmented market share, and the potential for business to become a lot more efficient with a little infusion of technology. The world's No. 1 software company thinks it has figured out what those midsize companies need to run their operations better. The answer: Not what Microsoft has been trying to sell them.

So Microsoft is making a big strategic shift in its 5- year-old business-applications division toward a simple but so-far elusive idea: Different kinds of workers use computers differently, and software should be designed for an employee's role in the company. After two years of research, Microsoft managers have identified more than 50 everyday job roles at midsize companies they believe will benefit from desktop environments created just for them--everyone from a president or CFO to account managers in a sales department to workers on a manufacturing floor. Receptionists, too, get a unique data view on their PCs.

The Business Solutions unit is "in an investment mode," Gates says.

The Business Solutions unit is "in an investment mode," Gates says.

Photo by Jeffery Newbury
Instead of dozens of screens and menus, workers will get Web pages intended to show only the information they're most likely to care about, often at a glance. Companies will be able to customize those entry points into Microsoft's applications, too. Microsoft will deliver the first two dozen of these role-based apps later this year as part of an upgrade to its Great Plains ERP suite. Next year, it plans to roll out 25 more, as upgrades to its Axapta and Navision business-app suites.

"Applications can be way better than they are today," says Microsoft chairman and chief software architect Bill Gates, speaking in an interview in his office several days before a Sept. 7 event unveiling the changes. "We're showing our belief in that with our high level of investment." Gates is so bullish on designing software with a PC user's on-the-job role in mind that Microsoft eventually will extend the approach to all of the company's software, including the ubiquitous Office apps. "You want everyone to be connected up to the information that drives their job," Gates says.

The revamped business apps are part of a broader midmarket push by Microsoft that will include a future Windows server package, code-named Centro, that combines the Longhorn version of Windows server with forthcoming versions of Exchange and SQL Server. Midsize companies have long been the sweet spot of Microsoft's Windows server business, yet the company has never created a packaged system just for them. Centro is envisioned as a no-frills platform for the IT generalists who tend to staff companies with fewer than 1,000 employees. They're the "inch-deep, mile-wide" IT staffer, Microsoft director Steve Van Roekel says. "Anything with a plug and a wire, they support."

Microsoft also is taking steps to simplify its ERP product line for customers and the 1.2 million resellers, systems integrators, and independent software vendors it relies on to sell Business Solutions products. It's rebranding its four ERP lines--Axapta, Great Plains, Navision, and Solomon--as Microsoft Dynamics. New versions of the Dynamics products will incorporate search technology that's under development, as well as data analysis and report-writing functions from Microsoft's SQL Server database. Microsoft last week unveiled new licensing and financing options for midsize companies and this week will add new benefits to its Software Assurance maintenance agreements.

Microsoft also released Small Business Accounting 2006, an attack on Intuit Inc.'s QuickBooks package. Microsoft is trying to undercut the popular QuickBooks on price and offer it in a discounted bundle with Office.

Selling software to companies with more than 50 but fewer than 1,000 employees always sounds like a gold mine. There are more than 1.4 million midsize companies with PCs worldwide, says Microsoft, and collectively they own 68 million PCs and 4.8 million servers. That's a lot of hardware to fill. Spending on software and IT services last year was $215 billion, expected to grow to $306 billion in 2009. And even though they're smaller, midmarket companies are facing many of the same pressures as their larger counterparts: global markets for goods and labor that are pushing down prices, customers who demand more personalized service, and government regulations introducing new costs.

But midsize companies are elusive tech buyers, too. They often have to choose between investing in a computer system or hiring a new person. They don't like paying for consultants but need complex functionality, so they want software that works without a lot of custom development and training. And it's hard to predict when they'll upgrade. Microsoft Business Solutions' sales force has to be patient, Gates says, since customers buy new software "when they're ready to make a change, which will often have more to do with the cycles in their business than when a new version of software might come out."

Schuck & Sons Construction Co., a 1,400-employee housing subcontractor, plans to begin using later this year an Axapta ERP system it chose over software from Oracle. Schuck, on track for $170 million in revenue this year and looking to make acquisitions to capitalize on the booming housing market, expects Axapta to deliver hard savings through lower inventory levels and soft benefits by freeing its staff from typing data to transfer it from one of its ERP systems to another. Still, the purchase was a tough sell to management. "Our CEO and operations staff love to buy delivery trucks and forklifts," VP of finance Mark Sidell says. "To spend money on a computer system, one of their first questions was, 'Why would we do that?'"

Last week, Schuck went live with a component of the software that lets construction-site superintendents enter in a laptop the amount of material that goes into a house's frame versus the estimate in its system, a process that used to be done on paper. "In the past, we had too much of one product on hand and too little of another," Sidell says. Schuck also plans to create reports that show its revenue and profit per house. That used to require employees to retype data into Excel to run a report, which meant monthly accounting closes took three weeks. Now the process will be done in five days, he says.

"A $4 billion company doesn't necessarily do things that are more complex than Schuck, though they may do more of it," says Greg Carter, a VP at Iteration2, a reseller of Microsoft business apps that sold Schuck its system. Axapta's new roles-based user interfaces make the software less intimidating for midtier companies. "In the old days, you'd see 100 different menu items on your desktop," Carter says.

To understand the jobs people do at midsize companies, Microsoft's engineers and managers spent two years studying their workdays in excruciating detail, recording their conversations, snapping photos of people at their desks, and generating 15,000 pages of transcripts. The conclusion: Most workers don't like their software, because it forces them to work with business automation and personal-productivity apps that are often incompatible. In other words, today's business software doesn't look like today's business. "Nobody in these companies has software tailored for how they really work. Everybody uses the same screen," says James Utzschneider, a general manager in Microsoft's small- and midsize-business division. "Our vision is that we're designing software for the way that people really work." That means a sales manager would see leads front-and-center, while an accounting clerk would see a list of invoices or a flow chart to pay bills against a monthly budget.

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