Inside Microsoft’s two-tier ERP strategy: build to last and build to change

Peter Loop
This is a guest blog post from Peter Loop, senior principal business architect within Microsoft IT. Peter works in a shared services team that manages Microsoft’s internal ERP environment.
Within 30 days of this blog being published, Microsoft’s chief financial officer will announce fiscal year 2013 second quarter earnings. The interested parties to this announcement includes 1,900 institutions that hold shares in Microsoft (MSFT), whose stock has over 8 billion outstanding shares and an average daily trading volume of about 54 million shares.
During earnings calls, the CFO not only discusses our quarterly revenue and how we contained costs, he also provides forwarding-looking guidance to investors. This guidance, along with our earnings announcement, will cause the investment community to bid up or down the company stock price, which affects billions of outstanding shares.
I’ve shared this anecdote with you because it’s part of the reason behind our two-tier enterprise resource planning (ERP) strategy. I’m a big believer in this strategy because I have seen the benefits to our business, and have spoken with hundreds of professionals at other organizations who have benefited or been hampered by their ERP strategy. For those hampered by their ERP strategy, I’ve found it’s difficult for them to rationalize a mixture of ERP solutions and custom-built applications across the business to deliver economies of scale, support global standards of business processes and respond quickly to changing business needs.
Microsoft runs its business on ERP
I’ll let you in on something most Microsoft employees don’t know. Microsoft’s business is run on ERP, and that environment is SAP at the core and Microsoft Dynamics AX and CRM integrated to the core. They’re both important parts of our two-tier ERP strategy, and allow us to balance efficiency and stability in the core with usability and agility in specific business operations. In addition to the core financials that our CFO depends upon, our ERP environment runs internal applications such as: pricing; accounts payable and receivable; full-time employee tracking; online recruiting; employee performance management and career planning.
We run our core SAP environment on top of the latest version of SQL Server database. Because Microsoft IT “dogfoods” all our commercial software, we’re the only platform vendor that runs SAP ERP on beta versions of our own platform, taking advantage of all the high availability and disaster recovery feature offered in SQL server. Microsoft IT has a close partnership with SAP and the SQL Server product team, and Microsoft IT has certified standing with SAP. We run more than 10 SAP modules, including finance, controlling, material management, demand planning, sales, human capital management, and global trade. In short, we run a mission-critical SAP environment. build to change
Our Dynamics AX 2012 environment integrates to SAP. We had 14 implementations of Dynamics in the first 8 months of use. By the end of our current fiscal year, we’ll have more than 20,000 users on Dynamics AX in areas like manufacturing, retail, professional services, and time and project management. Such business groups include the Microsoft Store organization, Microsoft Studios, the Xbox group, Microsoft Puerto Rico, and others.
To give you an example of the integration, Microsoft Puerto Rico operations handles key business processes such as manufacturing, planning and forecasting, as well as order management and inventory. Their Dynamics AX implementation integrates with SAP purchase order, packing slips, G/L entries and a breadth of other common SAP integrations. In another example, we’re integrating Microsoft Dynamics AX 2012 with SAP for employee expense management. This work allows us to achieve greater policy enforcement, improved flexibility to react to changing business conditions, and reduced long-term maintenance costs.
Build to Last / Build to Change
Microsoft IT values bringing some central governance and control to business applications, while also enabling the business to be agile with new applications. That’s why we adopted a service-oriented architecture that we call “build to last and build to change,” which is designed to balance user reach and agility. You can refer to the diagram below.
Build to last is about developing, managing and supporting a core ERP environment that meets the high levels of availability, reliability and security we require. It’s the environment that our CFO wants and needs, and he doesn’t want to see much change to this environment. SAP and our master data are at the heart of our core ERP environment. We’re on a quarterly release cycle with our core ERP environment, so we only have 4 chances per year to put changes into SAP. This cycle ensures we won’t disrupt the business cycle.
In contrast, build to change is the ying to the yang of build to last. Microsoft IT supports a high-level of agility with the front-end for user interface changes and mobility, as well as the vast majority of changes is new business requirements. That front-end is Dynamics AX or CRM, and it has tight integration with our core SAP system. This two-tier approach helps us adapt to new business models, such as the monetization of cloud services or establishing pop-up retail stores for the holiday season.
The Microsoft retail stores are a good example of the two-tier ERP approach enabling the business to move quickly. The stores are a place where people can try Microsoft and partner products, share their feedback and interests, and get inspiration and guidance. It allows the company to develop a closer connection with our customers. To be able to support the new retail store operations the business needed a solution that could be rolled out very quickly. The first retail operation had to be live within three months.
[Note: a separate blog about Microsoft Retail Stores and Microsoft IT’s ERP strategy will be published in the coming weeks].
We’ve also developed front-ends to internal applications using Windows Azure. We’ve found that cloud-based, front-end apps for expense, employee performance reviews, and pricing allow us to better address business needs in a timely manner. And as Dynamics AX moves to the cloud and becomes an online service, we can provision small self-service capabilities to the business so they can move more quickly to meet customer demand. See prior Office of the CIO blogs about Microsoft IT cloud strategy here and here.
Closing thoughts on governance
The decision of whether or not a two-tier strategy is right for your business requires a structured process to make sure all needs are incorporated and risks assessed. Our business processes change frequently, and our governance model and two-tier ERP strategy allows us to resolve conflicts.
In Microsoft IT, we maintain the balance of this hub and spoke, two-tier model through governance. We have single IT team focused on ERP and CRM (SAP and Microsoft Dynamics), with Dynamics AX/CRM and SAP subject matter experts reporting into the same general manager. We have standardized patterns of integration to support end-to-end integration across our ERP systems. Our business partners are involved in planning quarterly updates to the core system, and they’re involved in planning for our more agile Dynamics-based environment. We try to amortize ERP across as many people as possible, so it’s useable for everyone … especially our CFO and his team during the close and opening of fiscal quarters.
For more technical information on our ERP environment, your ERP team should read this quick reference guide and see more at Microsoft IT Showcase website.