Microsoft reorganization leaves Dynamics in a sweet spot

Analysts: The Dynamics business application family has emerged as a conduit to push Microsoft's other technologies into enterprises

Microsoft's sweeping company reorganization may have some insiders feeling jittery about the future, but it's doubtful that the vendor's Dynamics business applications division or its customers need to worry.

While Microsoft CEO Steve Ballmer didn't expound on Dynamics at length in a memo about the changes released Thursday, what he did say was telling.

Ballmer's plan calls for "one Microsoft" focused on "shared goals," with engineering divided into four categories: operating systems, applications, cloud and devices.

However, "we will keep Dynamics separate as it continues to need special focus and represents significant opportunity," Ballmer added.

Ballmer also maintained Kirill Tatarinov, executive vice president of Microsoft Business Solutions, as head of the Dynamics business.

The only significant structural change for Dynamics will involve "dotted line," or secondary reporting relationships between Tatarinov's team and higher-level executives. Specifically, Dynamics product executives will also report to Qi Lu, head of applications and services engineering; its marketing head will report to Tami Reller, who now leads marketing for Microsoft; and its sales chief will report into chief operating officer Kevin Turner's group.

"I don't think the dotted-line relationships imply any lack of confidence in [Tatarinov]," said analyst Frank Scavo, managing partner of IT consulting firm Strativa. If there had been, the reorganization would have been a natural time to make a leadership change, he said.

If anything, the reporting change will only help Dynamics better align itself with the broad strategy Ballmer is trying to execute, said analyst Michael Krigsman of consulting firm Asuret.

While there have been rumors of Microsoft selling off the Dynamics unit because it wasn't a large enough business, with Thursday's announcement "it's clear the business apps market remains important to Microsoft," Krigsman said.

And that's not just because of the potential for growth in Dynamics product sales alone, according to Scavo.

When it comes to products such as Windows Server, Office or Microsoft Exchange, "those deals are all basically inside the IT organization," Scavo added. "The salesman is lucky if he talks to the CIO let alone the CEO."

It's only with Dynamics' ERP (enterprise resource planning) and CRM (customer relationship management) software that Microsoft can "get into more strategic conversations with the customer," particularly with chief financial officers, chief marketing officers and CEOs, Scavo said.

Microsoft's stated goal, even before Ballmer's reorganization plan, was to bring Microsoft technologies such as Yammer and Skype together with Dynamics.

To this end, expect Microsoft to also use Dynamics as a "rallying point" for selling a wide range of its technologies to customers, from Office and SharePoint to Windows Azure said analyst Ray Wang, CEO of Constellation Research.

Krigsman echoed the idea. "Dynamics will be a conduit for all four engineering areas into the enterprise," he said. "From that point of view, it's a very smart strategy."

Moving forward, Dynamics could also play a key role in growing the vendor's ecosystem, having emerged as "a test bed to show how partners can better leverage the rest of Microsoft's portfolio," Scavo said. However, the onus is on Microsoft to do a good job of this, he added. "If Microsoft can't do it, how can they expect ISVs to?"

Ultimately, if these predictions play out, Dynamics customers may be subjected to more sales calls, but also see Microsoft end up increasing the amount of research and development money devoted to the Dynamics product lines.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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