Microsoft to Add "Encore" Functionality to MBS Great Plains 8.0 Part Three: Challenges and User Recommendations

Challenges

On April 27, Microsoft Corporation's (NASDAQ: MSFT) Microsoft Business Solutions (MBS) division announced the acquisition of accounting products from the Winnipeg, Manitoba, Canada-based vendor Encore Business Solutions, Inc. that could be critical to the success of customers and partners in the public sector. The acquisition includes Encore's not-for-profit accounting products and the inter-company payables management and requisition management modules currently sold by MBS under an original equipment manufacturer (OEM) agreement with Encore. Namely, the only modules that have been OEM-ed so far have been the purchase order enhancements and cash flow management functionality, but these are not a part of the NFP solution.

As a result, MBS Great Plains 8.0, scheduled for release this summer, will also include functionality essential for MBS and its partners to conduct business in the public sector, such as grant management, fund accounting, and encumbrance management. According to both companies there are an estimated 2.3 million public sector entities, which include government, not-for-profit, education, and healthcare organizations in North America alone. Since Encore and MBS have identical support policies, they insist customer support will be provided for the current and previous versions of all modules. Also, Encore's code has been developed with the same developer toolset as MBS Great Plains, which should make it an attractive opportunity to enhance existing horizontal financial management applications.

However, the combination of the respective niche public sector and nonprofit accounting provider and MBS Great Plains does not necessarily create an overnight nonprofit and public sector accounting leader, though many previously stalwart providers will see MBS coming in their rear mirror. Both MBS and Best Software will at least face stiff competition from Blackbaud that boasts a broad, scalable, and integrated Financial Edge product suite that goes well beyond mere fund accounting and fundraising functionality to encompass modules for the education market, such as registrar, admissions, student billing, and school store. Also, in addition to the above-mentioned slew of the lower-end of mid-market providers, some public sector and nonprofit competition can come from the likes of Lawson Software, PeopleSoft, Unit 4 Agresso, Deltek Systems, Geac, and so on.

Furthermore, the down side for MBS is that Encore leverages the outgoing Great Plains' Dexterity code base, which does not bode well for extending into MBS Solomon, MBS Navision, or MBS Axapta. MBS may contend that this has always been a Great Plains only play, and thus, because the product is built on Dexterity it is the tightest solution possible and there are no plans to extend it to the other ERP solutions at this stage. In fact, there will even be a sort of an internal competition, given that MBS already has a partnership with Serenic Software, whose Navigator product is a nonprofit and public sector accounting add-on to MBS Navision. Hence, despite MBS' efforts to differentiate products and simplify branding (such as, the MBS Great Plains' emphasis on financial accounting lent it well to the Encore add-on), customers and resellers still face a confusing assortment of products. The picture gets much more cluttered with many other ISV partners' potentially similar solutions, along with their consternation and resentment to the Encore acquisition.

On one hand, some ISVs and VARs (value-added resellers) partners, particularly those that have been building atop Encore's functionality (to provide utility billing applications, for example), should become more competitive within the sector. Many other partners will see it as yet another competitive threat from MBS' ever rising appetite to provide more and more applications-level functionality than mere general ledger or accounts payable functionality. Many VARs and ISVs have lately felt further squeezed by Microsoft moves to further commoditize and control the core application market, such as, the lower architectural layers that constitute the Microsoft Business Framework.

Thus, with more or less candor, MBS has been enticing its partners to focus on providing an application layer, possibly unique to specific vertical markets. However, these partners may feel like they are between a rock and a hard place—not only that they might be involved in investing in solutions that might compete with those of another ISV partner (not to mention their need to also bear in mind the migration of these solutions onto the Microsoft Business Framework in the future), but there is always a danger of MBS entering into a slew of OEM alliances and acquisitions similar to Encore, which might cannibalize current development efforts.

This brings us to another fuzzy area of the fickle nature of partnerships that Microsoft's stature and attitude has also long since earned. Although many similar product alliances in the past have become all but defunct, VAR and ISV partners still have had to adjust their strategies around these announcements. Since for some, particularly for smaller VARs, it may not always be viable to exclusively sell Microsoft business software. There might be some converted VARs itching to work with the likes of SAP or IBM, given SAP's and IBM's keen interest in the segment and possibly a more generous incentive and a more intimate relationship for VARs and ISVs (see IBM is Serious About SMB and Software Giants Make Courting A Small Guy Their 'Business One' Priority).

Again, to avoid customizing its core software, MBS has to try to convince ISVs to build industry-specific applications that leverage the core functionality supplied by its ERP systems, while Microsoft remains the infrastructure supplier (i.e., of Microsoft Business Framework that includes application functionality, business class libraries, and development tools like .NET and Visual Studio, all running on the Windows OS). MBS will have to energize its resellers to provide industry-specific configurable templates, but again, that can only happen once MBS produces a consistent and comprehensive listing of desired extensions (such as, "white spaces" atop the Microsoft stack that seek customization and value add-on by partners), and with a certification program ensuring that these extensions' developers use methods that guarantee ongoing compatibility with MBS products, all which might be too far fetched to expect at this stage, in part because the traditional MBS Great Plains architecture remains largely Dexterity. It might even be considered ironic that the current MBS' strategy of letting this extension functionality proliferate spontaneously largely resembles the current development practice of the open source community, which Microsoft loves to hate.

This is Part Three of a three-part note.

Part One detailed recent events.

Part Two discussed the market impact.

User Recommendations

Small and medium size organizations using MBS Great Plains back-office modules, which might have moderate to significant needs for nonprofit and public sector accounting capabilities, should react positively to the announcement of Encore's annexation by MBS. They should evaluate the upcoming functional enhancements as a way to add value to their existing applications. However, they should bear in mind that many other peer vendors might currently offer more mature and functionally deeper or broader best-of-breed products at this stage.

Small and medium nonprofit organizations and government agencies considering new enterprise solutions should place MBS Great Plains 8.0 on their list, at least to level the playing field with the other vendor candidates. These companies should consider the added functionality from this acquisition as an addition to their requirements list. Some companies might even find this combination as one holding significant value in terms of cost savings within a possible one-stop-shop solution. Both existing and prospective customers, as well as the ISVs and VARs, that have thus far collaborated closely with Encore should approach MBS for a clarified product roadmap. The catch 22 will be to obtain the firm delivery schedule of Encore for some of the other or all of the MBS flagship back-office applications, if at all that is in the offing.

On a more general note, while the value proposition of integrated ERP/accounting and fundraising/fund and grant accounting and management systems cannot be debated, companies should always identify the tradeoffs they are willing or not willing to make in order to achieve which level of integration. For example, not many, if at all any system will feature equally strong fund accounting and fundraising capabilities at the same time. It is unlikely that different groups within the organization will require the same capabilities from the system (e.g., while the accounting department mainly wants the summary of transaction data, the fund-raising stuff needs details to analyze the purpose and effect of grants). Thus, it is important to identify the laundry list of items that might or should be integrated between these systems, such as campaigns, appeals, funds, events, purchase orders, budgets, budget revisions, costs, accounts payable invoices and checks, forecasts, and so on. Also, companies should vigorously clarify the meaning of integration that the vendors tout. For example, will the integrated solution contain a centralized database? Also, does the integration accommodate the creation of new entries as well as the synchronization of changes to existing records occurring in real-time or via batch-file transfers?

Often, buying a completely integrated solution is not an option when companies have either an accounting or fund/grant/project-management system in place, which they will not simply rip-and-replace. Thus, prospects should assess the contesting vendors' flexibility to integrate to legacy and other third-party applications, and to keep up with new versions or upgrades to both solutions. Built-in interfaces to commonly used third-party products like MS Project, MS Office, Crystal Reports, etc., should be questioned, possibly during software demonstrations. Nonprofit organizations in particularly need the ability to merge data with Microsoft Word to produce thank-you notes, renewed pledge forms, or year-end contribution statements for tax reduction purposes of donors.