Analysis of the Dutch ERP Market

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Analysis of the Dutch ERP Market

Market opportunities for Avanade’s Microsoft Dynamics AX Solution

Thesis Supervisor: Prof. Rui Vieira

University of Amsterdam

By: Ruchi Dureja

Student Number: 10671498

Course: MBA Fulltime 2013-14

Amsterdam Business School

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Table of Contents Abstract : ................................................................................................................................................. 3

1. Introduction : ................................................................................................................................... 4

2. Literature Overview : ...................................................................................................................... 6

2.1 Resource-based views of competitive strategy ............................................................................. 6

2.2 Positioning views of competitive strategy: ................................................................................... 7

2.3 Entrepreneurial views of competitive strategy ............................................................................ 11

3. Methodology: ................................................................................................................................ 16

3.1 Research design .......................................................................................................................... 16

3.2 Data collection ............................................................................................................................ 17

4. Case Study: ................................................................................................................................... 18

4.1 Organizational background ......................................................................................................... 18

4.2 Microsoft Dynamics AX ............................................................................................................. 19

4.3 Dutch Market Status ................................................................................................................... 21

4.4 Research Statement Identification .............................................................................................. 23

5. Discussion & Findings: ................................................................................................................. 23

5.1 Market Research ......................................................................................................................... 23

5.2 Analysis: ..................................................................................................................................... 24

5.2.1 Phase I : ................................................................................................................................ 24

5.2.2 Phase II : .............................................................................................................................. 25

5.2.3 Phase III : ............................................................................................................................. 27

6. Conclusion: ................................................................................................................................... 40

7. Appendices :...................................................................................................................................... 43

7.1 Interviews .................................................................................................................................... 43

Literature: .............................................................................................................................................. 46

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Abstract : Purpose

This paper is presented in partial fulfilment of requirements of the Master of Business

Administration program of Amsterdam Business School and presents the findings of

Avanade Business Case Study Challenge in Avanade Netherlands B.V, an IT & Software

consultancy company. This case study aims to contribute to deeper and richer understanding

of the factors employed by Enterprise Resource Planning (ERP) suppliers in the process of

new market creation or expansion. Much of the research available focuses on ERP

implementations from the customer side, but little research material is available on suppliers.

Hence, this case study is a small attempt to reduce that gap.

Design/methodology/approach

As part of this company project, a case study challenge was undertaken to study ERP market

in Netherlands with the pursuit of exploring new market opportunities for Avanade’s ERP

service line. The Student participated in all the discussions, meetings, interviews and

presentations as part of case study team and acted as facilitator, strategic and technical

advisor to the rest of the team. Equal attention was paid to internal resources and external

environment while doing market research and making recommendations.

Findings

Two potential industries were selected for further study, based on Avanade’s internal

resources, existing customers and stakeholder influence. These two industries are - Financial

Service and Manufacturing Pharmaceutical industries. ERP systems exist in both of these

industries, but Avanade has not exploited this market opportunity in Netherlands yet.

The analysis showed that current resources of Avanade are not sufficient to venture full scale

in to manufacturing pharmaceuticals industry. However, mixed response was registered in

favour of this proposition. The reason for this mixed response was found to be different

driving needs of various stakeholders. Stakeholders here imply parent partner

companies(Accenture, Microsoft) and Avanade employees. Some stakeholders were found to

be more driven by visibility of Avanade Netherlands at worldwide global scale of Avanade.

Other stakeholders found the opportunity to be too complex and misaligned with Avanade’s

cautious approach business model. Further analysis supported by financial figures and risk

map proved it beyond doubt that Avanade would require lot of effort in developing this

complex solution and potential local market share may still not be sufficient to justify such

efforts. Microsoft, 20% owner of Avanade, also confirmed the same views and gave positive

feedbacks for following this proposal at Avanade global level rather than at local level (The

Netherlands).

The other industry studied in this case was financial services. It was found that Avanade

Australia already possesses projects, experience and technical know in this industry.

Therefore, Avanade Netherlands would not need to develop a new solution from scratch. A

broad level overview of this industry was presented to Avanade’s senior executives who

agreed with the findings.

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1. Introduction :

Enterprise resource planning (ERP), refers to the software system that businesses use to

streamline its business processes, centralise and align data and ensure effective utilisation of

resources. Al-Mashari et al. (2003) define ERP system as follows: “a basic ERP consists of a

database, an application and an integrated interface”. These days, most modern businesses

irrespective of their size (whether large, mid-sized, or small) control their software systems

and databases within individual departments. As per Bingi et al. (1999), “An ERP system can

be thought of as a business-wide integration mechanism of all the organizational IS to take

quick reaction to competitive pressures and market opportunities, be more flexible product

configurations, achieve reduced inventory, and maintain tightened supply chain links.”

ERP market is dominated by three software giants - Oracle, SAP and Microsoft, where each

seeks to further grow their global user base. As per annual report by Panorama consulting

solutions (2014), each of these three vendors has proved that they can adapt to the ever-

changing needs of their clients, anticipate and capitalize on economic trends while

developing offerings to suit verticals outside of their original target markets. “As the ERP

market continues to flex and flourish, these three titans are coming under even more pressure

to retain market share. The competition shows all signs of continuing, with customers being

the ultimate beneficiary as these three vendors strive to increase their appeal and utility to

clients and industries around the world” (Panorama consulting solutions, 2014)

Oracle

Oracle Corporation is well known for its database systems and expanded its market share in

the ERP market through organic growth and a number of high-profile acquisitions including

JD Edwards, PeopleSoft, and Siebel CRM etc. Oracle is present in manufacturing industry

and large organizations, especially in the public sector and financial services sector.

PeopleSoft has eight different application solutions including financials, supply chain, HR,

CRM etc., among which HR and CRM solutions are the most desirable. The current

PeopleSoft version is based on a web-centric design, which allows all of a company's

business functions to be accessed and run on a web browser.

Oracle offers its solutions with different deployment models, including both on premise and

on-demand which allows more flexibility to accommodate changing business needs, but this

strength can become a weakness when it becomes harder to enforce standardized processes

across a larger organization. Some of Oracle’s functional strengths include:

● Strong finance and accounting functionality

● Advanced pricing module supports complex pricing scenarios

● E-portal provides for easy interaction with customers and suppliers

● Well-built IT architecture

● Better product configurator

● Good functionality for production operations

Comparison of Oracle’s as they relate to SAP and Microsoft Dynamics:

• Highest success rate

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• Shortest payback period

• Fewest amount of respondents receiving payback in greater than three years

• Largest delta between planned and actual implementation duration

• Smallest delta between projected and actual project cost

• Lowest rate of operational disruption at go-live

SAP

SAP SE(Systems Applications Products Societas Europaea) is a leading player in the ERP

market and fuelled its growth through close relationships with a variety of alliance partners

during the 1990s and 2000s. SAP offers integrated business solutions that provide industry-

specific functionality and scalability for all sizes of companies. Although very robust and

powerful, SAP can be more difficult to change as business evolves which is both a strength

and a weakness at the same time. On the other hand, it is tightly integrated and helps enforce

standardized business processes across an enterprise. SAP’s core offerings include SAP

Business All-in-One, SAP Business One and SAP By Design which is different solutions

based on size of the organization from 2500 employees to 500 employees. Some of SAP’s

functional strengths include:

● Strong product development functionality

● Ease in supporting Make-To-Order processing

● Integrated retail module

● Clear visibility to goods-in-transit orders

● Good quality control and quality assurance functionality

● Good compliance with Sarbanes-Oxley act and tax regulations

● Strong cash management functionality

Comparison of SAP’s suite of solutions with Oracle and Microsoft Dynamics:

● Largest share of the market

● Highest short-listing rate

● Highest selection rate when short-listed

● Smallest delta between planned and actual implementation duration

● Highest rate of operational disruption at go-live

● Highest failure rate

● Lowest success rate

Microsoft

Microsoft Corporation, already an established premier supplier of operating systems and

business software, entered the arena of ERP software market through series of acquisitions

like Great Plains, Navison and Damgaard Software Axtapa. Microsoft’s ERP products serve

organizations of all sizes but this paper focuses only on Microsoft Dynamics AX, an ERP

system geared toward larger, enterprise-wide implementations. Microsoft Dynamics has

historically relied upon its large network (10,000+) of partners to develop extended and

industry-specific functionality beyond the core products and the core offerings incorporates

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manufacturing, public sector, service industries and distribution. Some of Microsoft

Dynamics’ functional strengths include:

● Ease of customization

● High flexibility

● Ease of integration

● Familiarity of user interface

● Strong inter- and multi-company support

● Strong multicurrency and localization capabilities

● Data dimension-enabled tracking of physical moves and financial transactions

● Strong material resource planning and trade capabilities

Comparison of Microsoft Dynamics with SAP and Oracle:

• Smallest share of the market

• Lowest short-listing rate

• Longest payback period

• Largest delta between planned and actual project cost

• Highest amount of respondents achieving greater than 40-percent functionality

• Shortest length of operational disruption

• Shortest implementation duration

This paper deals with selection and evaluation of such opportunities using strategic

frameworks for Microsoft Dynamics AX ERP system of Microsoft sold by IT & Consultancy

Company Avanade Netherlands B.V. in Almere.

2. Literature Overview :

The reason for selecting this particular topic was lack of enough research from supplier side

of ERP providers. Most of the research material available is for ERP implementations, their

success or failure but the role of ERP supplier had not been studied in enough detail in the

past. The area studied in this case were - what factors impact selection of new markets,

development of new capabilities to meet demands of such markets from a supplier’s

perspective. A qualitative research was pursued and the observer examined the issue closely

through active participation and direct interaction in natural settings. Moreover, a holistic

approach was much more suitable to gain insight into why and how certain decisions are

made and evaluated. This study focused on new market opportunities, but the process of

identifying suitable opportunities requires both, supporting figures and stakeholders

commitments.

2.1 Resource-based views of competitive strategy

Resource based view advocates that a firm can achieve sustainable competitive advantage

(SCA) when it possesses particular valuable resources that can help improve its efficiency

and effectiveness over the long run in ways that cannot be imitated by its competitors.

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"Sustainable competitive advantage is the unique position that an organization develops in

relation to competitors that allows it to outperform them consistently” (Hofer and Schendel,

1978).

SCA is different from competitive advantage (CA) because it has to be sustainable in the long

run and should not be easily imitated. As per Barney (1995), a firm is said to have CA when

it is implementing a value creating strategy not simultaneously being implemented by any

current or potential player.

It is not always possible to achieve SCA simply by evaluating external environment and then

conducting business only in attractive conditions (high-opportunity, low threat

environments). Rather, managers must identify inside their firm valuable, rare and costly-to-

imitate resources, and then exploit these resources through their organization. It has been a

never ending jobs for strategic managers to understand sources of competitive advantage for

firms.

As per Barney (1991), below four characteristics are important for a resource to be

strategically important -

● Valuable: Resources can be a source of competitive advantage when they are able to

add value to a firm by enabling it to exploit opportunities and neutralize threats.

● Rare: Resources have to deliver a unique strategy to provide a competitive advantage

to the firm. If a valuable resource is controlled by numerous competing firms, then it

is only likely to be a source of competitive parity and not competitive advantage for

any of them.

● Inimitable: Resources can only be a source of sustained competitive advantage if

competing firms cannot either easily obtain them or at a cost disadvantage in imitating

them.

● Non-Substitutable: Resources should not be replaced by any other strategically

equivalent functional substitutes. If competitors can substitute value creating strategy

of a company with another substitute, then such resources are not a source of

sustained competitive advantage.

Traditionally, SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, has been

used to find SCA. This logic suggests that firms which match their internal strengths to

exploit environmental opportunities, neutralize environmental threats and avoid internal

weaknesses are more likely to gain CA than its competitors.

2.2 Positioning views of competitive strategy:

2.2.1 Michael Porter’s Five Competitive Forces

Porter five forces analysis is a framework to analyse competition level within an industry,

developing business strategy and setting business unit boundaries.

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Porter (2008, p. 89) describes importance of this framework as “Using the five forces

framework, creative strategists may be able to spot an industry with good future before this

good future is reflected in the prices of acquisition candidates”

Figure 1.

Source: (Porter, 2008, p. 80)

To understand industry competition and profitability, one must analyse the industry’s

underlying structure in terms of the five forces. If the forces are intense, than almost no

company earns attractive returns on investment. If the forces are benign, many companies are

profitable. Industry structure manifested in the five forces drives competition and sets

industry profitability in the medium and long run. A healthy industry structure should be as

much competitive concern to the strategists as is their company’s competitive positioning.

The strongest competitive forces or forces determine the profitability of an industry and

becomes most important to strategy formulation. The five forces are -

Threat of Entry: New entrants to an industry bring new capacity that puts pressure on

prices, supply, costs and rate of investments necessary to compete. If new entrants are

diversifying from other markets, then they can also shake up competition by

leveraging their cash flows or existing capabilities. Threat of entry puts a cap on profit

potential of the industry and the higher it is, the higher is the pressure on existing

incumbents to hold their prices down to deter new investors. Barriers to entry, either

high or low directly impacts threat of entry and it is this threat that actually holds

down prices irrespective of entry actually taking place or not.

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The Threat of Substitutes: A substitute performs the similar functionality as an

industry’s product through different means. Substitutes negatively impact industry’s

profitability by placing a cap on pricing. An industry’s growth potential can also be

negatively impacted in absence of substantial distance from its substitutes in terms of

performance, pricing or marketing etc.

The Power of Suppliers: Powerful suppliers can retain most of the value creation in a

value chain by keeping higher prices, shifting costs to industry participants and

limiting quality or services etc. A supplier group is more powerful in case of its

monopoly or concentration in the market, higher switching cost for other industry

participants, product or service offerings differentiation or lack of dependency on the

industry for revenue extraction.

The Power of Buyers: Powerful buyers can capture more value for themselves by

pushing prices down, demanding better quality or more services and playing industry

participants against one another, ultimately adversely impacting profitability of the

industry. Buyers are more powerful if there are few of them or they buy large volumes

relative to size of single vendor, products or services are undifferentiated or lower

switching costs in changing vendors etc.

Rivalry among Existing Competitors: Rivalry in many forms(pricing, new products or

improved services, marketing) limits the profitability of the industry. The extent to

which industry profitability is impacted by rivalry depends upon intensity of the

competition and basis on which competitors compete. Porter (2008, p. 85) states,

“Rivalry is especially destructive to profitability if it gravitates solely to price because

price competition transfers profits directly from an industry to its customers.”

2.2.2 Porter’s Generic Strategies

The positioning approach, often referred to as the “outside-in” approach, starts by looking at

the external environment as opposed to resource based view discussed above. It aims at

establishing a position that best meets the five competitive forces within the organisations

industry. In order to gain SCA, Porter(1985) has further discussed three strategies that a

company can undertake to attain competitive advantage - Cost Leadership (no frills),

Differentiation (creating uniquely desirable products and services) and Focus" (offering a

specialized service in a niche market). He then subdivided the Focus strategy into two parts:

cost and differentiation.

As per Porter (1985), cost leadership implies being a market leader in terms of cost in

one’s industry through -

Either through increasing profits by reducing costs while charging industry-

average prices.

Or increasing market share through charging lower prices while still making a

reasonable profit on each sale because of reduced costs.

Differentiation strategy involves differentiating one’s products or services from its

competitors. Differentiation can be achieved through any of the factors like features,

functionality, durability, support or brand image etc. This strategy will require extra cost and

investments to achieve such differentiation and hence, may not be cheap.

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Focus strategies concentrate on specific niche markets, its dynamics and the unique needs of

customers within the market to produce unique low-cost or well-specified products for that

market. This strategy serves customers in a unique market and hence, attracts brand loyalty

among its customers. This also makes that particular market segment less appealing to its

competitors. Companies employ this strategy by focusing on the areas in a market where

there is the least amount of competition (Pearson, 1999). It is also possible for a company to

make use of the cost leadership or differentiation approach with regard to the focus strategy.

It implies that a company using the cost focus approach would aim for a cost advantage in its

target segment only. If a company is using the differentiation focus approach, it would aim

for differentiation focus in its target segment only, and not the overall market. The downside

of using focus strategy could be that niche market may not be large enough to justify

investments or a company’s efforts. Porter (1980) argues that a company may be stuck in the

middle in case of failure to choose between either cost leadership or differentiation strategy.

Such a company would not have any CA and may suffer from poor financial performance.

However, there is disagreement between scholars on this aspect of the analysis. Kay(1993)

and Miller(1992) have cited empirical examples of successful companies like Toyota and

Benetton, which have adopted more than one generic strategy. Both these companies used the

generic strategies of differentiation and low cost simultaneously, which led to the success of

the companies.

Figure 2.

Source: Internet http://www.mindtools.com/pages/article/newSTR_82.htm

[accessed on 30/09/2014]

http://www.mindtools.com/pages/article/newSTR_82.htm

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2.3 Entrepreneurial views of competitive strategy

2.3.1 Non-Predictive Strategy

Among the most difficult of challenges in business is to create future strategy of -an

organization that is doing well because such an organization may not realize the need to

reposition itself to match the changing environment. Repositioning one’s next move is also

not easy to address in environments characterized by uncertainty. Two prescriptions dominate

the topic of firm’s next move in uncertain situations : Planning approaches and Adaptive

approaches. Planning approach suggests trying harder to predict better as advocated by

planning school while Adaptive approach suggests moving faster to adapt better as advocated

by learning school. Both these approaches emphasize on positioning the organization within

an exogenously given environment while they differ primarily on appropriate role of

prediction in the decision process. Wiltbank et al.(2006) discuss framework for prediction

and control and argue that successful outcomes can occur through non-predictive control-

oriented approaches.

Figure 3.

Framework of Prediction and Control

Source: (Wiltbank et al., 2006, p. 983)

Strong prediction, strong control: First quadrant denotes visionary approach where

one has a strong vision of the future environment and is committed to make this

vision a reality through one’s actions. This configuration is assumed by strategy

practices that take a vision and mission as a starting point.

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Strong prediction, low control: In this configuration, one develops a strong vision of

the future market, but is unable to influence it significantly. The quality of the

prediction is essential and success directly depends upon the accuracy of prediction.

Hence, this strategy is fragile, especially in uncertain and turbulent environments.

Low prediction, low control: This quadrant corresponds to the taker of the

environment, about which one does not develop a vision or a prediction but cannot

exert any influence on it either. It is part of classic strategy, but upgraded to handle

the case of industries affected by turbulence, such as high-tech sector. The paradigm

is that of adjustment or trial and error. The key to success in this configuration is

flexibility, i.e. the ability to adapt to a new situation quickly and at low-cost. While

this approach is popular especially in today’s seemingly unpredictable world, it

always have the risk of being late. Also, being purely reactive means taking the risk of

not having the right assets (knowledge, experience) at the right time. As such,

adaptation is important, but it cannot be firm’s sole approach in the long run.

Low prediction, strong control: In transformative approach, one does not develop

vision or prediction of the future environment, but seeks to exercise strong control on

its evolution. This can be done through co-creation with selected stakeholders via

partnerships, coalitions etc. This approach also corresponds to Effectuation theory of

new market creation in uncertain environments. It is this non-predictive approach to

strategy that today offers the most prospects for strategy development and provides an

opportunity to learn from entrepreneurs who are experts in dealing with uncertainty.

2.3.2 New market creation through Transformation

Sarasvathy and Dew (2005, p.538) discuss market creation process as a transformation

process involving new network of stakeholders. This network is initiated through an effectual

commitment that sets in motion two concurrent cycles of expanding resources and

converging constraints resulting in a new market.

Entrepreneurial research discusses market creation through either Causation or Effectuation.

Causation: Causation is the process of exploring the universe of all possible markets and then

exploring most predictable or highly profitable ones. This process begins with exploration

resulting in the identification, recognition or discovery of an opportunity, followed by a series

of tasks to exploit the opportunity.

Effectuation: Effectuation process on the other hand may or may not start with an

opportunity. Instead, this process starts with actual means of the entrepreneur where they

identify who they are, what they know, whom they know and then act upon whatever they

can afford to do. Most important part of this process is meeting people to identify possible

stakeholders and plunging straight into negotiations as series of commitments. An important

aspect of effectuation is to note that the opportunity (real, perceived or otherwise) does not

determine who comes on board. Instead, people on board along with their commitments and

contingencies that occur along the way, determine what opportunities get created..

Effectuation consists of four principles.

Bird in Hand Principle: Perfect opportunity does not always come one’s way. Instead, take

action based on current means and network.

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Affordable Loss Principle: Evaluate opportunities based on whether the downside is

acceptable, rather than on the attractiveness of the predicted upside.

Lemonade Principle: Embrace surprises that arise from uncertain situations, remain flexible

rather than rigid towards existing goals.

Crazy-Quilt Principle: Form partnerships with people and organizations that are willing to

make real commitments for co-creation.

Effectuation is not a static, one-time exercise. Rather, it is a logical process that can be used

as the firm develops in the start-up phase of growth. Expert entrepreneurs follow the process

to gain early customers and committed partners who then create new means and new goals as

resources and viewpoints are added to the mix. Thus, instead of having a stated goal and

finding means to reach it, expert entrepreneurs use the new means and new goals to drive the

creation of the venture in ways they had not expected, leveraging surprises as they present

themselves. Effectuation practitioners use this process to lower the risk of the venture by

getting customers and income early, by setting affordable loss, and by spreading risk to

others. It enables them to find truly new and useful market opportunities by leveraging

constraints.

Figure 4.

Dynamic model of an effectual network and new markets

Source: (Sarasvathy and Dew, 2005, p.543)

Business schools have long taught the principles and tools of causal reasoning which is the

exact inverse of the effectual reasoning. Effectual reasoning provides an alternate and

coherent logic to causal reasoning. Sarasvathy and Dew, (2005) did not create a new theory

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of entrepreneurship that could be pitted against other theories. Rather, she documented logic

of entrepreneurial action which has methodical implications for both researchers and

entrepreneurs.

2.3.3 Effectuation vs. Causation

Figure 5.

Source: Internet: http://www.effectuation.org/learn/effectuation-101 [accessed

30/09/2014

2.3.4 Stakeholder Theory

Stakeholder theory has been a popular heuristic for describing the management environment

for years, but it has not attained full theoretical status (Mitchell, Agle and Wood, 1997). A

stakeholder is any person or organization, who can impact or be impacted by an

organisation’s achievement of objectives. Stakeholders can be:

Primary stakeholders: are ultimately affected by an organization's actions.

Secondary stakeholders: are the ‘intermediaries’ who are indirectly affected by an

organization's actions.

Key stakeholders: have significant influence within an organization and may or may

not be part of above two groups. (Wikipedia, 2009)

Stakeholder analysis refers to analysing the actions of stakeholders towards a project and is

frequently used during the preparation phase of a project to assess the attitudes of the

stakeholders regarding the potential changes. Stakeholder analysis can be done either

periodically or once to track changes in stakeholder attitudes over time. The main purpose

behind doing this analysis is to ensure successful outcome of the project by developing

cooperation between the stakeholders and the project team. This process requires developing

a categorized list of the members of the stakeholder community, assigning priorities to them

as per pre decided criteria, and finally translating the ‘highest priority’ stakeholders into a

http://www.effectuation.org/learn/effectuation-101

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table or a picture. Since potential list of stakeholders for any project almost always exceed

both the time available for analysis and the capacity of the mapping tool, therefore it is very

important to focus on the ‘right stakeholders’ and use the tool to visualize this critical subset

of the total community. The most common presentation styles use a matrix to represent two

dimensions of interest with frequently a third dimension shown by the colour or size of the

symbol representing the individual stakeholders.

Figure 6.

Source: Internet: http://en.wikipedia.org/wiki/Stakeholder_analysis# [accessed on

30/09/2014]

Some of the commonly used ‘dimensions’ include:

Power (high, medium, low)

Support (positive, neutral, negative)

Influence (high or low)

Need (strong, medium, weak)

The entrepreneurial process is an interactive combination of three components which

ultimately result in market innovation (Park, 2005).

http://en.wikipedia.org/wiki/Stakeholder_analysis

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Figure 7.

Source: [Park, 2005, p. 747]

Entrepreneur is the first component, who decides to create a firm to pursue the

entrepreneurial technology venture. The second component studied is the organization that

the entrepreneur builds around themselves and its impact upon the success of the venture.

Third and the final component of the process is the base technology for the venture, how it

develops, evolves after interacting with the other two components of the process (Park,

2005). This interaction among the components will ultimately define the final output of the

innovation process. While all of these factors have been identified in the literature, the actual

interaction of the components has yet to be the focus of any real detailed empirical study

(Granstrand, 1998).

As per Park (2005), above model proposes that new technology development is a key

component in the innovation process for all high-tech firms, large or small. However, the

innovation is not based on technology alone. Innovation is the end result of complex

interaction of the inanimate technology with the living components of the model. Studying

these interactions across a wide range of firms would start to identify how to effectively

synthesise the various model components. This could provide a useful blueprint for effective

innovation strategies and resultant market success in a variety of technology and market

sectors.

3. Methodology:

3.1 Research design

Every year Avanade conducts this case study challenge for its products to understand the

driving forces behind market. International students from various countries and diverse

backgrounds are selected to find innovative ways to create new markets or expand existing

ones. A very interesting dimension of this case study is that although same steps are followed

each year in the process, but human interaction coupled with environment and product

findings always bring out the unique outcome.

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As per project plan provided by Avanade’s case study supervisors, entire case study was

executed in four distinct phases with deliverables due at the end of each phase.

Planning and market analysis

Market research

Strategy identification and development

Final conclusion

Phase I: Planning and market analysis: The first phase in the case study was to identify all

such stakeholders with in Avanade who would be impacted by this project, identifying their

expectations and concerns and accordingly managing the final deliverables. As employees

were the only source of information, and approaching the issue from a new viewpoint meant

having no clear framework or previous example from which to work on. Thus, the project

scope required pulling the initial data to conduct market analysis as the very first step. The

following deliverables were required at the end of this phase - Detailed project plan, initial

market study, team formation and identification of role, stakeholder identification report.

Phase II: Market research : Second phase required identifying key tasks in the project plan,

acquainting oneself with the product (Dynamics AX) including SWOT analysis, identifying

current market situation in Netherlands and possible new industries for market entry

supported by data. In this phase, two potential attractive industries (manufacturing

pharmaceuticals, financial services) were identified. These two verticals were completely

opposite to each other in terms of product developments, complexity and target customer

segments and it was none the less very challenging to concentrate on two industries in a short

timeframe of three months. Hence, detailed attention was given to manufacturing

pharmaceuticals, the more complex but lucrative of the two options. The following

deliverables were required at the end of this phase - Detailed market research along with

supporting documents, feasibility analysis and running log of stakeholder interactions.

Phase III: Strategy identification and development : Third phase required clear understanding

of manufacturing pharmaceuticals industry, possible long and short term strategies for

market penetration supported by financial and risk analysis, consolidation of all the data to

reach final conclusion of go/no go to market decision. The following deliverables were

required at the end of this phase - Financial and risk analysis, Long term and short term

business strategy, stakeholders commitments or response etc.

Phase IV: Final conclusion : Last step in the study and shortest of all the phases required

consolidation and presentation of the findings to Avanade senior management and identified

stakeholders. Final project report and presentation was due at the end of this phase.

3.2 Data collection

Primary source of data was Avanade’s employees and data was collected using individual

interviews both structured or semi structured. To gather understanding of the ERP system and

ERP service line operations, loose questions like “how is Dynamics AX performing in the

Dutch market?”, “are existing customers satisfied and would they be happy to give

recommendations?”, “how does Dynamics AX stand in competition to its main rivals in the

Dutch market” were asked. Most of the meetings were planned but interview setting was

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almost always informal. Data was collected through recorded and unrecorded interviews,

emails, minutes of meetings etc. Prior permission of the interviewee was always sought

before recordings. In some cases, the recording request was denied due to the confidentiality

of data.

Secondary sources of data collection were research reports by previous interns, official

statistics, web information, sales enablement team of Avanade Research etc. The

geographical area covered in the study is The Netherlands.

4. Case Study:

4.1 Organizational background

Avanade Netherlands

Avanade is a consulting company providing solutions based on inside knowledge, innovation

and deep knowledge of the Microsoft technology in seven service lines:

● Enterprise Resource Planning (Microsoft Dynamics AX)

● Application development

● Collaboration

● Business Intelligence

● Customer Relation Management

● Outsourcing

● Technology infrastructure

Avanade is a joint venture established by Microsoft and Accenture to be an exclusive

provider of Microsoft solutions. The premise of this venture was to create an organization

that would focus solely on delivering Microsoft consulting services, a service not yet

provided by a single company. Accenture owns the majority piece (80%) of Avanade,

aligning more closely with the consultancy business. The company operates in more than

twenty countries, the headquarter in the Netherlands is located in Almere and corporate

headquarters is in Seattle, WA., USA. The company was founded in 2000 and opened office

in the Netherlands in 2004. The service delivered by Avanade is simple: “enhance business

agility while lowering client cost, reduce time-to-market increasing sales and improving

customer loyalty, and improving efficiency and productivity of employees.” Current tag line

of Avanade is to do more with fewer customers by providing them great service and cross

selling. Avanade is comprised of various service lines including application development,

customer relationship management, enterprise resource planning, technology infrastructure,

business intelligence, collaboration, and outsourcing and this paper deals with enterprise

resource planning service line, in particular about their ERP solution named Microsoft

Dynamics AX.

Source: Internet:

http://www.avanade.com/Documents/Press%20Releases/Msft%20Alliance%20Partner%20A

ward%20news%20release%20FINAL.pdf [accessed on 30/09/2014]

http://www.avanade.com/Documents/Press%20Releases/Msft%20Alliance%20Partner%20Award%20news%20release%20FINAL.pdf


19

4.2 Microsoft Dynamics AX

Dynamics AX (AX) is relatively new product in the market monopolised by ERP giants like

SAP & Oracle. It is gaining popularity and market share because of it user friendliness, lower

cost and ability to integrate with other Microsoft products used worldwide like Microsoft

Office or Outlook. At the moment the most recent version is AX2012 R2. Originally the

software was owned by Damgaard Data; which merged with Navision and was later acquired

by Microsoft in 2002. The system was developed to include the following functionality in the

core system:

● General Ledger

● Bank Management

● Customer Relationship Management

● Accounts Receivable

● Accounts Payable

● Inventory Management

● Master Planning

● Production

● Product Builder

● Human Resources

● Project Accounting

Avanade has three distinct delivery methods to implement ERP systems, the regular

implementation method is based on Avanade Connected Methods (ACM), which describes

how projects should be executed and which deliverables should be produced. This

methodology provides guidance to the consultants during the implementation; however

deviations from the method are possible, common and allowed. This implementation method

results in a custom tailored ERP system, customized for a specific organization. The second

method is the “Fast Implementation Track” (F.I.T.) in which a standardized ERP system is

implemented out of the box. Many items are pre-configured with standard datasets and much

is practically ready to go. This method is available for most commonly used ERP modules.

The third method, RapidResults aims to bridge the gap between regular implementations and

the Fast Implementation Track, making the ERP solution non-standard and tailored for the

specific organization, while at the same time being able to deliver in a highly structured and

standardized way. At the same time RapidResults aims to add deep vertical industry

knowledge to the implementation. Using industry specific best practices build on Avanade

and Accenture experience, it tries to differentiate the ERP solution from the competitor’s

solution based on the same ERP system.

Fast implementation track

For Dynamics AX, a specific delivery method called Fast Implementation Track (F.I.T.) was

developed to achieve higher project success rates, add value to the ERP system, reduce costs

and ensure higher user acceptance. This method incorporates preconfigured Dynamics AX

environments that include business flows, business process training manuals, static data,

parameters, security and data-load templates for customer data for frequently used ERP

modules. This results in a more “out of the box’ ERP solution. The F.I.T. method is

relatively static and needs investments from Avanade to develop “the out of the Box”

package for specific ERP modules, identifying best practice processes, developing standard

implementations and generating training material. At the moment this method is available

20

for: administration, basic, accounts payable, accounts receivable, CRM, general ledger,

inventory management, production, MRP and a few others.

A strong point of F.I.T. regarding the customers is the aim of the implementation to generate

value to the system by providing the best practices, process flows, training material and short

implementation cycles. This however is at the cost of the flexibility of the implementation,

for example: the number of possible order types or system users can be limited in a F.I.T.

implementation. The flexibility of Dynamics AX solutions is however a strong point of the

Microsoft ERP solution.

Regular dynamics AX implementations

In other Dynamics AX implementations in which the F.I.T. method cannot be used for all the

modules, the Avanade Connected Methods (ACM) framework and its specified deliverables

are used. These deliverables are based on predefined standards and templates which guide

consultants about activities that should be performed in each phase of the project; define

standard documentation, gap analysis, blueprints etc. It contains roles, milestones,

implementation processes, project management processes and deliverables. The deliverables

in practice are extremely important because they are the criteria of judgement by Avanade’s

client organizations use to judge Avanade. However in practice project managers and

consultants don’t always follow these best practices and sometimes perform their job “like

they have always done” and create documentation such as gap analysis, data conversion

blueprints, test plans e.g. based on their own experience and templates. In contrast to F.I.T.

the process and deliverables are less standardized (although they should be). An Avanade

consultant described this as: “In theory these ACM defined deliverables and practices should

be the best practice which should be used. However in practice during projects theory and

practice have a larger distance between them and people tend not to use these best practices

as they don’t really see the added value or simply are used to something else.” The

deliverables and methodology rules as described in ACM are not expected to be followed

strictly, but may be (slightly) adapted to fit specific project needs.

In general it can be stated that Dynamics AX is flexible and ready to configure to a

customer’s requirements while F.I.T. is a predefined implementation which is ready to go out

of the box. Together with a customer, decision is made regarding the best applicable method

in every implementation.

RapidResults

Avanade has developed a new delivery method for ERP systems, RapidResults. This method

aims to combine a number of assets into a total package and bring the “flexible and ready to

configure” Dynamics AX implementation closer to the F.I.T. “more out of the box”

implementation making it into a faster, cheaper, higher quality and more valuable approach.

RapidResults combines four main components:

● An industry specific set of leading best practices, knowledge, processes, techniques

and points of view. Developed by Avanade, Accenture or other partners with deep

industry knowledge. Going further than the standardized practices incorporated in an

ERP system.

● Solution accelerators such as standardized documentation, data formats, configuration

blueprints, standardized documentation and testing tools.

21

● Application building blocks and functional assets such as the MECOMS system, able

to execute the defined processes.

● Implementation methodology and tools, like Avanade’s Connected Method to execute

the implementation process.

Using the RapidValue modelling tool, the best practices are modelled and incorporated in the

Dynamics AX environment. Using a top down approach an organization and the processes

used are modelled in flows and activities. On the top level organizational visions, goals,

requirements and scope are defined. On the lowest level individual activities are linked to

ERP functionality step by step.

Source: Internet: http://www.avanade.com/Documents/Research%20and%20Insights/Why-

delivery-approach-matters-for-IT-initiatives.pdf [accessed on 30/09/2014]

4.3 Dutch Market Status

At the moment, ERP market is very lucrative and there are significant opportunities in it.

However, with opportunities bring with itself competition and challenges. Avanade had

pioneered in health care market by providing ERP solutions to hospitals with in Netherlands

and they are the only one service provider with global size and scale. In spite of such

illustrious credentials, Avanade is facing challenges in this market because their customer

service level is not as per promised standards and it is impacting their reputation negatively.

The primary reason is slow performance either due to poor technical infrastructure at client

location, problems with in Microsoft’s Dynamics AX solution or quality of the Microsoft

partners.

Microsoft has a network of 10,000+ partners who distribute their products and there are two

possible types of partnerships – value added reseller (VAR) and Independent software vendor

(ISV). The difference between these partnerships is that ISV partners develop solution from

scratch on top of Microsoft’s product while VAR partners distribute it in the market after

buying from ISVs. Avanade has both types of partnerships with Microsoft and when Avanade

implements/sells some solution to the client whose part functionality is built by another

Microsoft partner, then quality of the final deliverable directly impact Avanade’s reputation

in the market as the clients do not recognise any other third party. Similarly if the technical

infrastructure likes fibre optic cables, internet bandwidth, network hardware or computers do

not have the right configuration for optimal exploitation of supreme technical solution like

Dynamics AX resulting in slower performance and customer dissatisfaction. Dynamics AX

downward trend can also be gauged from its positioning on renowned Gartner magic

quadrants in 2012 & 2013.

This downward trend in Dynamics AX rankings on Gartner quadrant implies Microsoft’s

failure to guarantee necessary delivery capacity leading to reputation and market share loss.

As a result of these concerns and in order to increase market share for ERP service line, a

business case study challenge was conducted to identify new business development

opportunities for Dynamics AX.

http://www.avanade.com/Documents/Research%20and%20Insights/Why-delivery-approach-matters-for-IT-initiatives.pdf


22

Figure 8.

Source: Gartner (2012)

Figure 9.

Source: Gartner (2013)

23

4.4 Research Statement Identification

There are two ways to identify new opportunities either by selling the existing solution as is

or venturing into a new industry by developing new solution from scratch. Selling existing

solution would be a quicker and cheaper way of market penetration but it will also be the one

to reach saturation point earlier, lesser revenues and tougher competition from existing rivals.

On the other hand, developing new solution from scratch is more challenging, complex and

time consuming way to penetrate market but it also means more revenues, first or late mover

advantages and competitive advantage. To identify possible opportunities with in Netherlands

ERP market, two markets – Financial Services and Manufacturing Pharmaceuticals were

studied.

Using strategic theoretical model, this case journey study focused on the following questions

like what factors should be taken into account while identifying new opportunities, how and

to what extent such opportunities are affected by external environment i.e. regulatory,

competitive or economic, impact of executive and business model alignment before

identifying a long and short term strategy that aligns with the business model of the company.

5. Discussion & Findings:

In this case study, both outside-in and in-side out strategic perspective were used to come up

with final recommendations for Avanade’s problem. Outside-in approach first focuses on the

opportunities and threats, to then develop its internal strengths and weaknesses, whereas the

“inside-out” approach develops its internal strengths and weaknesses, before focusing on the

external opportunities and threats (Barney, 1991; Porter, 1985). Various interviews and

discussion were scheduled to understand the value chain, current business process and

competency of Avanade. These interviews and discussions have helped to outline any new

knowledge and skills required by Avanade to implement the recommendations.

5.1 Market Research

The market research was at first very broad in scope. The motivation behind having a

somewhat large scope was to have a sound understanding of the ERP market as a whole in

the Netherlands before generating any type of conclusions.

Present State of the ERP Market in the Netherlands: The ERP market worldwide is expected

to grow between 5 to 8%. According to “Gartner Market Share: IT Services, Worldwide

2012” report, the total ERP market opportunity for Microsoft in Netherlands is forecasted to

be $120.7 million in 2014, which experienced a growth of 6.2% from 2013. As per Gartner

Enterprise IT spending by vertical industry market, it was found that Healthcare, Banking and

Insurance are one of the top IT spenders in 2014. IT spending capacity of an industry is

extremely important for identifying technical opportunities.

Product level competition: Avanade’s competitors on product level basis were identified in

the broad market research. As per “Gartner - Software Market Share, 2013”, three major

market players in 2013 in the Netherlands were SAP 23%, Unit4 20% and Oracle 7%.

24

Service level competition: The competitive situation had been assessed in terms of service-

oriented companies. For that, Microsoft Gold partners in Netherlands were good source for

information. Those companies could be divided into two groups: those that offer only

Dynamics AX and those who work also with SAP, IBM, Oracle and other, smaller software

companies. The former group is Avanade’s direct competitors. It was not always possible to

find enough information about those competitors.

5.1.1 Attractive Market Identification

After initial market research, it was found that there are a number of different attractive

industries in which Avanade could seek to enter. A number of search criteria’s were used in

this research.

● Main focus was given to most innovative industries that have the funds to spend on IT

as ERP is a very expensive investment which cannot be easily rolled back. It requires

careful planning for successful implantation, manpower training and yearly

maintenance.

● Second major criteria was industries that have participants matching Avanade’s scale

and size as very small companies may not be able to afford Avanade’s high costs.

● Third criteria was to look for opportunities that could possibly be expanded at the

global level.

Based on above mentioned criteria’s and data collected through “Gartner Forecast: Enterprise

IT Spending by Vertical Industry Market, Worldwide, 2012-2018”, Financial

Services(Banking & Insurance) 2.33% and Healthcare 2.25% were selected for further

exploration.

5.2 Analysis:

5.2.1 Phase I :

Avanade is an IT consultancy & service company, not a specialised ERP provider. This

means that Avanade is in business of selling technical services and not products. Product

being sold is of Microsoft and for Avanade; any industry would be beneficial which would

require services on top of these products. The more is the customisation in any product

implementation; the better is the revenue for Avanade. Competitive scope can be global or

local based on chosen industry. Some industries can require similar functionality irrespective

of the region requiring little code changes in the software like financial services, but some

industries can vary a lot based on the geographic boundaries like pharmaceuticals (health care

25

regulations). This by no means suggests that either of the case is more advantageous than

another, but it would impact market entry and software design decisions.

Buyers are mid or enterprise level organisations having spending capacity on ERP of at least

$1.2 million and at least above 50 employee organization. Avanade would not be able to

serve a client having 10-20 employees organisation. Main competitors in the market are SAP

and oracle but Avanade also has to compete with other Dynamics AX providers in the

market. Such providers should be one of the greatest concerns for Avanade as they are

cheaper and provide same product or services(Dynamics AX).

Microsoft is the main supplier of the solution and may favour Avanade over other partners

due to its global reach and size. Threat of substitute is very high from other competitors also

being Microsoft vendors. There are not high barriers to enter in to ERP industry as value

added reseller where anyone can enter by taking Microsoft licenses but barriers are high

specifically in industry specific verticals. Switching costs are extremely high for customers,

resulting in supreme advantage for Avanade and a customer is gained for life unless there are

major problems with the product.

In summary, Porter’s five competitive forces(Porter, 2008) analysis showed that ERP

industry is characterised by high competition, large number of rival firms, saturated market,

high switching costs and substitutes, low level of product differentiation and high bargaining

power of buyers being a very niche market on local level.

5.2.2 Phase II :

Interviews with Avanade employees at several level showed that the strongest force in the

ERP industry is the competition both from in and out of Microsoft. Having a good reputation

with existing clients in the market is the only way to surpass the competition. Profitability in

ERP industry was squeezed due to the intense pressure and abundance of substitutes both at

product and service level.

Manufacturing pharmaceuticals industry is characterised by frequently changing and highly

complex health care regulations. Furthermore, there are high barriers to entry, aggressive

competition and low substitutes. Strong bargaining power of buyers makes it a very niche

segment. Aggressive competition from SAP would be Avanade’s biggest concern and it

would also misalign with their business model of venturing in to least competitive markets.

Hence, Avanade needs to carefully assess their capabilities, gap and competition before

entering into this market. Another pressing concern for Avanade in this market would be lack

of knowledge in handling regulations . Avanade, in the past did not have good experience

with handling such regulations. At present, Avanade does not deal with this complexity and it

is something to be carefully analysed before venturing in to this market. Avanade also need to

improve its market reputation before making investments in this industry. One important

advantage of capturing this opportunity will be controlling the entire value chain (hospitals

and their associated large pharmaceutical suppliers).

Financial services, on the other hand are a technologically moving industry with good growth

rates and ever increasing demand for latest systems. Major parts of existing

system(Dynamics AX) can serve the needs of clients. This industry is characterised by low

barriers to entry, high competition, high threat of substitutes and strong bargaining power of

26

buyers. Well-placed rival specialists Actuera and SAP would be main competitors but

Avanade’s already established global expertise in this industry can help Avanade faster

penetrate this market. Since ERP market in Netherlands is very competitive, therefore

Avanade would need to have more proactive and aggressive business model to capture

significant market share.

5.2.2.1 SWOT Analysis

This analysis starts with the collection and portrayal of information about internal and

external factors which may have an impact on business. Stacey (1993, p.52) describes

“SWOT analysis as a list of an organization's strengths and weaknesses as indicated by an

analysis of its resources and capabilities, plus a list of the threats and opportunities that an

analysis of its environment identifies. Strategic logic obviously requires that the future

pattern of actions to be taken should match strengths with opportunities, ward off threats, and

seek to overcome weaknesses. “ In this case study, Avanade’s employees were primary

source of information and interviews(as recorded in appendix) with various stakeholders

helped collect needed information.

Strengths

• Together with Accenture, Avanade provides highly differentiated, market-leading

ERP capabilities and industry offerings, powered by the Microsoft Dynamics AX

platform.

• With its global reach and delivery capabilities, Avanade serves the enterprise-level

and mid-market clients in retail, public sector, manufacturing, distribution and service

industries in nearly all geographies and countries.

• Avanade is one of the biggest Microsoft’s partners in Netherlands and therefore, can

expect Microsoft’s help in positioning itself favourably in any industry vertical,

expecting relief from small sized Microsoft vendors in the market.

• One of Avanade’s biggest plus point is its strong technological capabilities to serve

innovative clients. Coupled with Avanade’s global reach and size, this can be a very

strong differentiation point to serve a niche market.

Weaknesses

• Misalignment of Avanade’s business model with current state of ERP Dutch market

which is highly competitive.. Avanade tries to enter less competitive markets but

Dutch ERP market is already saturated requiring more aggressive and proactive

approach from Avanade.

• Lack of sufficient skilled resources with in ERP service line. At the moment, ERP

service line is facing crunch of sufficient capable resources to meet present demands

of health care industry. On top of that, highly skilled resources are being snatched

away by better opportunities outside the company in presence of unnecessary pressure

27

on them within Avanade. This will also lead to loss of core competences and tacit

knowledge and is a serious cause of concern.

• Lack of collaboration and knowledge sharing among various service lines leading to

loss of opportunities, delay in decision making and bad mouthing.

Opportunities

• At the moment, Avanade is struggling with ISV charging structure knowledge in

health care industry and acquiring such knowledge can help in other ISV projects.

• New Microsoft updates in Dynamics AX in the future can open up smaller customer

segments where Avanade can compete with cheap service providers by charging fees

per module rather than entire ERP system. Avanade can exploit this opportunity by

keeping technologically ahead abreast of other vendors in the market due.

• Avanade can also target customer segments as complementary service provider to

main competitor SAP. As Dynamics AX is much cheaper than SAP, its lighter version

would be more suitable to large multinational companies having intermediaries or

subsidiaries at various locations making Dynamics AX more feasible and cheaper

option.

Threats

• Avanade’s struggling reputation in healthcare industry can lead to bad name and loss

of clients.

• Avanade cannot be lowest cost provider; hence it faces stringent competition from

small and cheaper ERP specialists in any particular industry. It needs to work on

either reducing its costs or entering in to such markets where it can benefit from its

global reach and size.

• It may be difficult to find niche customers justifying specific investments for market

penetration only in Netherlands.

5.2.3 Phase III:

In this phase, due to time constraints and lack of financial data for financial services, focus

was given only for pharmaceuticals industry. Hence, this paper present broad analysis and

findings for financial service but detailed level of analysis for pharmaceuticals industry.

5.2.3.1 Financial Services Opportunity Overview

Financial Services include banking & securities, pension funds and insurance which are

technologically mature and innovative industries. Together these services are almost as big IT

spenders as health care services, which can be very lucrative for Avanade being an IT

28

consultancy company. Another reason in favour of this industry is that Avanade Netherlands

has not tapped into this market but Avanade in other countries have. Hence, this global

experience can be really helpful in local market penetration. Avanade has done eight

Dynamics AX projects for six financial companies global, out of which six were for banks

(Avanade internal resources).

Pension funds were narrowed in the search because of the sheer size and the number of the

pension funds. It is also one of the biggest pension systems in the world. However, this

market is also extremely competitive with presence of main competitors like Actuera

(industry specialist), Oracle (most popular), Sapiens and SAP. This strong competition raises

barriers to entry to this market. Avanade can capture some market share due to its cost

competitiveness, but it can hardly be the lowest cost provider due to its highly skilled

technical resources.

The following modules are required for AX for Pensions:

● CRM

● HRM

● Financial

● Asset-liability matching

● New business

● Claims processing

● Investment management

The first three modules are already existent, so Avanade needs to develop the rest of the

modules to enter into this market.

Dynamics Customer Relationship Management (CRM) has been one of Avanade’s most

successful product in the Financial Industry selling more than half of the total number of

services. Due to popularity of Dynamics CRM, it is proposed that Avanade Netherlands

should enter into ERP market through cross-selling Dynamics CRM. This market penetration

also aligns with Avanade business model of doing more with existing customers. Avanade

Australia has also leveraged on Dynamics CRM and cross-sold Dynamics AX to Fixed

Income Investment Group. They also achieved significant synergy from it. As per Adrian

Dixon, CIO of FIIG, “The fact that there were synergies between the CRM platform that

Avanade had already implemented and the Dynamics AX solution was a much valued

bonus”.

Source: Internet: http://www.avanade.com/Documents/Case-

Studies/FIIG%20Case%20Study%20Final%20in%20Template.pdf [accessed 30/09/2014]

Furthermore, this cross selling of AX can be easily expanded to Data & Analytics service line

because big data or business intelligence is very popular these days and ERP system has

access to huge data that can be converted into useful information.

http://www.avanade.com/Documents/Case-Studies/FIIG%20Case%20Study%20Final%20in%20Template.pdf


29

5.2.3.2 Manufacturing Pharmaceuticals Opportunity Overview

Pharmaceuticals are considered leaders in utilization of new, innovative technology in R&D.

In order to survive in this industry, it is essential for manufacturing pharmaceutical

companies to have high sales margins, technological advances and rapid product

introductions. Dynamics AX can help provide tools needed to manage that growth and

overcome challenges like: improve quality control, monitor product distribution, adhere to

regulatory authority controls, improve efficiencies between multiple production lines, control

stock levels and minimize excess expired stock etc. A proper ERP system can provide SCA

via eliminating costly paperwork errors, speeding up information distribution and

collaboration, enabling strategies for improving product quality and process efficiency and

achieving compliance.

The Netherlands is one of the largest markets for pharmaceutical products in the EU with its

pharmaceutical consumption increasing at stable rates, ageing population contributing to

sales of specific product groups like oncologic, cardiovascular remedies and analgesics etc.

The downsides for this industry reflect the strong presence of consolidated international

pharmaceutical companies, which restricts the entry of new suppliers.

5.2.3.2.1 Stakeholder Analysis

Stakeholder analysis (Bourne and Walker, 2005) shows the individuals or parties who will be

affected by the projects. The stakeholder analysis looks from Internal and external

perspectives. Internal stakeholder analysis shows the interested groups within Avanade who

could be affected by the affected.

30

Figure 10.

Internal Stakeholder Analysis

Avanade employees are in all the quadrants because there will be some employees who will

fit into each of the quadrants.

External Stakeholder Analysis

Source: Avanade internal resources

31

5.2.3.2.2 Potential Strategies to enter in to Netherlands Market

There are three ways to enter in to the market –

● Partnership as Value Added Reseller

● Development as Industry Specific Vendor

● Acquisition of an existing ISV vendor in Pharmaceuticals Industry

Partnership as Value Added Reseller

Value added reseller makes money via implementations. By taking this approach to enter in

to the market, Avanade can reduce time to market, quickly acquire domain experience,

provide opportunity for training resources by learning by doing first hand.

Development as Industry Specific Vendor

ISV vendors provide industry solutions and make money through selling licenses. This

approach of entering in to the market will benefit from Avanade’s scale & size. It also means

longer time to market because all the resource and capabilities need to be either hired or

developed from scratch. It would also be difficult to penetrate the market due to nonexistence

of an existing client base. Add on module development will also need to be aligned with next

major release of AX as major changes are in the pipeline. It can also be beneficial for

Avanade because it may expand target customer segment to include small scale clients

through cloud deployments.

Acquisition of an existing ISV vendor in Pharmaceuticals Industry

Acquisition of an existing ISV vendor in the pharmaceutical industry is the third possible

strategy for entering in to the market which would be a quicker way and would leverage from

existing client base. Avanade will also benefit from synergies realized through already

established ISV charging structure as Avanade mostly operated as VAR partner.

Any of these possible strategies can be adapted based on Avanade’s long term or short term

focus but we need to justify investments through detailed financial projections in order to

proceed further in this market.

32

5.2.3.2.3 Risk Analysis

It is important to note that all the risk analyses are for the entrance to the Dutch

pharmaceutical industry, save for the short paragraph of the pertinent risks to competing in

the global market. It is important to clearly distinguish between the different strategies on

which risk analyses were performed as not all the risk analyses were performed for each of

the strategies:

The risk matrices pertain to the internal risks (table 1) and external risks (table 2) of

developing the modules and capabilities from scratch. The risk maps are useful to understand

how these risk exposures are reduced by mitigating actions (figure 9); and making a strategic

acquisition (figure 10). Only the most important risks in the tables 1 and 2 are presented in

the risk maps.

Global pharmaceutical market

The major risk of competing in the global market is that the main competitors, including

SAP, could respond aggressively by lowering prices or even dumping free software to flood

the market. This would mean that not only Avanade’s attempt to sell to the market would

fail, but the prospects of Dynamics AX itself in the pharmaceuticals market as a whole would

be under threat. It is considered a significant risk because Microsoft stakeholders expressed

concern regarding SAP’s unwillingness to give up any share of the lucrative pharmaceutical

manufacturing market.

Table 1: Internal risk matrix

This table shows the most important internal risks to entering the ERP market for manufacturing

pharmaceutical companies. The subjectively estimated likelihoods and impacts of the risks

materializing are given, along with potential mitigating actions (and their costs).

Table 2: External risk matrix

This table shows the most important external risks to entering the ERP market for manufacturing

pharmaceutical companies. The subjectively estimated likelihoods and impacts of the risks

materializing are given, along with potential mitigating actions (and their costs).

33

Table 1.


Risk Description Likelihood Impact Mitigation (and its cost)

Market

research

Incorrect assessment of

Pharma ERP requirements Low High

Careful and critical analysis

of the ERP requirements

(insignificant cost)

Design

Incorrect/incomplete

specification of the module

requirements

Medium High

Careful and critical analysis

of the module requirements


Development Developers not developing

the modules as specified Medium High

Excellent and frequent

communication between the

specifiers and builders of

the modules (insignificant

cost)

Project

management

Project managers

insufficiently specialized in

Pharma

High Medium

Make indirect sales through

Accenture (the cost will be

12% of the margin)

Project

funding

Insufficient funds could be

allocated to the project Low High

Approach Microsoft to find

out if they would be willing

to sponsor the project

Schedule

overrun

Longer time to complete

the project than planned Low Medium

Thorough project planning

and including time

contingencies in the plan

(negligible cost)

Cost overrun Higher cost to complete the

project than planned Medium Medium

Proper break down and

consideration of the cost

and including margins

(negligible cost)

Reputation Bad customer experience Medium High

Increase the testing efforts

to increase fit for purpose

(the development costs will

increase by 10%)

34

Table 2.

Risk Description Likelihood Impact Mitigation (and its cost)

Change in

demand

There is a possibility that

market demand may

change from the time that

the project is planned to

when it is completed (e.g.

due to mergers, industry

trends etc.)

Medium High

Monitor the market demand

on a quarterly basis


Competitor

behaviour

Competition may change

their position in the market

by launching new products

(e.g. substitutes,

innovations etc.); new

competitors may enter the

market

Medium Medium

Quick entry into the Pharma

market (the cost will depend

on the strategy pursued)

Regulatory

risk

Dealing with the complex

regulatory landscape of the

pharmaceutical industry

may lead to unanticipated

costs

High Medium

Learn from the Novo

Nordisk project


Sales

Lack of a track record will

make it difficult to make

the first sale

High High

Informative and attractive

propositions (insignificant

cost)

Partner

destabilization

Entry into the market may

be viewed by Accenture as

competition, which could

damage the business

partnership

Low High Involve Accenture from the

start (negligible cost)


35

Figure 10.

This figure below pertains to risk map under self-development strategy and shows how the

mitigating actions described in the risk matrices (tables 1 and 2) reduce the level of risk in

terms of both likelihood of occurrence and the impact upon occurrence. These are subjective

representations of the risks faced.


Observation:

It is clear that the risk profile of the project can be greatly reduced at little additional cost all

the mitigating actions simply require thorough planning.

36

Figure 11.

This figure below shows how the mitigating actions described in the risk matrices (tables 1

and 2) and following an acquisition strategy reduce the level of risk in terms of both

likelihood of occurrence and the impact upon occurrence. These are subjective

representations of the risks faced.


Observations:

The difficulty of making the first sale will be greatly reduced as a consequence of acquiring a

target with existing clients. The risk of cost and schedule overruns will be reduced by

obtaining experienced staff of an existing market player.

37

5.2.3.2.4 Financial Analysis

The financial analyses were performed on both the Dutch market and the global market for

the pharmaceutical manufacturing industry with the purpose of determining whether there are

big enough market opportunities for Avanade to consider investment. Discounted cash flow

approach is used. It is found that the Dutch market is too small to justify investment; and the

global market is sizeable, but the risk of aggressive competitor reaction should be paid great

attention.

Significant assumptions

● All calculations are dollar-denominated.

● The risk-discount-rate is same as used internally by Avanade and Accenture.

● Implementation, licensing and support fees are received as a single lump-sum at the

completion of the implementation. This assumption has been made in the interest of

simplicity of the calculations and is not likely to have a material effect on the

outcome.

● The data provided by the SET are accurate, complete and free of errors.

● Companies that form part of the target market must be pharmaceutical manufacturers

and have: less than $5 billion in revenues; and more than $1 million in IT consulting

spending.

● Pharmaceutical companies spend 2.9% of revenues on IT.

● Of the IT spending 11.3% is spent on IT consulting.

● The Dynamics AX product life-cycle under consideration is five years, with two years

of rapid growth. This can be seen in figure 11.

●

Figure 12.


The above graph shows how sales numbers for Avanade would increase from the day

the product is first released.

38

Dutch market analysis

There were 186 Dutch pharmaceutical companies(SET, Avanade), of which 17 formed part

of the target market. Due to the stiff competition from Iperion, SAP, Oracle and the likes,

Avanade would be extremely lucky if it can snatch more than two clients. Even at an average

deal size of $2 million an investment would not be justified by the potential pay-off

considering the risks Avanade Netherlands would expose itself to.

Global market analysis

There were 1180 manufacturing pharmaceutical companies(SET, Avanade), of which 552

formed part of the target market. Three different scenarios were considered, namely an

optimistic scenario, a realistic scenario, and a pessimistic scenario.

Table 3: Global Financial Analysis

This table shows the outcomes of the three different scenarios of the global financial analysis.

Pessimistic Realistic Optimistic

PV of Opportunity ( Million

USD)

4.3 29.8 97.2

Portion of Captured Market 1.93% 5.50% 10.73%

No. of Clients 11 30 59

Average Deal Size 0.6 1.5 2.5


Figure 13.


The above graph shows how cumulative sales numbers could turn out under each of

the three scenarios described. The y-axis cumulative number of clients. The x-axis

gives the time since the launch of the product.

39

Figure 14.


The above graph shows how cumulative sales figures could turn out under each of the

three scenarios described. The y-axis cumulative revenues. The x-axis gives the time

since the launch of the product.

Observation:

The revenues are highly sensitive to the scenario that Avanade would find itself in. This is

reflective of the big risk of aggressive competitor reaction by SAP, among others, reducing

the revenues per client as well as greatly reducing the market share achievable. The wide

range of outcomes is a clear indication that careful thought should be given before entering in

to this market considering Avanade’s current abilities, required investments and the risks

associated with it.

5.2.3.2.5 Stakeholder Analysis

Another major step in this phase was to identify such stakeholders whose commitment was

absolutely essential for final recommendations to be accepted. This process was initiated with

in Avanade, Accenture and Microsoft. As per ERP service line head, “Pharmaceuticals

market proposal could only work if at least one of the major stakeholders, Accenture or

Microsoft were to support it.” Hence, this proposal was pitched to identify stakeholders in

both the companies. Microsoft responded with appreciation of the idea being a very big step.

As per Microsoft, this proposal requires major investments and is very challenging. For them

to be interested, this proposal should be brought by Avanade at global level. Their concerns

were that not many pharmaceuticals companies had their head offices in Netherlands and

investments at local level would be too huge to generate any profits considering the local

market opportunity. This whole exercise of opportunity identification and analysis revolved

around effectuation theory and underwent much iteration before filtering out absolutely

required stakeholders support. One interesting observation from this exercise was that all

stakeholders are driven by different needs. Stakeholders mostly supporting this idea were

primarily driven by visibility needs of Avanade Netherlands and were ready to venture in to a

40

risky market while some stakeholders had a conservative approach and demanded that

visibility be achieved through promoting established markets like healthcare.

6. Conclusion:

Porter’s five forces model (Porter, 2008) in combination with SWOT analysis (Pickton, and

Wright, 1998) helped identify the industries which Avanade could target, and benefit from

Accenture’s industry expertise. After identifying the industries, Porter’s generic

strategy(Porter, 1985) for positioning in combination with non-predictive strategy (new

market creation through transformation) (Sarasvathy and Dew, 2005) laid down the base for

identifying new opportunities where Avanade can benefit from its capabilities. As Avanade is

a service based company, human resources undoubtedly are the most important source for its

CA and tacit knowledge is predominant in the organization, RBV theory(Barney and Clark,

2007) provided the framework to identify the kind of resources Avanade have or needs to

develop to benefit from proposed opportunities and develop recommended solutions.

The market analysis for Netherlands provided interesting facts about ERP market, cut-throat

competition; Avanade’s challenging situation and upper hand of SAP. At the very onset, it

was clear that this project was very complex as theoretical frameworks can paint lucrative

picture of market opportunities on paper but their actual realisation may not always be

possible. Avanade is an IT based service company with lots of dependency on its parent

company Accenture. It benefits from of openness, friendliness, cooperation and transparency

as hallmarks of its corporate culture, yet its core competence (Prahalad and Hamel, 1990) in

human resources needs to be carefully cultivated. For opportunities identified in the

pharmaceutical sector, lack of skilled and right resources was a major constraint adding to the

complexity of opportunity and it would also mean unnecessary over dependency on

Accenture which Avanade wants to avoid in the first place. Lack of strong collaboration

between its various service lines and hesitancy in open interaction or working together

created unnecessary delays. Lots of confusions, doubts and questions could have been

answered very easily, had there been more interactions between people at various levels of

different service lines which could actually help in increasing cross selling via less number of

clients. Porter’s five forces(Porter, 2008) suggest equal attention to all five components,

however in reality due to lack of availability of data or time constraints, it is rarely possible to

pay equal attention to all the components. It was experienced in this exercise and also

confirmed in interviews with strategy specialist of ERP service line.

Stakeholder power mapping (Bourne and Walker, 2005) was the strongest influence factor in

this study surpassing recommendations of all other frameworks as sometimes it seemed like

power display between different groups of stakeholders. As already mentioned, Avanade is a

joint venture of Accenture and Microsoft with Accenture being major partner and hence, due

diligence is required in selection of any project or customer target segment so as to avoid

stepping into Accenture’s boundaries. For market opportunities explored in Pharmaceutical

sector, it was very important to gather support from Microsoft. Within Avanade, senior level

executives like head of Avanade Netherlands, ERP service line head, lead architects and

solution architects of ERP service line needs to buy this proposal before this opportunity can

be pursued. Everyone interviewed acknowledged it to be a challenging task but varied

41

response regarding its realisation was recorded after interacting with these people. It brought

a very interesting human dimension to the whole exercise. It seemed everyone else believed

in the opportunity apart from the solution architect of the service line but he was also the one

at the forefront of healthcare solution. His superior technical and domain specific expertise

raised some doubts about Avanade’s capabilities in pursuing this opportunity. Avanade has

strong positioning in Dutch market due to its size, scale and technological capabilities which

differentiates it from majority of small scale vendors in ERP market, but in order to exploit

its positioning and benefit from identified opportunities, serious consideration needs to be

paid to cultivating right set of resources, stronger collaboration and communication among

various service lines at all levels.

A key step in recommending solution was to determine how much premium Avanade will get

in providing the recommended solutions. Avanade consulting services comes into higher

bracket of cost they charge on providing the services and get high premium on their services.

Also the economics inherent in generic strategy require that the premium exceeds the extra

cost incurred in being. So premium incurred in providing the recommended services shall

exceeds the cost incurred on development and implementation of recommended solutions. To

differentiate the recommended solutions from the existing solutions provided by the

competitors, Avanade can focus on niche market of clients that match its size or scale and

benefit from one vendor implementing uniform solution at all subsidiaries. Avanade cannot

compete at cost level with the small scale specialised ERP vendors who are predominant in

Dutch market and hence it will have to leverage upon its technological innovative capabilities

and target industries that must remain technologically vigilant to survive. This will help

Avanade extract more premiums from clients to implement the solutions but considering the

aggressive competition, no strategy will be sustainable and should continuously evolve.

From market’s perspective, the focus was to find the solutions that can be scalable to various

industries or regions. For e.g. Financial services, the solution could be scaled to any industry

requiring core modules like Financials, Project Management or Payroll administration

Systems in turn resulting in better return on investments for the clients by freeing up their IT

resources for more innovative solutions. As Avanade has global presence in twenty countries,

ERP for Pharmaceuticals can benefit from same solution with minimum customisations

across regions leading to higher revenues for Avanade.

An internal analysis helped determine whether Avanade has rare and unique resources to

develop and implement proposed solutions. For Pharmaceuticals industry, three kinds of

resources required by Avanade to develop and implement the solutions were identified. First

and foremost, Avanade needs domain experts who understand the complex regulations of this

industry. Second, Avanade needs consultants or analysts who understand customer

requirements and have implementation capabilities. Third and the last, Avanade needs

solution architects and developers to technologically develop the solution as at the moment

developers in the ERP service line are too busy with health care industry and there is already

shortage of capable skilled resources. This proposal is in Avanade’s pipeline of future

projects for 2015 and it would be highly beneficial to train resources in parallel before the

project is executed. Avanade can build CA with recommended solutions by acquiring or

developing bundle of above resources which are unique, valuable and rare in market.

Interviews with Avanade’s employees helped to identify the gap between kinds of resources

42

Avanade already have and kind of resource that Avanade needs to develop and implement the

recommended solutions. .

RBV (Barney and Clark, 2007) suggests that CA of a firm lies primarily in the application of

the bundle of valuable resources at the firm's disposal. To transform a short-run CA into a

SCA requires that these resources are heterogeneous in nature and not perfectly mobile.

Effectively, this translates into valuable resources that are neither perfectly imitable nor

substitutable without great effort. If these conditions hold, the firm’s bundle of resources can

help it sustain above average returns. To achieve this, Avanade needs to ensure that it’s such

valuable resources and tacit knowledge inherent in its people does not go away leading to

loss of its core competencies (Prahalad and Hamel, 1990) which are highly skilled human

resources.

To succeed in current market, Avanade should predict the future challenges and opportunities

in Dutch market and to meet these ever changing future demands, Avanade should develop

and nurture the core competency through continuous improvements. Future trends of ERP

market point towards cloud deployments and Software as a service which will broaden ERP

market and bring this system in the reach of much smaller clients making it more affordable.

As per Microsoft, Dynamics AX is supposed to undergo huge architectural changes in 2016

release resulting in upheaval in the market and Avanade being largest Microsoft partners in

the Netherlands should prepare itself for these changes and new opportunities. Prahalad and

Hamel(1990) argue that "Core Competences" can be the most important source of

uniqueness. Through core competency, Avanade can find new markets for its services or

provide the current services in unique way. A core competency of a company evolves from

specific skill set of knowledge and technologies that provide unique value to its customers.

Avanade’s core competency is in providing consulting and solving customer’s problem

through Microsoft ERP product. So Avanade can use the current core competencies to

estimate the future challenges and opportunities of the business to stay ahead from

competitors.

To develop the above competencies and recommended solutions, Avanade’s top management

should become proactive and start embedding the entrepreneurship spirit in the company. The

entrepreneurial process is an interactive combination of three components which ultimately

result in market innovation (Park, 2005). The three components are Entrepreneur, Knowledge

and experience of company and Technology. Avanade has good knowledge, experience and

expertise in Microsoft technologies along with collaboration with Microsoft. As per its

business model of “doing more with fewer customers”, Avanade can increase revenues by

exploring cross selling ERP systems to its existing customers like Heineken or Shell etc.

43

7. Appendices :

7.1 Interviews

To understand the Avanade’s current ERP strategy, Avanade employees from ERP service

line were interviewed. Employees outside ERP service line were also interviewed to

understand the whole value chain. Interview questions based on different segments of value

chain are outlined below:

● Customer Relationships: Customer relationships are established and maintained with

each Customer Segment.

● Key Resources: Key Resources (Physical, Intellectual, Financial and Human) that

Value Propositions require in our Distribution Channels, supply product and service,

managing and establishing customer Relationships.

● Cost Structure: Most important costs inherent in business.

● Competitor: Current competitive advantages over competitors.

ERP Service Line Head

The purpose of this interview was to understand the current strategy of Avanade’s ERP

service line to increase the direct sales of Microsoft Dynamics AX solution and possible

collaboration with Accenture or Microsoft, if required. Avanade has lots of dependency on

Accenture for it business clients and Avanade does not want to focus on industries where

Accenture has strong presence so that their relationship with Accenture does not restrain but

if new there is a good business opportunity which can benefit from Accenture business

expertise, collaboration may make final recommendations stronger. Service line head also

expressed his concerns about hesitation among people from different service lines to work in

collaboration like collaboration among infrastructure service line other service lines.

Collaboration was important from the perspective of cross selling which aligned with

Avanade’s core strategy of doing more with fewer clients.

Marketing and Sales head

This interview brought knowledge of Avanade’s sales operations and how one can explore

new opportunities that align with main corporate strategy. As per sales head, “Avanade

mainly relies on “word of mouth” for getting new business and partnerships with Accenture.

Bad implementations can ruin Avanade’s prospects in the industry. Avanade’s business

model is to focus where there is little competition in the market and try to deliver superior

quality.” ERP is a business solution, not merely a technical IT solution to communicate with

CIOs, not ICT staff. Sales cycle is six months to a year and requires a $30k to $50k

investment. Accenture is a key partner in utilities, providing access and staffing up to 40% of

some projects. In healthcare, the standard cost of implementing a solution is about $1.5

million to $2 million per client. Avanade is a relatively expensive vendor for Dynamics AX

(most expensive in the Netherlands) – average margin is about 40%, where competitors are at

5% to 10%). There are seven or eight other competitors implementing Dynamics AX in the

44

Netherlands, but they are not present in the utilities or health care markets. Hence, there is a

good possibility to expand into care institutions, health insurance or financial services being

an untapped area of the market that may have massive potential. It is vital to have an industry

template for the ERP solution but it may take one to two years for Avanade to adapt to a new

industry. There is no standard sales approach, but in general the process entails:

● Request for information

● Request for proposal

● Demonstration runs

● Reference visits

● Contract negotiations

● Extra information sessions for key users

Human Resources Head

This interview was conducted to understand Avanade’s competitive advantage- human

resource. As per HR head, one problem with Avanade is that it has the valuable and rare

certified technical consultant who can solve the technical problems very well but these

resources lack the business knowledge. This results in difficulty in establishing long term

relationship with the clients ultimately adversely impacting customer retention. Therefore if

Avanade wants to establish long term relationship with the clients, it has to focus on

nurturing the technical consultant to hone the business skills to enhance customer retention

that will help in bringing more direct business process. Second strong message was that

Avanade wants to have maximum business from their existing clients, so they do not want to

invest much for searching new clients.

Senior Consultant

This interview gave important insights on the AX from a consultant’s perspectives that

directly deals with clients and knows the system in-out. As per the consultant, Dynamics AX

software is easy to use in comparison to SAP due to user’s familiarity with Microsoft

products. SAP is very robust, but focuses little on the user interface. SAP and Ultimo offer

functionality that Dynamics AX does not (asset management and user permits). The top

academic hospitals (10-15) traditionally use SAP and they are reluctant to switch software. In

hospitals, the ERP system must communicate with the hospital’s front end system called

“Zorg Informatie Systeem”. The smallest hospital users in the Netherlands have around 250

users and large pharmaceutical chains that could use AX may be a good market for further

exploration. At the moment, AX ERP solutions do not entail distribution management, so it

will require some time frame to develop solution from scratch. According to him, Avanade is

a very reactive company and it needs to be more proactive in capturing new market

opportunities.

ERP Solution Architect and lead developer

The purpose of this interview was to understand the present state of ERP service line before

coming up with final recommendations. After the interview, it was clear that Avanade was in

a very intense situation in healthcare market. Avanade was facing many challenges and its

reputation had suffered a deep blow in the past. Avanade Netherlands had always dealt with

45

corporate clients and healthcare industry’s consumer behaviour was very different than what

Avanade was used to dealing with. In corporate sector, vendor details and working

relationships are not shared due to arch rivalry and competitive positioning but hospitals do

not have such limitations. All such details are shared openly and client recommendations are

the most prominent way of getting further contracts. Due to Avanade’s difficulties in

providing promised level of services and struggling market reputation, it was not easy to get

further contracts. Hence, going forward Avanade adopted a very open strategy and organized

conference of all future clients. They openly discussed their strengths, weaknesses,

challenges including reasons and steps taken to overcome these challenges. This exercise

worked in their favour and market opened up again and they got six more contracts. Avanade

is also not the cheapest service provider in the market as other cheaper specialist small scale

vendors are abundant in the market but it’s main strength is global presence and highly

technical competencies.

46

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