ISG Provider Lens™ Microsoft Ecosystem Partners - Dynamics 365 Services - U.S. 2022
As one of the world’s leading enterprise technology vendors, Microsoft plays a pivotal role for many businesses’ digital transformation strategies. Its products form the backbone of digital transformation for companies across the U.S. where the company has a strong historical footing, especially larger firms. The tech titan subdivides its offerings into three main pillars: Microsoft 365, which includes Office 365 and Windows; Dynamics 365, a business application suite; and Azure, a hyperscale cloud platform that operates globally. Power Platform is a more recent addition to the Microsoft portfolio and is a low-code development platform that is designed to extend the capabilities of the existing portfolio by enabling citizen developers to build apps and workflows. While many enterprises have already begun adopting these products and services, many of them fail to capitalize on the full value of what is available to them. That is where ISG sees significant opportunities for service providers. Providers offer specialized expertise and employees who can help guide enterprises and have the technical understanding to drive Implementation.
Yet, for many enterprises, the challenges of navigating, implementing and ultimately integrating the Microsoft suite of technologies can be daunting. Costs, lack of familiarity with the technology, and inadequate skills, among other factors, can be significant hurdles to adoption. Therefore, for support, many turn to the Microsoft partner ecosystem, which is a complex and diverse group of global systems integrators (GSIs), IT providers, independent software vendors (ISVs), and specialist strategy and advisory firms that provide additional services and technology components atop the existing Microsoft platforms. The Microsoft ecosystem and developer community in the U.S. is particularly broad and deep compared to other regions of the world. Enterprises draw on this ecosystem for many reasons. Many are new to the cloud and lack the expertise to manage migrations to Azure. Providers are equipped with ready-made frameworks and accelerators to right-size Azure deployments and ease the migration process. In many cases, enterprises turn to managed services providers, seeking end-to-end support for managing Azure and other clouds. Managed services typically include a range of services such as scaling and provisioning of resources, managing incidents, monitoring and managing licenses, assuring security, automating updates, and ensuring policy compliance and governance. Some companies seek help simply updating legacy email and messaging systems to the Office 365 platform. As a U.S.-based company, Microsoft generates half its revenues from this country.
The U.S. leads the globe in moving to the cloud, and as it begins to mature as a hosting platform, enterprises have shifted from migrating to the cloud to leveraging its unique capabilities. This means greater resilience and flexibility with multicloud and hybrid cloud environments. It also means replatforming and refactoring applications, optimizing them to take advantage of the technical capabilities of the cloud beyond reduced costs. For example, this can include moving to modern microservices architectures, using containerized applications and Kubernetes orchestration. The use of automation is increasingly being adopted across IT environments. More innovative IT service providers are also investing in automation and using it to streamline the move of applications and code to the cloud. While some vendors are offering more software engineering services, many are choosing to focus on FinOps or helping customers optimize and manage the cost of cloud deployments.
ISG has observed the rise of low-code, citizen-developer initiatives as a major trend across most major technology providers in the U.S. These services are aimed at empowering the general workforce to create and use their own AI-enabled business apps and automation tools. Microsoft’s Power Platform has helped spur the wider development of low-code initiatives, providing tools such as Power BI for data visualization and analysis, as well as automation tools such as Virtual Agent and Power Automate. While many enterprises are experimenting with low-code initiatives as a way to drive innovation within the workforce and liberate business professionals from the constraints of the IT department, they are doing so cautiously. Low-code initiatives can create significant risks around data access, policy compliance, license usage and overall governance. ISG notes that providers are now developing specific offerings, designed to put guardrails around low-code development and channel such efforts in ways that are safe, productive and compliant for the enterprise. These include the establishment of centers of excellence for citizen development, monitoring compliance and policy, creating templates for app development, establishing best-practice guidelines, undertaking training workshops, monitoring of data and license usage, code scanning for compliance, generating pre-configured APIs, and determining templated release cycles.
With the strong adoption of Azure and Microsoft 365, the tech titan has driven increased focus on Dynamics 365, its suite of cloud-based business applications. There are three discrete constituencieseach migrating to Dynamics 365: enterprises seeking green field deployments of new capabilities, those companies migrating from on-premises Dynamics installations, and businesses looking to move away from other business applications like SAP and Salesforce. The top providers in the U.S. market are able to address each of these use cases on a personalized and structured basis, leveraging their expertise to provide quick return on investment. In particular, ISG sees the greatest value possible when enterprises can align with service providers that offer unique, industry-specific solutions. Providers that are more competitive in are moving beyond the technology piece of the solution by incorporating business processes and workflow. This is particularly relevant in the U.S. where many enterprises have already moved to the cloud and are looking of new ways to leverage its benefits. The ability to provide solutions that have a direct impact on business outcome enables providers to deliver added value to their clients.
SAP on Azure remains one of the most challenging areas for Microsoft ecosystem providers. The SAP environment is widely acknowledged to be extremely heterogeneous, with many legacy applications and databases still in existence and organizations coming from very different starting points in terms of their SAP development. They are also usually business critical, which makes SAP migrations and database modernizations complex and risky to manage. For SAP providers, being able to understand the current SAP landscape of an enterprise is critical to ensuring a safe and cost-effective migration to Azure. In the US this market as begun to mature as many organizations have already moved their legacy SAP applications to the cloud and opportunities to add differentiated services are limited.
The disruption caused by the COVID-19 pandemic is driving demand for the modern workplace, which has become a must-have for distributed organizations. The changing workforce requirements and the “great resignation” that has happened across the U.S. are also helping to drive Microsoft to reposition Microsoft 365 away from its original focus on employee communications and messaging, and toward a more rounded platform centered on employee experiences and learning. The introduction of Microsoft Viva is one example. ISG’s research with providers suggests that we are still in the early days of this transition, but we see the U.S. leading the way. Most providers and enterprises are still grappling with more prosaic challenges around integrating the current Microsoft 365 technologies and getting more value out of the platform. Nevertheless, we do see providers beginning to take a more employee-experience-centric approach, for example, by incorporating wellness and micro-learning elements into the Microsoft 365 platform, or by using digital nudges to help employees increase the adoption and usage of the services it offers.
Service providers have correctly focused on enhancing their capabilities with Microsoft Teams, the collaboration software that has taken off with the COVID-19 pandemic. Even enterprises that avoided a strong messaging platform culture have been forced into using Teams as a result of co-located work restrictions brought on by stay-at-home orders. As a result, enterprises now have to deal with the sprawling channels and varied usage patterns that come from haphazard adoption. Service providers have invested heavily in deploying bots that users can interact with through Teams, as well as in some cases have developed services that can help combat sprawling deployments.
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