Microsoft Business Solutions in Re-Org

Microsoft streamlined its chain of command for Microsoft Business Solutions this week.

The company said division chief Doug Burgum will now report directly to CEO Steve Ballmer and Orlando Ayala becoming division COO.

Burgum had been with Great Plains since 1983, and was chairman and CEO when Microsoft acquired the company in 2001 for $1.1 billion in stock. As head of Microsoft’s Worldwide Small and Mid-market Solutions and Partners group, Ayala was responsible for the sales channel and strategy for small and medium-sized businesses (SMBs).

Both executives had reported to Jeff Raikes, vice president of the Productivity and Business Services Group, which encompasses everything from desktop productivity and business solutions to collaboration platforms and software licensing programs. Ayala will now report to Burgum, and the shift helps consolidate the sales channel.

The shift in management is expected to let Ballmer keep a better watch on sales.

“When a business division isn’t living up to Microsoft’s expectations, that’s usually what triggers a re-org and draws Steve Ballmer’s attention,” said Directions on Microsoft analyst Matt Rosoff. “I think he wants to keep a closer watch and push them up a level.” The tighter integration will help Microsoft sell Windows, Microsoft SQL Server, Microsoft Exchange Server and the Microsoft Office System to SMBs, as well as enterprise software packages, more efficiently.

While Ayala was in charge of all sales and marketing to SMBs, there was a separate sales organization under Burgum devoted to Microsoft Business Solutions — which also focuses on SMBs, according to Rosoff. “There were different sales organizations working at cross purposes.”

Microsoft Business Solutions was created after the company bought Navision, a Dutch provider of ERP software, for $1.3 billion in 2002 and Great Plains for $1.1 billion in stock in 2001. But the Business Solutions division struggled. In Microsoft’s most recent quarterly earnings call, CFO John Connors clearly expressed his unhappiness with the division; its quarterly revenue of $153 million was down $25 million from guidance.

“We aren’t having good U.S. execution, and the majority of it is a function of us having a lot of new people in district positions over the course of the year,” Connors told analysts. “And… we’re being less effective with the traditional MBS partners than the MBS group was a year ago.”

Each Business Solutions acquisition came with its own sales channel, which Microsoft maintained. And that led to problems, said Jupiter Research analyst Joe Wilcox.

“It’s a problem Microsoft inherited,” he said. “They have several products with existing channels that are sold different ways. Microsoft is trying to streamline things and consolidate it down to one channel that works the way all the other Microsoft channels do.”

But Wilcox said Microsoft’s sales strategy itself is the root of Business Solutions problems. His research shows that many SMBs simply don’t want to buy software the way Microsoft wants to sell it. “First, many of those companies want to buy direct,” he said. “Second, there’s not a big surge toward volume licensing, even though Microsoft is offering resellers huge incentives.” In a recent Jupiter Research survey of SMBs, 55 percent said they bought software when they had the money or the need. But Microsoft’s volume licensing program asks them to pay upfront and get the software later.

Microsoft is planning major upgrades to its ERP and CRM offerings in fiscal year 2005, following enhancements to Great Plains, Navision and Solomon this year.

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