Financial software tug of war

Microsoft designs product suite in quest to grab market share from Deltek

Division leaders: Stephen Elop, president
of the Microsoft Business Division.

Kirill Tatarinov, corporate vice president of
Microsoft Business Solutions.

Klaus Holse Andersen, corporate vice president
of Microsoft Business Solutions sales
and operations.

Christine Zmuda, strategic engagement
manager at Microsoft Dynamics in
Washington, D.C.

Microsoft Dynamics enterprise resource
planning software:

  • Microsoft Dynamics SL

(formerly Solomon), acquired in June 2000.
  • Microsoft Dynamics GP (formerly Great
    Plains Software), acquired in April 2001.

  • Microsoft Dynamics NAV (formerly
    Navision), acquired in July 2002.
  • Microsoft Dynamics AX (formerly
    Axapta), merged with Navision Software in
    2000. The combined company, initially
    NavisionDamgaard and later Navision A/S,
    was acquired in July 2002.

  • What it does: The software enables project
    cost accounting and management of indirect
    costs, general and administrative rates,
    overhead rates, and other costs. Users can
    do complex fiscal reporting, including using
    analytical tools and standard report forms
    to meet federal regulations.

    EDITOR'S NOTE: This article has been updated to correct attribution from Deltek officials.


    During its 25 years in business,
    Deltek Inc.'s solutions for managing
    professional finances and
    accounting systems have carved out a
    substantial market share. More than
    12,000 organizations, including many
    government contractors and federal
    agencies, use Deltek products.

    About three years ago, Microsoft Corp.
    took notice of the increasing growth in
    the professional services vertical market.
    Deltek is now dueling with the software
    giant from Redmond, Wash., for
    supremacy.

    "To their credit, Deltek has done a
    great job of really being known in the
    community," said Christine Zmuda,
    strategic engagement manager at
    Microsoft Dynamics in Washington, D.C.
    "They've done some interesting things
    around branding their solution."

    "And when we dug under the covers
    and started to talk to more of these customers,
    what they essentially told us was
    that they were underserved," she added.
    "There wasn't another option in terms of
    financial management for government
    contractors."

    So Microsoft set out to design software
    that more closely meets the needs of contractors,
    especially those with commercial
    and government clients that were
    using different accounting software for
    each sector.

    The result was Microsoft Dynamics, a
    suite of four products: AX, GP, NAV and
    SL. Originally they were to be bundled
    into one product, but Microsoft decided
    against that approach, Zmuda said.

    NAV and SL are best suited for government
    contractors because they can do
    deep project cost accounting and manage
    indirect costs, general and administrative
    rates, overhead rates, and other fringe
    costs, she said.

    Customers can do complex fiscal
    reporting because NAV and SL include
    Microsoft's analytical tools and the standard
    report forms a government contractor
    needs to meet federal regulations,
    Zmuda said.

    "The Microsoft Dynamics solution can
    handle both commercial accounting as
    well as government contracting," she
    added. "That's really important for a lot
    of even our certified partners [and] for
    our technology companies who need one
    solution that can handle both ends of
    their business."

    "We also see that there is a great
    opportunity for government contractors
    who do professional services but also
    have products, product sales and do
    maybe a little bit of manufacturing,"
    Zmuda said.

    Dynamics SL has 15,000 customers
    and Dynamics NAV has 65,000, she said.
    "Both of those solutions grew at the rate
    of 21 percent last year," she said, adding
    that it is difficult to provide specific government
    contractor sales figures because
    they are fragmented across the many
    Standard Industrial Classification codes.

    DEEP POCKETS

    Bernard Mustafa, president and chief
    executive officer of Pleasant Valley
    Business Solutions LLC, a Reston, Va.,
    Microsoft reseller to government contractors,
    said Microsoft's commitment to the
    professional services market is evident
    from its investment of more than $1 billion
    a year in its enterprise resource planning
    (ERP) systems.

    "You're going to see in the next six
    months Microsoft coming out with a new version of NAV. It's called
    Dynamics NAV 2009," Mustafa
    said. "It's a whole new interface
    based on a lot of research that
    Microsoft has done."

    Earlier this year, Gartner Inc.
    placed Microsoft among its Magic
    Quadrant for Business Intelligence
    Platforms. The analysis firm said
    that although Microsoft was late to
    join the business intelligence platforms
    market and is still catching
    up, its platform provides "infrastructure,
    development tools,
    workflow and collaboration capabilities
    that are held in higher
    regard than those of many of its
    competitors."

    Deltek officials are not worried about the competition.

    "If you ask us whether we're
    happy Microsoft exists or not, we
    give a hearty yes, because they're far
    more valuable to us from a technology
    standpoint as a partner than
    they are worrisome from a competition
    standpoint," said Warren Brown, Deltek vice president of strategic communications.

    Deltek became a member of
    Microsoft's Managed Partner
    Program in May, Brown said. It's
    the highest partner level a company
    can attain. "We're actually up
    for some innovation awards for
    how Microsoft technology is bundled
    into our applications," he said. "If
    nothing else, we're getting closer to
    Microsoft all the time."

    Zmuda agreed that the two companies
    work together from time to time. "As an
    example, they use [Microsoft] SQL
    Server in a number of their products," she
    said. But she added, "It's interesting to me
    that Deltek does not see Microsoft as a
    competitor. If you look at their annual
    reports and so on, in the ERP space, they
    don't see it."

    "We haven't seen Microsoft be any
    more competitive than they were a couple
    years ago," Brown said. "And now that
    they're not moving all things into one
    platform, we run into [SL] sometimes,
    run into NAV sometimes and Great
    Plains, but we haven't seen any major
    competitive shift at all there."

    NAV is a Deltek competitor "at some
    level, but it's really not the best fit," Brown
    said, adding that as a project-related solution,
    SL most closely matches Deltek.

    "The problem with [SL] is they haven't
    really invested much in it so it's kind of
    floundering out there," he said. NAV "is
    one we run into, but only because it is
    more a development environment than
    an actual product. There are some
    Microsoft partners and resellers that take
    [NAV] and build things on top of it and
    then sell that."

    PROPRIETARY DILEMMA

    Deltek unveiled the latest release of
    GovWin in September. It is business
    development and capture
    management software designed
    specifically for government contractors.
    The company also introduced
    four new packaged services
    plans ? upgrades of Deltek's
    GCS Premier Billing Package
    Service, Costpoint Quickstart
    Implementation Service, Costpoint
    Upgrade Service and Performance
    Management Quick Start Service
    ? to help manage commercial or
    government projects.

    Richard Boden, president and
    CEO of the Boden Group, a professional
    services provider in
    Woodbridge, Va., has used Deltek
    and Dynamics products.

    Government auditors are used to
    using Deltek, and they know how
    its programs enter and use data, he
    said. "From a compliance perspective,
    it makes it easy to audit," he
    said.

    Deltek's main problem is it is a
    proprietary system and not easily
    adaptable, Boden added. "If you
    wanted to, say, go with an outside
    source that could do your [human
    resources work] or your payroll or
    something like that, you'd have to have
    guys come in and basically write code," he
    said. That is in contrast to Dynamics NAV,
    an open system to which it is easy to add
    applications.

    Boden said he believes Deltek is beginning
    to lose market share because the bigger
    clients want to do more things themselves
    without having to hire outside consultants
    or programmers.

    "If they're still going to remain a proprietary
    system," Boden said, "I think they're
    going to have problems."

    David Hubler (dhubler@1105govinfo.com) is
    associate editor at Washington Technology.

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