analysis of the dutch erp market
TRANSCRIPT
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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]
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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
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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).
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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]
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.
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.
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.
Source: Avanade internal resources
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
(insignificant cost)
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
(insignificant cost)
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
(insignificant cost)
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)
Source: Avanade internal resources
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.
Source: Avanade internal resources
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.
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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.
Source: Avanade internal resources
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.
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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.
Source: Avanade internal resources
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
Source: Avanade internal resources
Figure 13.
Source: Avanade internal resources
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.
Source: Avanade internal resources
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.
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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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