Microsoft and SAP expand partnership with S/4HANA and Azure commitments

November 28 2017

SAP CEO Bill McDermott (left) and Satya Nadella, CEO at MicrosoftMicrosoft and SAP renewed their longstanding partnership this week with a new round of commitments that will support key offerings, S/4HANA and Azure.

SAP will run its private managed cloud service, SAP HANA Enterprise Cloud on Microsoft Azure. SAP will also "move its key internal business critical systems to Azure," according to a statement

In turn, Microsoft revealed it will deploy SAP S/4HANA on Azure to run its own internal finance processes. Microsoft has long managed its corporate finances, along with its supply chain and some manufacturing processes with SAP-based systems. An upgrade to S/4HANA indicates that SAP software will continue to play a key role in Microsoft's business for years to come.

The announcement has raised some questions about whether Microsoft ought to be eating its own dogfood by deploying Dynamics 365 when it comes to finance and operations. In theory, perhaps, but experts point to a few key factors that probably led to this week's announcement, ranging from technical to functional to political.

In practical terms, Dynamics 365 isn't the right solution for managing Microsoft's complex set of core financials, experts seemed to agree. As one veteran Dynamics AX/365 partner executive explained, Dynamics 365 for Finance and Operations, Enterprise edition (D365FOE) is simply not designed to meet the operational needs of most large software businesses, let alone at the scale of Microsoft. And what Microsoft has built around their core SAP engine over the years increases the gap to a new solution like D365FOE.

"Dynamics 365 is not close to what Microsoft has done to their SAP ," the partner executive said. "Microsoft's SAP solution is totally customized, and it is a lot easier to upgrade that code vs redoing it in Dynamics 365."

Enterprise software analyst Joshua Greenbaum of Enterprise Application Consulting notes that Microsoft's use of SAP software extends further than many realize. Microsoft also runs SAP-owned Concur, for example. And on the flip side, SAP uses lots of Microsoft software internally, with this week's announcement extending that usage even further. "And they've been partners forever," he notes.

Greenbaum agrees that the idea of Dynamics 365 running internally at Microsoft for core finance and operations is unrealistic given the company's scale and the extent to which it has learned to operate with SAP over the years.

"Dynamics AX are not designed to run a company the size of Microsoft," he says. "The whole direction of Dynamics 365 is into the realm of a series of services that can be staged on the platform. They don't want to be the go-to product ."

"This is a matter of Microsoft showing it's on the latest generation of tech, even internally - and a publicity play for both," says Rebecca Wetteman, vice president of research at Nucleus Research. "Microsoft's SAP ERP due for an upgrade and HANA is the natural next step."

The upgrade should offer Microsoft an opportunity to embrace a range of important functional improvements as an SAP customer, rather than getting just a step upgrade. Greenbaum explains:

In S/4HANA finance, you can model a daily or weekly close of the books. You can start looking at financials in a realtime way and do predictive analytics on a complex modeling of finances of a company the size of Microsoft. That kind of capability, to do that modeling, to drive the company in a realtime financial fashion, that's pretty revolutionary for finance. HANA can do that at a cadence that really changes how you run the finances of a company. That's one of many functions that S/4HANA would let you do.

Also, there's just a huge amount of upgrade to user experience, processes. And they're also believed to be implementing the SuccessFactors HR system. Then you start taking that HR work that SuccessFactors can do in terms of next generation talent management and you want to combine that with your financial management system to model your financial plan in real time. And you can then take that planning to the next level, similarly if you're using SAP supply chain with S/4HANA finance, you can do some interesting things in capacity planning, costing, procurement, etc.

Microsoft promises to bring Azure AI capabilities and analytics services to bear within the context of S4/HANA financial reporting. And both SAP and Microsoft promise to document and share details of their Azure-based deployment architectures.

"For customers taking a hub and spoke approach to ERP with SAP at its core and Dynamics on the edges for subsidiaries, this should provide some easing in vendor management and the ability to negotiate better terms for a broader enterprise account," says Wetteman.

Beyond the capabilities and newer tech, there is, of course, a political side to the announcement, adds Greenbaum. Top of mind for the companies is likely AWS re:INVENT 2017, which is happening this week. "Microsoft and SAP likely wanted to make sure this announcement happened in a week when AWS may suck up the oxygen."

Wetteman adds that this week's announcement from Microsoft and SAP "also gives Microsoft another key ERP vendor betting on Azure for cloud against Amazon - supporting Satya's cloud first strategy with a vendor that's unlikely to make a quick change in its choice of cloud infrastructure providers."

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About Jason Gumpert

As the editor of, Jason oversees all editorial content on the site and at our events, as well as providing site management and strategy. He can be reached at

Prior to co-founding, Jason was a Principal Software Consultant at Parametric Technology Corporation (PTC), where he implemented solutions, trained customers, managed software development, and spent some time in the pre-sales engineering organization. He has also held consulting positions at CSC Consulting and Monitor Group.

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jefflfrye's picture

I have to admit, seeing experts writing that the do-everything-because-its-cloud Dynamics favored child is not up to the job of running even Microsoft made me laugh a little bit. Many of us could see through Microsoft's guilt-laden marketing push the last couple of years, we just were not certain Microsoft itself could see through it. Will the marketing for Dynamics 365 now include the tagline of "365 will work for you on Azure because Azure works for better and more complete products like those of SAP?" Jeff Frye

axfredrik's picture

As Microsofts Hana solution will be a tailor made solution, and the concept of doing finance processing in the EXTREEME scenario Microsoft is, it is no wonder that they are looking to SAP instead of inventing the wheel all over again on their own platform, that is meant to be a totaly different type of solution. I would think as an analyst like you would know that financials isn't "just" financials. D365FOE isn't designed for Microsoft corps requirements and shouldn't be either, in the same way that SAP Hana isn't designed for a run of the mill small business. Like a small auto repair shop or restaurant. It would probably work, but just not an optimal solution.

jefflfrye's picture

Yes, but none of this was is the marketing material or tsunami of unwanted messaging (ahem, GPUG Summit 2016) regarding "digital transformation" and partners and customers falling behind if they did not wise up to the Microsoft cloud. While Microsoft cuts off the paths customers use to increase the functionality of systems Microsoft sold them, Microsoft itself is maneuvering to not use the systems it was selling as modern and up to the job. We all knew and continue to know that 365 is not up to the job for Microsoft. The dirtier secret is that it is still so incomplete that it really is not up to the job for a lot of companies. Yet it still remains the focus of Microsoft marketing and is impossible to avoid or circumnavigate on the customer facing websites. Microsoft released an incomplete product and continues to market an incomplete product like it is a replacement for everything we have. Their own "About Microsoft" on the official release goes to great lengths to avoid mentioning or celebrating the iceberg of customers and products not on the cloud and having no plans to go to the cloud. In business systems, Microsoft continues to cut off its arm to save its toe. Jeff Frye Systems Analyst

jglathe's picture

Refreshing to read that I'm not the only one who sees it this way. My term for it was and is "unfit for business use". Almost 10 years now that Microsoft is on this path. No sign of letting up.