Microsoft Revs Up Copilot in Dynamics 365: Will it Fly with Customers?

To capitalize on the generative AI (Gen AI) frenzy sweeping the business and technology world, Microsoft has been rapidly launching versions of its Copilot solutions throughout its product portfolio. Following its release of GitHub Copilot in 2022, it added many more Copilots in 2023, including Copilot for Microsoft 365, Dynamics 365 Copilot, Microsoft Copilot (rebranded from Bing Chat and Bing Chat Enterprise), Copilot for Power BI, Copilot for Sales, and others.

Now, the software giant has announced even more Copilots and use cases. It is infusing it deeper into its Dynamics 365 modules, including supply chain management, project operations, finance, commerce, field service, and HR. The long-term goal of this Dynamics 365 expansion is something Microsoft calls an AI-infused “autonomous and adaptive ERP,” which the company thinks will be a “new era” for ERP systems.

Georg Glantschnig, Microsoft VP of AI ERP, said in a recent briefing:

“Microsoft is leading the way to autonomous and adaptive ERP. By infusing AI across our ERP capabilities, we’re helping every decision maker to optimize their strategic decision-making and empowering every individual to improve their productivity by automating and expediting operational processes. With Copilot solutions across every business area, the future of autonomous, AI-led ERP is here now. … In the ERP domain, I think that’s a new era.”

Many New Use Cases … But Are Customers Ready?

In addition, Microsoft announced many new use cases for these Copilots in individual Dynamics 365 modules. These include Copilot capabilities for invoice processing in Dynamics 365 Finance. Microsoft Copilot for Sales continues to enhance Gen AI capabilities for sellers by enriching the Copilot capabilities with sales-specific skills, data, and actions. In 2023, Microsoft added Copilot capabilities in Dynamics 365 Project Operations to generate project status reports and Copilot capabilities for procurement in Dynamics 365 Supply Chain Management.

But are customers ready and willing to let Gen AI play such an important role in their core ERP processes? We see several possible objections or concerns.

• • Organizational willingness to let their ERP run autonomously, that is, make decisions on its own. Are customers ready for this, and do they really want this? And if they want it, is the accuracy of their ERP data adequate to let the Copilots make autonomous decisions?
  • How much work will it take to support the Copilot versions and ensure they stay relevant? Can existing IT staff or power users do this, or will it take additional headcount?
  • If Copilots are omnipresent, their suggestions might become overwhelming, prompting users to ignore them. Constant, unsolicited suggestions are intrusive and can hinder workflow. Will the Copilot recommendations be explainable, allowing users to understand how and why a Copilot recommends a certain action?

Another issue we see is price. Customers may like the AI story, but will they be willing to pay a premium for it? Could the pricing consume some or most of the cost savings of automation? Some Copilot functionality is part of the base system and included in the price, while some is an upcharge. (For more on Copilot pricing, check this Dynamics 365 pricing page.)

To its credit, Microsoft is working to make it easier for customers to try the new Copilot functionality on a limited basis before rolling it out to the entire user base. Microsoft recently made several changes and announcements in this regard:

• • It removed the 300-seat purchase minimum for Copilot for Microsoft 365 commercial plans. It also removed the Microsoft 365 prerequisite for Copilot; now, Office 365 E3 and E5 customers are eligible to purchase. This allows customers to try Copilot on a limited basis.
  • Copilot for Microsoft 365 is now generally available for education and small and midsize businesses. If a company is using either Microsoft 365 Business Standard or Microsoft 365 Business Premium, it can now purchase Copilot for Microsoft 365 for $30 per user per month. (It is not yet available for all markets and languages.) Assuming that a subset of users can be named users for Copilot, again, this allows customers to experiment with it before rolling it out more widely.
  • Microsoft Copilot for Sales is $50 per user per month. If a customer already has Copilot for Microsoft 365, he or she can purchase Copilot for Sales or Copilot for Service for an additional $20 per user per month.

When releasing its new capabilities for extended planning and analytics in Dynamics 365 Finance, Microsoft also announced the Dynamics 365 Finance Premium SKU for $300 per user per month. This will be required for certain roles to access the business performance planning capabilities.

As can be seen, Microsoft is taking somewhat of a middle ground in monetizing Copilot. In some cases, Copilot functionality is included at no additional charge, while in other cases there is an upcharge. To what extent customers will bite on the premium pricing remains to be seen.

How Should Customers Respond?

Microsoft’s Copilot plans are ambitious, but if the software behemoth can pull it off, it has an opportunity to lead the way. What should customers do to ensure success? We see Dynamics 365 customers falling into three categories relative to Copilots.

• • Fully embrace: Early adopters will dive headfirst into Copilot-infused Dynamics 365. These tech-savvy pioneers favor cutting-edge automation and data-driven insights. Copilot’s ability to learn, predict, and adapt should align with their business vision. A fertile ground for this response may be net new customers, who do not have a history with Microsoft and might be most open to this new vision.
  • Selective adoption: Some existing customers will take a measured approach, focusing on specific modules where Copilot offers clear benefits. Low-hanging fruit such as intelligent inventory management could be prime targets, delivering a quick ROI. This is a more conservative path, where customers move forward with full implementation only when benefits are proven.
  • Wait and see: Other customers will adopt a wait-and-see stance, observing how early adopters fare and waiting for the Copilots to mature. Concerns about data privacy, potential job displacement, or the overall reliability of AI-driven systems might hold them back. They might also lack the budget or internal expertise to manage such a significant shift.

Competition from Many Quarters

Microsoft is not the only enterprise software provider working to embed AI in ERP. The competition is rapidly evolving. For example,

• • SAP: SAP’s S/4HANA Cloud ERP solution includes various Gen AI features such as its Joule Gen AI tool and automated document processing. SAP also has a road map for integrating Gen AI capabilities across its entire ERP portfolio, making it more automated.
  • Oracle: Launched in January 2024, Oracle’s OCI Generative AI Service allows developers to integrate Gen AI capabilities into their applications, including ERP solutions. Oracle is also embedding Gen AI in Oracle Fusion Cloud ERP and other applications. This will likely boost tasks such as demand forecasting, fraud detection, and generating customized invoices or contracts.
  • Salesforce: Salesforce’s Einstein GPT is an integration with OpenAI’s GPT-3 model. It is primarily aimed at text generation tasks such as personalized marketing emails, report summaries, and customer interaction summaries. Salesforce also has prebuilt AI apps for sales forecasting, customer churn prediction, and inventory optimization.
  • Workday: Workday is introducing Gen AI capabilities gradually, ensuring user adoption. The company is focusing on Gen AI for capabilities such as personalized learning recommendations, tailored marketing materials, and automated email responses.
  • NetSuite: NetSuite’s primary Gen AI solution is NetSuite Text Enhance. Launched in October 2023, it focuses on enhancing text generation in some NetSuite modules. Text Enhance relies on the broader OCI Gen AI service, allowing access to powerful language models for text creation and refinement. NetSuite plans to gradually expand Text Enhance to other modules over time.

It will be years before the winners can be declared in the ERP AI race. While Microsoft’s Copilot exhibits a broad strategy to democratize AI access and integrate it across its entire ecosystem, other players also possess impressive capabilities. The critical factors lie in execution, educating users on AI-led ERP, and ongoing innovation.

Ultimately, the true measure of success will be the extent to which AI empowers ERP users, boosts productivity, and unlocks new possibilities. Whether Dynamics 365 leads the charge remains to be seen, but Microsoft’s momentum and ambition are undeniable.

By Tom Dunlap, Research Director, Avasant