Welcome to the future of enterprise resource planning! If you're exploring the world of Dynamics 365 Finance and Operations (F&O), you've likely come across the buzz around Copilot – Microsoft's generative AI assistant. But what does Copilot actually do? How is it wired into Dynamics 365 FO? And what makes it work behind the scenes?

In this post, I’ll walk you through the Copilot architecture, translating technical blocks into business-friendly insights and helping both new users and seasoned consultants understand the nuts and bolts of this powerful Generative AI engine.

What is the Copilot experience in Dynamics 365 Finance & Operations and why is it called Copilot Sidecar?

From what I know, a sidecar in tech often refers to a separate component that runs alongside the main application to provide additional services without being tightly integrated. So, the sidecar Copilot runs alongside the main Dynamics 365 FO User Interface, offering AI assistance without being embedded within the core ERP UI.

You may consider it's a design pattern where Copilot operates in a separate pane or window, allowing users to interact with AI assistance while keeping the main application untouched. This would mean the architecture is more modular, using APIs and services to communicate between the sidecar and the main app. i.e. Dynamics 365 FO

The sidecar version has more about extensibility and customization. The user always interested in how it's decoupled, perhaps for flexibility or to support different user interfaces.

Why Copilot in Dynamics 365 Finance and Operations?

Dynamics 365 FO business users are often bogged down with data-heavy tasks, repetitive processes, and long turnaround cycles for decisions. Copilot is Microsoft’s answer to bringing context-aware intelligence directly into business processes — not just answering questions, but proactively assisting users by drafting content, analyzing data, suggesting actions, and automating workflows.

Let’s dive into how this experience is architected and what each component does

1. Finance and Operations Apps – The Front Door (Default Enabled)

At the very top of the architecture is where users interact — the Dynamics 365 Finance and Operations applications. This includes modules like Accounts Payable, General Ledger, Procurement & Sourcing, and more.

Here’s what’s happening under the hood:

Copilot Sidecar

Think of the Copilot Sidecar as a companion panel or window that lives inside your F&O interface. It provides context-aware experiences like:

• Answering natural language questions (e.g., "What are my top overdue vendors?")

• Offering suggestions based on the data you're working with

• Drafting business documents like emails, invoices, or reports

This sidecar doesn’t interrupt your workflow. Instead, it intelligently appears where it can add value — making AI a seamless part of daily operations rather than an extra tool to open.

Power Platform Integration

This enables Dynamics 365 FO to connect with Power Platform components like Power Automate, Power Apps, and especially Dataverse (we’ll cover that next).

Microsoft Power Platform integration ensures that data, workflows, and business rules can flow between F&O and other Microsoft apps — making it a flexible, scalable foundation for automation.

Important Note: This integration and the Copilot Sidecar are enabled by default — you don’t need to install anything separately to get started.

2. Dataverse – The Heart of the Integration

Sitting just below the Dynamics 365 FO apps is Dataverse, Microsoft's low-code data platform that brings all your business data together in a structured, secure environment.

Copilot Solutions (Automatically Deployed)

When you enable Copilot, pre-built solutions are automatically pushed into Dataverse. These include:

• Data models to structure AI input and output

• Connectors that link data between F&O and other systems

• Security roles and permissions to control access

This automatic deployment is a big win — you don’t need a technical team to manually configure it. Microsoft does the heavy lifting, so you can focus on using the AI instead of building it.

Dataverse also ensures your data is centralized and can be leveraged across the Microsoft ecosystem, enabling cross-application intelligence.

3. Copilot Studio – Your Bot-Building Playground

This is where the magic happens for makers and developers.

Copilot Studio is Microsoft’s low-code AI builder, previously known as Power Virtual Agents. Here, you can create, manage, and publish AI-powered bots that integrate directly into Dynamics 365 FO.

Bot for Copilot for Dynamics 365 Finance and Operations

You can create bots that serve a range of finance-specific scenarios:

• “What’s our current cash forecast?”

• “Summarize the aging report by customer segment.”

• “Create a vendor request for approval.”

These bots can be configured to answer questions, trigger workflows, or even interact with external systems.

Bing Search and Generative Answers

When building bots, you can enhance them with external intelligence like Bing Search or Generative AI Answers. These bots don’t just return static responses — they craft human-like responses based on a mixture of internal data and external context.

This is incredibly useful for frontline finance users who need answers fast without clicking through reports.

AI Publishing in PPAC

In the Power Platform Admin Center (PPAC), administrators can enable Generative AI features. Once enabled, you can publish bots with AI capabilities — making them smarter, more responsive, and capable of handling nuanced business requests.

4. Microsoft Azure Open AI – The Brain Behind the Bot

All of Copilot’s intelligent responses — whether it's a summary, a draft, or a prediction — are powered by Microsoft Azure Open AI services.

Large Language Model (LLM)

This is the same underlying technology as Chat GPT — a generative AI engine trained on vast amounts of data that can understand, generate, and reason with human language.

When your Dynamics 365 FO user asks a question like, “Why are our costs increasing this quarter?”, the LLM parses the intent, accesses your data, and generates a coherent, business-friendly answer.

Load Balancing and Responsible AI

Microsoft’s implementation includes:

• Load balancing to ensure performance and scalability

• Responsible AI practices — ensuring fairness, privacy, and data security

Microsoft takes ethical AI seriously, with built-in filters and governance to ensure AI remains a trusted advisor, not a liability.

Region Must Be Supported!

A quick but important note: Not all Azure regions support Open AI yet. Before rolling out Copilot features, check that your Azure geography is supported, or the AI components may not function.

Putting It All Together

Let’s simplify the entire architecture into one thought:

Copilot in Dynamics 365 FO is like hiring a digital analyst who works in the background, connects with all your systems, understands natural language, and is always ready to help — all without leaving your ERP screen.

The experience is modular, secure, and scalable — thanks to a well-designed architecture that combines:

• F&O apps (where users work)

• Dataverse (where data lives and solutions are deployed)

• Copilot Studio (where bots are built)

• Azure Open AI (where intelligence is generated)

Conclusion: The Future of ERP is Intelligent, and It’s Here

Whether you're a finance controller, a supply chain manager, or a solution architect, Copilot is here to elevate your ERP experience. This architecture ensures that every interaction is smart, contextual, and productive — without requiring heavy setup or technical complexity.

If you're just getting started with Dynamics 365 FO, adopt this AI-driven journey. And if you're already deep in the ecosystem, now’s the time to design smarter processes, build intelligent bots, and let Copilot amplify business users potential.

Next, I’ll prepare the follow-up blog post covering real-world Copilot use cases in Dynamics 365 Finance and Operations.

Hope you found this post helpful!

Thank you for Reading - Let's Connect!

Thank you for reading this piece. If you enjoyed it, please let others know. Hit the subscribe button to read more posts from this blog. LinkedIn, Twitter, YouTube

Stay tuned!