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Workday Works Its Way Up

March 13, 2008
Slowly, surely, Workday is making waves.

   But the business software company launched roughly three years ago by PeopleSoft founder and industry legend Dave Duffield is still far from its goal of swamping larger rivals Oracle and SAP.

   Workday, which focused first on human resources software, has grown its customer list to 38. Its recent move to acquire software integration specialist Cape Clear Software reinforces the firm’s pledge to make it easier to tie applications together. And Workday’s plan to release a new payroll software system this year has caused a buzz in the industry.

   Perhaps most striking, the Walnut Creek, California-based company has beat its own forecast for when it would begin to compete with Oracle and SAP for large corporate customers. Chiquita Brands International, with 25,000 employees, and Life Time Fitness, with 17,000 employees, recently signed on with Workday.

   "That surprised us," says Stan Swete, Workday’s vice president of product strategy. "We got out of the 1,000 to 5,000 [employee] range faster than we thought."

   Still, Workday doesn’t have entirely clear sailing ahead. It faces competition on the one hand from a host of talent management software specialists that are focused on critical HR tasks such as recruiting and performance management. And then there are the broader business software vendors with HR applications, including Lawson, Oracle and SAP.

   Lisa Rowan, an analyst at research firm IDC, says Workday will find it challenging to woo organizations with more than 10,000 employees away from their SAP and Oracle HR systems. Big firms are happy enough with their current applications that Duffield and crew are not compelling at the moment, she argues.

   "I don’t see them being a real immediate threat," she says.

Origins in PeopleSoft
   Workday’s origins lie in Oracle’s hostile takeover of PeopleSoft several years ago. Duffield, who founded PeopleSoft 1987 and built a largely positive reputation there, came out of retirement in 2004 to try to keep PeopleSoft from "the clutches of Oracle," as he put it. Although he didn’t succeed, Duffield said the experience rekindled his interest in the software business. He co-founded Workday in early 2005 with former PeopleSoft vice chairman Aneel Bhusri.

   At its public launch in late 2006, Duffield and other Workday officials portrayed Workday’s products as easier to use, easier to change and easier to integrate compared with traditional software. A key part of their pitch was delivering the software as a service, an emerging approach whereby companies access applications over the Internet and pay for them on a subscription basis.

   Software as a service promises shorter implementation times, lower upfront costs and reduced maintenance headaches compared with the traditional method of buying a perpetual license for an application and installing it on internal computers.

   A number of vendors of recruiting and other talent management tools have adopted software as a service, which is sometime dubbed the "on demand" model. Workday has stood out with its creation of an on-demand "core HR" system—the application that acts as a company’s system of record for personnel data. Besides that software, Workday offers tools for compensation management, employee performance management and "lifecycle management," which refers to handling staffing tasks from recruiting to termination.

   Workday initially defined its target customers as in the "upper middle market," with a long-term goal of selling to the bigger companies.

   So far, most of Workday’s customers are modest in size even if some are well-known. Software firm Salesforce.com, electronic job board CareerBuilder.com and the nonprofit Leukemia & Lymphoma Society all have signed on for Workday software.

   But the company is starting to get nibbles from larger companies.

   Already it has landed fruit giant Chiquita and Life Time Fitness, which operates health and fitness centers. Life Time Fitness, which went "live" on Workday software last year, was convinced in part by how easy it is to have the software capture changes in organizational structure, says Wes Bertch, director of information systems at the Chanhassen, Minnesota-based company. Going with Workday also meant a leaner information technology operation in contrast with other vendors considered.

   "We did not need to hire any additional staff," Bertch says.

   Another major benefit is the way Workday makes sure its software merges with other applications used by Life Time Fitness, including recruiting software from Taleo. That’s a huge relief, says Michelle Bertch, who serves as business liaison between HR and IT at Life Time Fitness and is Wes Bertch’s wife.

   "The pressure on the IT group sort of went away," she says.

   Workday’s integration emphasis was underscored in early February, when it said it would buy Cape Clear. Workday already has been teaming up with Dublin, Ireland-based Cape Clear, whose technology is designed to connect disparate applications. Christa Degnan Manning, an analyst at AMR Research, says tying applications together is a major concern for organizations. Workday is in the lead in the HR software field when it comes to linking up systems, she says.

Payroll process integration
   In the area of payroll, Workday is doing more than just integrating with other systems. The company is building its own payroll application from scratch. The first release, due this year, is designed to handle U.S. payroll functions. But Workday says it is laying the foundation for the product to be global in nature. The company plans to extend the system to cover other countries over time.

   Workday didn’t originally intend to create a payroll software application. Customers, including McKee Foods, makers of Little Debbie snack cakes, asked for the addition. Workday eventually agreed that it made sense to build a payroll tool and tie it to other HR software, says Christine Ferguson, the company’s vice president for human capital management strategy.

   "You can’t decouple the HCM from the payroll," she says.

   But payroll software on a global scale is a challenging product to make and maintain. It requires expertise on tax rules in various countries and local jurisdictions, and then monitoring those rules to keep the software updated.

   "It’s a huge commitment," says Jodi Starkman, COO of global consulting at advisory firm ORC Worldwide. "It takes a lot of skill to do that."

   On the other hand, Starkman sees a need in the market. She facilitates a discussion forum of HR and technology officials from about 40 large global organizations, and none of them has established a comprehensive worldwide payroll system.

   "Anyone who can really provide a global payroll system definitely would have an opportunity in the market," she says.

   Both SAP and Oracle offer global payroll applications. Companies also have the option to outsource their international payroll functions to providers including Ceridian and ADP.

   Gearing up to challenge these major players isn’t the only thing in the works at Workday. The company also says it will deliver enhancements to its software every three months, a practice similar to the frequent product updates offered by other software-as-a-service vendors. In contrast to the oftentimes difficult process of upgrading software run on a company’s own computers, on-demand software upgrades are designed to be simple to access—akin to the way users of Yahoo or Google can decide to use a new feature like Internet phone calling.

Niche player
   On-demand talent management specialists such as SuccessFactors and Authoria have stolen the spotlight during the last few years with their spectacular growth and the heightened attention to "strategic" HR areas such as performance management and recruiting. Those vendors also have been spreading out to offer a more comprehensive set of integrated tools.

   Workday, by contrast, has its roots in the less sexy area of personnel records and organizational structure. Its talent management offerings are limited so far. But Ferguson is confident that Workday is on the right track with its from-the-center-outward strategy, whereas the specialists are lacking the fundamental system of record.

   "In my mind, they started in the wrong place," she says.

   Perhaps Workday’s most direct competitor has yet to step into the ring officially. Lawson Software also recently built a new on-demand core HR system designed for global organizations. But Lawson’s system, part of an ambitious campaign to battle Oracle and SAP, is not yet generally available.

   SAP, for its part, is working to improve its software with enhancement packages aimed at minimizing upgrade disruptions. And Oracle continues to retool its existing HR applications even as it works to combine the best of its product lines in a new set of applications dubbed Fusion. Oracle says Fusion applications, which are slated to begin rolling out this year, are being built so they can be delivered as a service over the Internet.

   Degnan Manning says Workday may appeal to SAP and Oracle customers.

   "Clearly Workday poses an alternative to older technology that has proved to be very costly and expensive to implement, integrate, run and maintain," she says.

   Workday says its large-organization clients can expect to sign multimillion-dollar contracts that cover a period of three to five years. Exact pricing depends on factors including the number of integrations a customer asks for and the number of employees. Workday’s pitch centers not on a low-ball price but on offering a lower "total cost of ownership" when factors like integration expenses are included, Swete says. "We’re definitely not competing as the low-cost provider," he says.

   So far, four customers, including McKee Foods and Millennium Pharmaceuticals, have replaced PeopleSoft software with Workday, according to the company.