Workday vs. SAP and Oracle: Workday’s Differentiated Value Proposition is Driving Growth

At the end of 2019, we wrote about the differentiated Workday value proposition as being Workday’s key advantage if they were to slay the Goliath’s of Oracle and SAP.  Since Workday just recently announced their Q4 earnings for FY ’20, let’s take a look to see how this is playing out.

Workday announced another remarkable quarter, adding 11 new Fortune 500 companies, bringing their Fortune 500 HCM total customers to 45%, including 60% of the Fortune 50, while adding 16 new Global 2000 customers for a new total of almost 20% of the Global 2000.  Subscription revenue grew in both Q4 and the full year by 25% and 30%, respectively, with subscription revenue backlog of $8.29B, representing 23% YoY growth.  Workday also raised its FY ‘21 subscription revenue high-end guidance to 22% growth.

As Workday’s growth continues to spike each year creating much tougher comps, growth rates over 20% certainly demonstrate continued success.  But the question we must answer is whether Workday’s differentiated value proposition is the impetus for this success.

Here is an excerpt from our previous article discussing Workday’s differentiators that is most telling:

Third, and perhaps most importantly moving forward, Workday’s planning and analytics solutions offer additional business value, supporting a business case for migration.  If you look at Oracle and SAP, migrating to their cloud solutions primarily offers a technology platform upgrade, meaning at best, a company can do what it was previously able to do except now it is in the cloud.  That’s a lot of money and time for a company to invest without any tangible additional business benefits to justify a ROI.

Workday’s focus on planning and analytics is in response to the new value drivers for CFOs.  They enable greater insight into managing their businesses that goes beyond functional business processing, reporting, and record keeping.  Companies can accelerate their business growth and profitability, which creates a compelling business case for not only adopting Workday’s planning and analytics, but also core HCM and FI management which will be natively integrated.  Financial modeling can be done to show how the new capabilities will generate greater profitability, through a combination of reduced costs and greater revenue generation due to improved business insights and decision-making capabilities.

Now if we look at the results, we can see that Workday reported over 100 new Prism Analytics customers and over 350 Adaptive Planning customers, stating this was their best quarter ever for their Financial and Adaptive Planning solutions.  CEO Aneel Bhusri explained further that this growth “was a testament to the fact that the office of the CFO was looking at planning analytics and transactions together.”

Mr. Bhusri also spoke of the 100 new Prism Analytics customers in Q4, highlighting that customers want to be able to plan, execute, and analyze in one system, thereby enabling not just better business process transformation, but better business insights.

It is difficult to tell exactly how much of Workday’s growth can be attributed to their planning and analytics solutions as differentiators, but the new customers who purchased planning and analytics solutions in Q4, along with the continued top line revenue growth and expansion within the Fortune 500, demonstrates that Workday’s value proposition is resonating.

Workday Displacement of Oracle and SAP Cloud Solutions

On the earnings call, Brad Zelnick from Credit Suisse raised an interesting question regarding displacements of Oracle’s HCM cloud, which is significant since that is Oracle’s current generation product and not a legacy application.  Mr. Bhusri was a bit cautious in not wanting to comment on the prevalence of these displacements, but he did highlight a key reason as to why Workday has had success displacing both Oracle and SAP cloud products.  He cited that both firms were slow in moving to the cloud and have not had the type of success on the deployment side that Workday has experienced.

In our experience working with customers and reviewing many dozens of cloud proposals and agreements, Workday has clearly stood out as a firm that values deployment and production success much more so than Oracle and SAP.  This can be seen in the number of deployments where Workday’s professional services team is playing an active role either leading or supporting the implementation as well as through the customer success packages.

Mr. Bhusri claims that Oracle and SAP may have done well closing some sales opportunities, but they have also been losing accounts that come back to market where the deployment side was not successful.  Workday measures success not just by sales, but through successful deployment and production phases, as customers measure success by the solutions they are able to deploy and realize value from during production.  These claims by Workday are reflected in their 97% customer satisfaction rate and their impressive growth record.

Challenges that Lie Ahead

Not everything is rosy at Workday, though.  On the Student Information Systems (SIS) front, which is still a relatively new solution where Workday has been involved in practically every implementation, they are experiencing challenges at large-scale universities.  The complexities inherent with large universities have resulted in a number of deployments being postponed, with the most recent being at Washington State University.  We have also learned of other scenarios where Workday has backed out of sales opportunities due to bandwidth issues and concerns over their ability to successfully deploy.

This goes to show that not everything Workday touches turns to gold, but it is commendable that they are turning down opportunities where they are unsure of meeting their customer success standards.  I cannot recall Oracle or SAP ever turning down sales opportunities over deployment concerns.

Other challenges Workday faces are with scaling their business and growing their pool of certified systems implementation firms.  Accenture just recently acquired Sierra-Cedar’s Workday practice, which we see as a demand sign for skilled Workday implementation services in the market.  Resources are scarce and in high demand which could inhibit growth if Workday cannot expand their implementation partner ecosystem.  The good news is that when companies like Accenture make these sorts of practice-specific acquisitions, they obviously strongly believe in the growth potential and they have the ability to train others within their resource pool, or new hires, to expand their bench depth.

We have also heard from some Workday customers that have experienced challenges with value realization in some areas and have expressed concern that Workday might be neglecting their core products in their haste to fully expand into ERP.  This is a common growing pain for a firm like Workday.  They know it is only a matter of time before Oracle and SAP catch up, so there is the incentive to grow quickly, both vertically and horizontally, to capture market share and entrench themselves as a long-term player.  The challenge will be for Workday to exercise discipline in order to maintain a level of controlled growth, continuously innovate within their core products, and adhere to their core values of customer success that have built their brand to date.

We have heard many good things about Workday from their customers over the past few years.  But this fast-moving digital world can all change very quickly.  It will be important to see if Workday can maintain its current levels of customer satisfaction while capitalizing on the tremendous growth opportunities that lie ahead.

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