Episode Transcript
[00:00:08] Okay, guys, this week I want to focus on Workday, because I just spent two days with the leadership team and a lot of the product people at the Workday Innovation Summit. And the big message, from my perspective, is that workday is going through a significant transformation. This is a seven plus billion dollar revenue company, very highly regarded, 10,000 or more clients going through a significant change. And the change falls into three or four major areas. The first is a change in philosophy. Now under Anil Bashuri, who really founded the company, pioneered it, drove it really up until where it is now. Workday really went to market as a product led company. They sold the architectural advantages of the product. They very carefully made sure that the product was completely integrated, easy to use, presumably built on a unique proprietary cloud architecture designed in 2005, 2006, able to scale and handle many, many different business applications with one data structure and one set of security rules. Integrated user experience, integrated security, and that forced the company to really go to market as a fairly closed system. Sort of like the iPhone, really very nice and easy to use, safe, reliable for the most part, but not very easy to integrate, not very easy to get data into it, not very easy to get data out of it, difficult to build applications around it. And Workday deliberately limited the number of partners and the level of access that partners had to the system for a long time to maintain that architectural purity. And customers loved that because the alternatives, Oracle, SAP and others, were very hybrid architectures with lots and lots of different acquired products integrated together. So with Workday, you could be assured that you had one data set of people and money, and that went for a long time. And then Workday started to acquire companies. Workday acquired Platfora, it acquired adaptive insights, it acquired Pecan, it acquired Mediacore, it acquired vently, and a bunch of smaller ones because they couldn't build everything. The number of application modules, the industry solutions, the various innovations going on in different areas of human capital. And I don't know that much about financials, but there's just as much going on in financials, I'm sure, you know, work, they couldn't do everything, so they started to buy things. And anil, I'm sure we could tell from the meetings, didn't really like this. So all of the acquisitions were done strategically because they never wanted to lose this message of what they used to call the power of one. Well, okay, those days have more or less come to an end. That architectural integration and architectural foundation continues to exist, but it has been holding workday back. It has been making it hard for customers to adapt the system. It makes the system somewhat rigid and difficult to adapt to hybrid work, contingent work and lots of other non job architected organization structures. So Carl Eschenbach, who's the new CEO and was just really assigned or appointed to this a year ago, is now taking a different strategy. Carl has decided with the management team to open workday up to work much more aggressively with partners, independent software vendors who want to build modules that fit inside of workday, some of which workday will resell. Software developers who want to build modules that add on to workday through workday, extend AI tools that can connect to workday through the AI marketplace and mid tier resellers who may not have the sophistication or size of a Deloitte or accenture to implement workday for smaller companies. And these are all really good things from a financial standpoint because they allow the workday system to be extended and modified and adapted to the things that you want to do in your company. Every company is different. And in a sense, as I was telling a bunch of people this week, your implementation of workday is your system. It's not their system. They think it's, they used to act as if it was their system. It really is yours. You're really paying for it, and so you need to get it to do what you want it to do. So similar to the way we have an App Store on the iPhone and an App Store in Salesforce and some of an App Store in successfactors, these third parties who have really valuable tools that do things that workday doesn't do, can now be integrated into workday. And Workday is really pushing hard to open up its tools to make this easier, its business models. So Workday can resell things and basically change the message that this is not an integrated all in one application. This is a platform.
[00:05:21] Workday is a platform. And that is a lot of the discussions that really came out of this meeting is as a platform, we have to be more extensible and more open. We have to integrate with teams and Slack and Zoom and Microsoft, Copilot and other copilots, et cetera, et cetera, et cetera, which is the real world. Every company has a slightly different IT configuration. And if Workday wants to be a 10 billion, 20 billion, $50 billion company, they have to integrate with, with whatever customers have. So they can't do that one at a time with workday engineers. There aren't enough workday engineers. So this makes perfect sense. And so that is number one huge difference in philosophy and go to market number two, AI. Now, a year ago, there was a meeting just like this, and I and many of the other analysts peppered workday with questions about their AI architecture, and it was very unclear what they were going to do or what they wanted to do. And I don't think any of us understood AI really that well at the enterprise level this year, they're clear on what's going on with AI. Now, at an enterprise level, AI is not a chatbot to ask questions like what's the weather in such and such a city. It's really a technology that allows you to understand content, generate information from other information, find information, analyze data, compare this document to that document, generate documents, etcetera, using generative AI. And there are thousands of applications of that in business within the context of an ERP like workday. Workday already has 60 or 70 use cases for AI in the system. They're discussed, or at least briefly overviewed in the article I just wrote. So what they're doing is they're basically building micro llms in workday that allow you to check an invoice against a purchase order to rationalize a job description against skills. I mean, there's just dozens of little things in there where it used to be hard to do something or you had to do a lot of typing where you can click the little AI icon, and Workday will generate that automatically from your tenant using data in your company, not using data from any other company. So each workday tenant or each workday instance that you use as a client will have your data in it, not somebody else's data. Now, some of the data structures in Workday are shareable, and if you choose, you can license your data anonymously to Workday to build a smarter centralized store. That is what the skills cloud does, and a lot of companies have licensed it so that workday can build a larger skills data set. But that's not what this is. And so if you look at the architectural picture in my article, you'll see a little bit about how this works. There also are some large llms that workday is building for certain uses where the LLM is actually shared. But the weights and balances of your version of the LLM are unique to you, so you're not sharing your data with everybody else in the system. By the way, this is the way the Microsoft Copilot works. Those of you that are Microsoft customers may have noticed in the last couple of weeks, a little copilot icon appeared on your computer. So you suddenly have access to the copilot, which is basically taking you out to Bing and the Internet. Well, there's also a corporate version of that copilot which you can buy and you flip a little toggle switch and it opens it up to only the information inside of your company within the Microsoft graph. So in some sense, workday is doing something sort of like that at the enterprise application level. By the way, SAP is doing very much the same thing. If you look at the AI architecture of SAP, they're doing a lot of the same kinds of things. SAP, of course, has this chat conversational AI system called Joule that's being designed to access all the SAP applications. Workday doesn't have something like that yet, but they're working on it. So in along those lines, one of the things workday is doing is because workday is very hard to use. It's very complex, and there's a lot of very long workflows you have to go through to do things. They are simplifying many, many actions or activities in workday using generative AI, and they've done about 280 of them so far, and they've identified 2000 of them to do so. They're like almost eleven or 12% through that. So that was a really useful set of meetings because we as analysts and we tend to look at a lot of vendors, really at least I got a lot of confidence that workday is at the point now where they're really fairly clear on how they're going to use AI in many use cases now. They also spent a lot of time talking about trust.
[00:10:16] I'm not sure why because I don't think anybody at the corporate level wants to sell an AI system that doesn't have trusted data in it. But what they're basically saying is that workday is ready for the trust and governance audits that most companies are going to want to do because of the AI act in Europe. One of the things the AI act in Europe, by the way, it's discussed extensively in Galileo, if you want to learn more about it, is it forces companies to govern their AI investments so that if you want to do business in Europe, you can tell the european customers or the EU how your different data sets are being used in the AI systems inside of your company. And workday is preparing you to do that in the workday context. They've hired a senior person from the EEOC in the United States and another senior person who's worked in the federal government and in the, I think it was the Biden or maybe the Obama administration to work through these issues and provide guidance and tools to clients and companies on how to answer these AI governance issues as they become more important in go to market. So I thought that was very, very good. Another sort of positive bullish sign on where workday is going. And you know, what happens is once they have this architecture clear, all the product managers can now build stuff or design stuff that leverages these mini llms or micro llms, whatever they may be, in different modules, different user interfaces and so forth. And you know, learning, recruiting, telemobility skills, career. I mean, all of these pay, all of these applications, as you've heard me talk about for months, have huge opportunities for AI. Okay, the third thing I want to talk about is some actual stuff applications.
[00:12:02] Now one of the big deals that workday just did is the acquisition of this company called Hired Score. And as I talked to some of you about the last couple of weeks, I think this was a very strategic acquisition, much more than simply a way to improve workday recruiting. Workday recruiting, by the way, has really taken off. There are more than 4000 companies using it. It has become so big because workday customers don't have oftentimes the money to pay for third party atss. So they're migrating their ATSS into workday. And recruiting is a vitally important business critical issue now in the labor market, the low unemployment rate and the transformation of all of our companies to different skills based organization models. So we really need these recruiting systems to do a lot of stuff. Workday recruiting has had a lot of hits in the market, has been disliked by many people for a lot of reasons. It isn't really an AI generated system like Eightfold or gloat or beamery or even so much as phenom. It doesn't have the conversational AI of paradox. Paradox is a big partner of Workday, but you know, it is leveraging all the data in workday. So through the acquisition of hired score, now they have a, a robust, well designed AI system for recruiting. What a hired score does is it's called an orchestration system, which is a strange word, but what it basically means is that a recruiter who is opening up a job rack or creating a job description will automatically see a list of candidates scored. ABCDe, ABCDF, maybe it is, I'm not sure. And a list of criteria as to why this candidate is scored an a, B, C or D. Those criteria may include skills, they may include relevant experiences, they may include geography, they may include many other things. And so the AI in higher score is looking through this massive data set of prospects or candidates and scoring them for you. Well, because it's become better and better and better at that and more sophisticated over the life of hired score. It can do the same thing for internal candidates. So if you're an employee and there's a job open in your company, not only will the recruiter see who you are and maybe get a score on you, but you will get a message in slack or teams telling you that hey, there's a job opening in your area in the company, it's adjacent to your skills. Would you like to apply? Would you like to learn more about it? So in a sense, hired score is the combination of an AI based sourcing and selection system and a talent marketplace because it facilitates internal mobility and the customers that use hired score have very significant enhancements and improvements in internal mobility. Now, why is this strategic to workday? Obviously it's a great set of functionality, people love it, but more so is the AI engine and the AI engineers. And I think there's at least 100 engineers hired. Score over in Israel will become part of the product team at workday. And I have to believe they're going to work on the skills cloud. And a lot of the career architecture work that workday has been essentially lagging in now. So that doesn't make workday as sophisticated as Eightfold by any means, because Eightfold does many, many things that workday doesn't do, but it really gives workday a step up in the AI issues around recruiting, sourcing, internal mobility skills assessment, learning path generation and much, much more. Now, one of the other features that I really love that they announced is their intelligent job architecture hub. This is a big issue for workday customers. It's a big issue for everybody. And I think Eightfold is way ahead in this. But basically what this is, this is a system that will look through the job titles and job levels in your company in workday, and it will show you where you have jobs that are similar jobs with no people in them, jobs with skills that are related to other jobs that could be combined into one, jobs that are the wrong level because they're the same job as another job at another level, and show you the trending skills in the market from data from Lightcast and others that workday is bringing in to allow you to redesign your organization. And I'm telling you, job architecture is like one of the hottest things out there. Everybody's doing it because we have to create flatter organizations, we have to simplify organizations just because of what we call the dynamic organization, the need to create a more dynamic company. So those features are really critical. Workday also introduced a lot of functions and features for the financials product, which is not really my area, but integrations with tools for different forms of financial analysis and auditing, and then in the era of human capital, really upgraded the features and capability for gig work, contract work, part time work scheduling, which is huge, of course, for retail and nursing, AI driven scheduling and resource management for professional services, where you could take a group of people working on a project and do cost accounting on what is the cost of this project, based on their hours and their salaries or their hourly rates, and use that as a way to bid a project. So they're really getting into professional services in a very significant way. They're getting into healthcare in a very significant way. Retail, of course, with the scheduling options and all the scheduling tools and retail contract gig work for manufacturing. So they're really, through these features and this more open system, going to be able to get into much more expansive industries. Only one year ago, or maybe a little more than that, Anil was basically saying, we're not going to go after those industries, because he didn't really think they had the chops to do it. Carl has figured out how to do it, and he's going to do it by opening up the system. Now, the other thing I would say about workday that I've been observing over the years, because I know most of the people there pretty well, is the management team is probably as strong as I've ever seen it. A lot of the very early people at workday are gone, but most of the management team that's there today have been around and worked together for a long time. And you can see when you observe them and talk to them one at a time that they're very well aligned. They have a great amount of respect for each other. And for the first time, for me at least as an analyst, I didn't feel the hubris and to some degree, arrogance that I sometimes felt with workday. They're excited about their new stuff, and they're always selling, of course, as most software companies are. But they also are willing to listen. And they were willing to say that we maybe didn't know how to do this correctly before. And now we figured it out and here's where we're going. And for those of us that are under the covers of this, that's a really, really important signal that the company's going in the right direction now. All this said, the company is growing at about 17% per year, which is a very big number when you're a $7.2 billion company. That's a lot of growth. But customers are not always happy. A lot of workday customers are frustrated with the skills cloud. That doesn't really do much, you know, things in the recruiting product that are missing the inflexibility of the system, how difficult it is to use to do certain things. So there has been somewhat of a maybe not negative sentiment about workday, but less than positive in a lot of customers. And there are customers more all the time that have gone from workday to SAP, because a lot of SAP customers bought workday as a way to optimize their HCM system. And then they found that really, the integration between workday and SAP wasn't so hot, and they really did want an integrated financial and human capital system. So they're going back to success factors. That's not a huge number of customers, but it is happening. And as workday gets into the mid market, it's going to get tougher, because in the mid market, we've got companies like Highbob and lattice and very easy to use mid market HCM systems that don't have the functionality of workday, but they have vastly much simpler interfaces and much quicker and lower cost implementation. So the company's got plenty of things to deal with and lots of challenges. But that's the nature of a software company. For those of you that haven't worked in the software industry, it is the most competitive, most difficult industry that I can think of. Maybe consumer goods is almost as bad, but there's always somebody who's copying what you did and stealing your ideas and stealing your people, and trying to go around your customers and do something that you weren't able to do, finding the niches in your product that you didn't do very well. And of course, workday's got all sorts of stuff like that. But this is a very, very strong company that has great customer focus, tremendously well integrated management team, of course, a great architecture for what it is. There are things in the workday architecture that are old and that probably need to be changed, but they'll work on that. I mean, they're very aware of those things, things. And a leader now with Carl, who's much more open minded. And I think that is a natural transition right now for a company like workday. The founders of workday were architectural purists, and that's how they built the company. They built in some sense. I used to think of workday like a scarce good. It was like a luxury good. You couldn't get it without going through a special process. It was very expensive. But if you had it and you could get it working, it was great.
[00:21:46] Sort of like a hermaid purse. But, you know, that doesn't turn into a huge market. It's a great, profitable approach. But now that the ERP market is bigger and workday has more opportunities, especially with the financials, they're opening up. And I think that's a really positive thing from a financial standpoint. For those of you that might be financial people, I am not saying that workday does everything. We're huge fans of Eightfold and Paradox and gloat and many, many other very innovative companies in the learning space, in the career space, in the skills space, and the recruiting space. I mean, there's lots of really pioneering, innovative vendors that do things that workday does not do, but most of them can now partner with workday. It used to be that if you weren't a workday ventures company, you kind of couldn't get in there. I think a lot of these innovative tools that surround the workday infrastructure are going to become more easy to integrate, and workday will embrace them. If Carl gets his way, and I think he will, I mean, he's running the company now, and it's really up to him and everybody else there to implement this strategy. So I walked out of there very, very positive and bullish about where the company's going. We do a lot of work with companies on selection of systems, rationalization of the tech stack, understanding the innovators, and of course, understanding AI. We have personally now almost two years of experience with AI in Galileo. You're going to see more announcements on that.
[00:23:15] And we also understand the learning and the recruiting stack extremely well, and lots of things that are going on in the area of skills and integration of skills and careers and gig work and all of that stuff. So if this is all a little bit baffling to you, please reach out to us. This is what we're really here to do, is help you. But in general, all I'm really here to say is these are some pretty positive things at workday. I had nothing during the two days that struck me as one of these things that kind of bugged me. Usually I go to these meetings and there's at least two or three things that I walk out of there saying, they're not getting this, but these guys really are. They're really on top of what they need to do. They can't do everything at once. They're not an infinitely capacity company, but they are picking their bets and they're going in the right direction in many, many ways. And I think it's going to be a very positive couple of years ahead here for workday. Thanks, everybody. Have a great weekend.
