Episode Transcript
Speaker 1 00:00:10 Hi everyone today. I want to talk about Workday, one of the most interesting and important companies in the whole human resources industry. So let me start at the beginning for those of you that don't the story. Back in the 1980s, when I used to work at Sybase, there was this company in Pleasanton called PeopleSoft and the founders of PeopleSoft, Dave duffel, and others felt that there was an opportunity to build a, and they had come from mainframe backgrounds, by the way, opportunity to build a highly integrated human capital or set of products in the new client server architecture client server was the predecessor to the cloud, and it actually was very similar to the cloud, but it was Unix and other open servers on the back end and PCs. And at the time, other mobile computers at the front end and believe it or not prior to client server, where everything ran on mainframes with dump terminals, most of you have no idea what that even means, but that's kind of where it started.
Speaker 1 00:01:07 And PeopleSoft was very, very successful. What they did is they built a suite of HCM currently called HCM. Now we're called HR applications, including payroll core HR position management, and then eventually started to getting into talent at applications, recruiting, learning, and then decided they wanted to be an E R P company and went out and acquired several E R P financial companies and tried to build a total E R P solution. Unfortunately, of course, as happens with all fast growing companies, the management team couldn't quite keep up and there was this big competitive red company across the bay by the name of Oracle that didn't like this and Oracle decided to attack. And of course, Oracle was already an E R P company and a database company. By the way, one of the things people saw struggled with was they needed a database technology. So they flip FLA between Oracle Sybase and other database technologies for partnerships.
Speaker 1 00:02:02 This is sort the 1980s tech world. Anyway, that all happened. PeopleSoft fell on hard times. Oracle acquired PeopleSoft and the founders of PeopleSoft were significantly stung by this because Oracle at the time was the evil empire and all of their wonderful employees became Oracle employees and they set out to do it again. And they did. They spent some time thinking about the world of tech, uh, and by the way, a lot of the Workday executives are technical people. They're really engineers and architects. And they designed a new architecture system, which eventually was called Workday. And it really was a technology startup. They built an object during a database, by the way, object, a data databases were experiments. At the time I, I worked with one at Sybase that never quite got finished. They built a middleware, they built a business process framework. They basically built an architecture to allow them to do what they wanted to do at PeopleSoft in a more architected way, because many of the things they ran into and PeopleSoft had to do with architecture, client server was new at the time.
Speaker 1 00:03:05 So there were things that had yet to be figured out. So anyway, PeopleSoft turns into Workday and a lot of the people who had worked at PeopleSoft in the early days kind of came to join and quickly worked day attracted many of the original PeopleSoft management, sales, marketing engineering people who wanted to be part of this new company, which was also unpleasant. And by the way, right next door to the old PeopleSoft, which now was called Oracle. So sort of a funny geographic situation and what Workday did was something that's very, very, very hard to do. They redesigned and redeveloped a core HCM system for large companies. And I talked to their early customers. Trons was one and people bet on them because they bet on Dave Duffield and the management team and Enil, and really wanted something new. And yes, the cloud really was different and the, that were needed in the cloud were not the same as the things that were needed in client server, which of course gave Oracle a lot of Aita for a long time.
Speaker 1 00:04:07 Oracle went through the transformation to what they called fusion, which never really worked, which was a middleware idea. Oracle somehow believed they were gonna build this middleware product that was gonna translate the client server stuff into the cloud, but that didn't happened. So Oracle eventually had to redesign the HCM platform from scratch, which led to the HCM cloud they have today. So think of in a way Workday as the new apple iPhone, radically different, highly integrated, beautifully elegantly designed closed, but, but really cool. And people started and they weren't threatening Oracle and SAP that much at the time SAP had acquired success factors by the way, and was going through a very similar transformation that Oracle was to take its client server and mainframe applications and transform them to a cloud architecture. So Workday starts picking up speed and they get a ton of money and they hire a lot of senior sales people and loan hold.
Speaker 1 00:05:01 They turn into a pretty formidable company. And one of the things that Workday's always had going for them is they know and understand and empathize with HR. HR buyers are not usually super technical people. They rely on it. So what Workday had to do is they had to take their wonderful relationships with HR and they had to build relationships with it. And if you look at the early marketing of Workday, there was a lot of marketing around the architecture. So the, it, people would also get excited about it because the it departments in the early days, and we're talking about 2000 8, 9, 10, you know, were, um, a little confused by the cloud because they had a lot of legacy systems of their own running in their own primary. So they kind of were engaged with this whole Workday idea of a cloud first architecture. So Workday grows and wins.
Speaker 1 00:05:49 A lot of big deals in SAP accounts starts to threaten a lot of Oracle deals because the Oracle clients suddenly say, Hey, if we have PeopleSoft, maybe Workday's the right transition for us because it was built by the same people. You can imagine the Machiavellian conversations that were probably going on at Workday during that period of time, but it really was groundbreaking 10 years later, of course, this is continued. Workday has grown the application base into recruiting, learn all sorts of analytics applications, and the world has changed. Everything's on the cloud. Now having a cloud architecture is not that unique. Oracle and SAP also have cloud architecture solutions, Oracle and SAP have more vertical expertise than Workday. SAP has many more payroll modules than Workday. And all sorts of really smart startups have entered the space, all of the LX P and learning systems based on skills, all the talent mobility systems, all the new recruiting platforms, all of the new employee experience platforms, the wellbeing platforms, the employee engagement and listening platforms.
Speaker 1 00:06:56 You've all heard my stuff on this. These are significantly powerful tools built by very smart companies with great architectural founders, all of which were nicheing away at this new Workday ecosystem. And the Workday team for a while was sort of stuck. They had this architecture that was beautifully elegant, like the apple iPhone, but it was hard to build other things into it. It wasn't designed to be open it wasn't designed to a plugin APIs because it was all protected. Everything in Workday goes through the security framework. So you can't just run an application or get a piece of data, unless you go through the Workday business process framework and the object or a database isn't sort of a SQL database. You can't just pull data in and out of a it without going through the Workday tools. So there were lots of challenges and they heard this from customers.
Speaker 1 00:07:43 They heard it from me. They heard it from a lot of people and it gets a little bit more complicated because we all went into teams, zoom, slack, web mobile, and messaging systems. So we don't really use our computers to conduct transactions all the time anymore. We do transactions over for the phone. We do transactions over messages, the whole idea of a web based system, where the computer on the other end is a computer is not really the way the web works anymore. The thing on the other end is an intelligent device that might interact through small messages. So all of a sudden new Workday has to figure out what to do about slack teams, workplace, Google workspace, and this whole new paradigm for how we interact with computers in general and the original Workday UI. If you, if you saw it, it was sort of a circular, interesting process is now kind of outta date.
Speaker 1 00:08:37 Nobody wants to do that anymore. They want to do it on their phone. So anyway, these guys have a lot of things to do, but they're very strong architectural people, but it's not as quick for Workday to change anymore because now they've got hundreds of companies, very, very large companies like IBM is using Workday. Amazon is using Workday ups is using Workday Merck, but Workday, I remember going to Merck and meeting with their management team and they were big SAP shop. And they said, we're trying to make a decision between Workday and success factors from SAP. And I said, well, given that you have all the SAP infrastructure, why would you switch over to Workday and redo all that tech and data? And they said, well, you know, we think it's kind of the new thing. And it's easier to use and more compelling for a whole bunch of reasons.
Speaker 1 00:09:22 So this new architecture was giving Workday a huge competitive advantage, but it was also holding the company back. Well, didn't stop the growth because there's plenty of opportunities to replace legacy systems. But Workday started to get a lot of grief. A lot of customers do not like the user interface of Workday. There's a Twitter feed of people complaining about Workday. And just because it's a big system, there's lots of implementations that don't go perfectly well. And once you implement any E R P every decision you made is subject to re discussion at some later point in time and maybe 3, 4, 5 years from now, you look at the implementation and say, wow, this is kind of crappy. It doesn't do what we want it to do. For example, GE told me that their implementation of Workday has to be really redone and that's not Workday's fault.
Speaker 1 00:10:07 You could blame the system's integrator, or you could just say, that's the way these systems are. They're not infinitely configurable yet. I mean, there will be a new generation that will, will be more configurable, but Workday is not giving up. This is a very, very aggressive, tenacious, smart company. And they see the writing on the wall that they have to open this thing up and they have to accommodate third party applications. They have to accommodate slack teams and other interfaces. They have to build an employee experience layer on top because ServiceNow is suddenly bigger than they are. And they have to build vertical applications too, because one of the reasons Workday loses deals is SAP has a vertical solution and they don't, you know, saying oil and gas or some other industry did O Oracle. So this week I attended the Workday in a summit, which is a meeting they have once a year for analysts.
Speaker 1 00:10:59 And I talked to a lot of the Workday execs and saw a lot of this. And what they've done over the last two or three years is significantly open up the architecture. And the new tagline of Workday is what we used. We used to have a tagline at Sybase called architected for change. It's similar Workday's message is we are here to help you change with the industry and the company and the business that you're in. And so they are really embracing that and what they've done. And by the way, it was also very hard for Workday to acquire a company, because if they bought a company that had an application, it wouldn't work in the Workday infrastructure. So they didn't buy a lot of application companies until recently. Now they are, by the way. And the reason they're now able to do this is they have really evolved a lot.
Speaker 1 00:11:43 And I call this what peach lamp, peach lamp. Who's the chief technologist basically called Workday a mesh. And, and what they're building is what I would call a tightly coupled integrated architecture, not loosely coupled loosely coupled would be. I have one application and we build an API to another application. And maybe there's some user interface and data integration. This is tightly coupled in the sense that the business process framework that you use when you implement Workday will continue to work in all of other properties. They call them that Workday acquires. So if Workday buys a company that does workforce planning, which they did adaptive insights, or a company that, uh, vendor management and contract and contingent labor like Benley, or does employee experience like Pecon, you can use the Workday security infrastructure you have in the, at application. And that application's data will be somehow morphed into the Workday data model with extensions to the data objects.
Speaker 1 00:12:42 I'm probably not completely saying that correctly. Somebody at Workday will undoubtedly correct me, but this is the idea. It's a tight integration, but it is an integration as opposed to an absorption where you take the code and you rewrite it in the Workday architecture. Now Workday's argument in this new architecture, by the way, the name of this infrastructure is called Workday. Extend Workday extend is the platform and the APIs that allow customers and developers to do this. And there's a tool set called Workday orchestrate that allows you to build these cross domain framework, to manage security and workflows across different applications. They are now attracting content developers. They have a developer day. They did last year. They're doing another developer day. This year. They're really trying to build a development community of systems, integrators, customers, and individuals who wanna build apps on top of Workday.
Speaker 1 00:13:32 You know, it's a little bit like where apple was in the early the iPhone. It was hard to build an apple app in the early days, cuz it was a closed system, but eventually apple opened it up. And now they have this massive suite of applications and developers and tools and education on how to do it. Workday's going down the same path, but keeping the framework and object model in place and having machine learning, AI and user interface components that the these other applications can use. Now, why is this important? You could argue that Workday, which is roughly a $5 billion company now has 13 or 14% of the HCM market, which is a massive number. Maybe won't grow forever. So I was talking to ane, be sure a little bit and, and listening to the executives at the meeting. And they said, look, our goal is to become a $10 billion company.
Speaker 1 00:14:18 That's twice as big as they are today. The market is there for sure, but how they gonna do it? Well, they're gonna go after more fortune 500 companies, they're gonna go into new countries. Some of which are dominated by SAP and Oracle, and they're going to extend the architecture to become more vertical and have more applications. And so this opening up of the Workday architecture through extend and orchestrate and the development tools and the employee experience tools is designed to help the company grow. And I think it's going to work because most Workday customers don't have a lot of choices. If you are not happy with the features and functionality you have in Workday, you don't have a lot of choice. You could rip it out and put in one of the other ones, which is a massive tens of millions of dollars investment and the risk of that company.
Speaker 1 00:15:05 Not having something else you need, you could bolt on third party applications, which is what most do, or you could build something of your own. And so what Workday is doing is encouraging you to do the latter decisions, build by or integrate better and better and better the things that you have because the reality of it is there is no one system that does everything and there never will be. If you really believe the story, that Workday is gonna be your total ACM solution. Well, don't believe it. You will need a third party recruiting tool. You will need a third party training tool. You will end up with dozens of things in your company, including identity management, email communications, zoom, all that. And they're all gonna have to interoperate with Workday in some way. And so by focusing on the extensibility and opening up of Workday and creating a community of people that know how to do this, by the way, one of the things I learned when I was at Sybase years ago is one of the keys to growing a software company is developing an army of software developers and implementers whose careers are tied to your SIM system because they will bring your system into every job they go to.
Speaker 1 00:16:15 So if you're a Workday developer and you really know how to use Workday, not only can you make a good living, but you're gonna recommend Workday everywhere you go, because that's what your life is built on. And so part of Workday strategy is to build this army of developers. Now, of course, Oracle has this Oracle, Microsoft SAP have large communities of developers who have built entire careers around their platforms. Those individuals don't like to change platforms unless the company they're working with falls out of favor. So if you were an E R P expert of one of the old E R P systems that went away, you kind of learned a new technology stack and learn something new Workday is doing that. They are building a community of experts that know how to use these new tools. Now just last week or week before I wrote a big article about the employee experience market.
Speaker 1 00:17:05 And the point that I was trying to make was that of all the decisions you have to make this core HCM. One is one you make every 10 to fifth, 15 years. But in between that you make a lot of other decisions that are just as important or more. And one of those is how we're gonna build our employee experiences. And I argued that really the core has flipped the core, which we always think of as the Hm system is not really the core. I mean, it is one of the cores, but the other core is the employee experience application. I think most of you that use Gmail or Microsoft or slack or whatever, that is your core, that is where you spend all your time and you want all of your stuff there. I don't care. What's on the back end. You can flip out the back end as much as you want.
Speaker 1 00:17:47 I couldn't care less what it is because I don't touch it. So you could argue that the employee experience is the new core. Well what's Workday gonna do about that? Well, there has been a lot of teeth dashing and effort going into that. And in the early days of the ex market, I think Workday was a little bit maybe naive or just didn't wanna accept the fact that what their customers really want is not a new portal on top of Workday that has beautiful cards and cartoons and pictures. They want a tool set to build and enhance and customize the employee experience for their employees in the jobs that they have, by the way, 70 to 80% of employees don't have computers, they have phones or kiosks or other remote locations. So you can't just do this on the web. And Workday was beginning to realize that simply enhancing the user experience of Workday.
Speaker 1 00:18:41 Wasn't gonna get them where they want to go, because a lot of customers have already decided they're gonna stick something on top of Workday. Hence, the reason that Microsoft Viva now has a thousand paying customers, ServiceNow is growing at something like 50% faster rate than Workday. And there's all sorts of new things coming along those lines, including by the way, the talent mobility systems like globe and eightfold. Those are actually employee experience systems. People use them first and then Workday sits behind them. So what's Workday gonna do about that? Well, they have now come to the conclusion that by the way, one more important thing last week, Oracle announced something called Oracle me kind of a funky name, but basically an entire tool set for developing integrated employee applications on top of Oracle HCM. And interestingly enough, as Oracle does very, very well, they are marketing this as a system for building surveys, feedback, employee, wellbeing, applications, onboarding applications, training applications, um, and all the myriad of other self-service things that employees need.
Speaker 1 00:19:46 This is what EEX is all about. So Oracle has, in some sense, jumped ahead of work day's product strategy by introducing a real product SKU that is designed to do E ex. Now, the only thing of course with Oracle is the marketing's always a little bit ahead of the product, but it looks pretty do gone. Good. So Workday is essentially going to do the same. Workday is opening up the front end. They have much more customizable interfaces. Now you can connect Workday transactions to these systems of productivity. You can talk to Workday through teams, you can talk to Workday through slack. And I think this is the beginning of Workday's decoupling or realization that the original design of this integrated beautiful single system is even evolving. Now, the reason I think Workday is going to continue to grow so aggressively is not just because it's a great architecture and because it's a great technology and it has a lot of customers, but it's also about the culture.
Speaker 1 00:20:44 And I do get a chance to meet with the executives in a lot of these companies a lot. And, and I observe the way they work and the way they talk to each other. And the interesting thing at Workday is there is a little bit of a group think approach there where everybody kind of says the same things and seems to be drinking the same Kool-Aid, which is both good and bad. The good thing of it is that they work in a very integrated way. It's a company of people who really all more or less think the same way and tell the same story. And that is very effective in sales and marketing because the customers tend to hear more disjointed messages from other vendors. And Workday kind of sounds like they're all on the same page, which gives you a sense of security and, and safety in your decisions.
Speaker 1 00:21:30 But they also come to realization a little bit slowly about what's going on. Well, I don't think that's true anymore. I, I think Workday is now big enough and sophisticated enough and ane and the management team are humble enough that they are beginning to realize that these new architectural issues are very, very important. There is a tendency in every fast growing company worked included to become a little bit arrogant when you're growing really fast in software, I've seen this so many times, including where I've worked. You start to believe that you are the smartest people in the room, and therefore every decision you make will work out the, but that never happens. Microsoft went through that. Cisco went through that. Facebook is going through this realization. Now, Oracle, they they've all had their slipups. And I think Workday is having the same humbling experience, where to go from 5 billion to 10 billion.
Speaker 1 00:22:22 They now know they need to get into more verticals. They need to get into more countries. They need to be more open. They need to so significantly invest in these APIs. They have to give up on the gospel of what they used to call the power of one. By the way, one of the things that if you read the very early IPO from Workday, they call it the power of one. And the first couple of years, that was miraculous. The fact that you could get one system on the cloud that did all of the things at Workday was, was absolutely spectacular. People really, really needed that. Well, now it's now the power of the Workday mesh or the power of the Workday orchestration network or the power of the Workday enterprise management cloud. They now call it and fulfilling. That will take some time, but they may be the only ones that can do it.
Speaker 1 00:23:07 Well, I mean, Oracle could and will do this. SAP will try to do this. Microsoft doesn't really care about the applications. They're more than happy to have third parties built up. Google is not an applications company. Facebook is not an applications company. So in a sense, it's Workday's market to win and they know Oracle and SAP very well. These three companies are the very knowledgeable about each other. They compete in every large corporation all the time. And of course, there's another dimension that Workday is interested in. And that is the mid-market. If you look at the amount of money spent on software in corporations, medium size companies spend a lot more money on software than big companies. They're harder to reach. There's more of them. They're more dynamic. They come and go. But companies like EKG, ultimate software in for Ceridian, a whole bunch of mediums ADP all the way down to the low end are also very, very large companies.
Speaker 1 00:24:00 And Workday is extending down. And even though a large complex E R P system is sometimes very hard to use or configure for a medium size company. Workday has been very successful there also because what SAP used to say, I used to laugh about this all the time is the reason you should buy software for big companies is because your small company is going to become a big company. So why don't you buy software that helps you get to where you wanna go? And that story is a re reality. In fast growing companies, you look at a fast growing pharma company or a tech company or whatever they might buy Workday, just because they know that eventually they're gonna need more and more and more of the features of Workday because they're growing so fast. Anyway, I just wanted to share these thoughts with you. I'm always interested in your perspectives. This is very controversial area of HR and HR tech. I'm writing an article on this to give and feedback. I'm not telling you should buy Workday stock, but I think it is a really, really important company it's going to continue to grow and what they're doing just makes incredible amounts of sense. Thank you.
