Those looking for signs that Web 2.0 applications are becoming an increasingly dominant part of enterprise IT systems need look no further than Workday.
The company, founded by former PeopleSoft founder and CEO Dave Duffield, announced new additions to its HCM (human capital management) suite on May 19. And while SAAS (software as a service) offerings have generally been restricted to simpler, self-contained processes such as CRM (customer relationship management) and compensation management systems, Workday intends to build out a complete ERP (enterprise resource planning) suite to compete with the likes of Oracle and SAP.
Big, bulky enterprise systems, with their perpetual license agreements and maintenance contracts extracting perpetual expenses from customers, are the dinosaurs of the enterprise IT world, while the future of the IT infrastructure is with Web-based, less expensive and more flexible systems.
SAAS vendor Netsuite has offered an on-demand ERP suite since 2003, when it was still known as NetLedger. But despite a relatively long existence in Internet years, it has never been able to announce anything like the deal Workday just made with electronics manufacturer Flextronics, to which it will provide software service for more than 200,000 employees.
Workday is also announcing a deal with McKee Foods, which has 6,600 employees, and has already landed contracts with the likes of Chiquita (25,000 employees) and ITT Defense (16,000 employees). This kind of momentum stands in sharp contrast to the struggles of SAP, which has had to delay the rollout of its on-demand ERP platform, Business ByDemand, and is becoming the poster child for the struggles of on-premise, perpetual license vendors trying to come up to Internet speed.
Workday Chief Technology Officer Stan Swete said Workday has also taken eight customers away from PeopleSoft and Oracle.
The primary new feature of the HCM suite release is a payroll system that can either stand alone or integrate with third-party payroll vendors such as ADP (also, not so coincidentally, a SAAS vendor).
Workday has also added absence management and organizational management tools. The organizational management application reflects what Workday officials said they see as the reality of modern business organizations, which are flatter and have more complex team and reporting structures than in the past.
Christine Ferguson, marketing lead for HCM applications at Workday, said employees often report to one organization but can also participate in activities on teams in parallel organizations.
The HCM application is intended to mirror this reality by, for instance, allowing managers to approve vacation days or expenses for an individual, even if the person doesn’t report to them directly.
“We want to have one instance of a person,” Ferguson said.
Workday also uses the same calculation engine both for payroll and absence management. “A lot of people can claim they’re doing this, but I don’t think anyone is,” she said.
Swete explained that this is because most other systems are cost-center-based. “Those reports don’t have knowledge of supervisory structure; Workday does. Reconciliation between those two isn’t necessary with Workday,” he said.
Workday is also introducing the first elements of a business management suite, with an end-to-end procure-to-pay application.
The irony of the deal with manufacturer Flextronics is that Workday is focusing on services-oriented companies. Thus, the focus of the application is on tracking resources, whether human or nonhuman, rather than on the accounting treatment required with businesses that rely on a physical plant.
“We do a better job of tracking what used to be called a small item, but which is becoming a more and more important part of expenses,” Swete said.
Why SAP is foundering
Workday still doesn’t have a full ERP suite to truly compete with the likes of SAP, but it does benefit from having been built from scratch with the Web in mind. So has Business ByDesign, but SAP has to do more than change its code base; it has to change its culture.
Paul Wallis, co-founder of data systems builder Stroma Software, suggested in a comment to a blog from Dennis Howlett, that SAP may be having trouble designing a new, more people-friendly user interface. (SAP is known for being extremely people-unfriendly, which is why its Duet with Microsoft is such a good idea.)
““There are changes afoot in the way enterprise applications are sold. Enterprise applications get so ingrained within a business that changing to a competitor is a very unpalatable proposition. So in order to find new markets, enterprise software vendors are seeing that by changing their message slightly and using newer technologies, they can move away from the big, clumsy monolithic applications of old and start appealing to small and medium size businesses-essential if they are to expand their client base. New business from new market sectors.The shift toward more nimble, Web-based platforms forces a change in price point. And that changes the sale more toward the high-volume, low-cost software application sector. And that forces a change in user interface.”“
SAP has not been very clear as to why it has had to delay the release of Business ByDesign.
In the meantime, as Joshua Greenbaum noted in his blog, competitors such as Workday have an opportunity to exploit SAP’s weaknesses.
Mark Newsome, senior corporate HR manager at McKee Foods, said McKee decided to replace its PeopleSoft system with Workday’s HCM application because of a more user-friendly interface that is built for managers rather than “power users.”
Implementing Workday: A Lesson Learned
The appeal of SAAS is clear: It allows organizations to leverage the native intelligence of its managers to input information into a system, rather than having to employ specialists just to run an HR system. And it allows them to outsource the ongoing maintenance to a company-the service provider-for whom doing those fixes is core to its business, and not just a business-critical cost center.
“Working in a SAAS environment allows us to discontinue having to have the cost on our own back for upgrades and maintenance and patches and fixes and all the little things that go along with that. … We don’t have to have the infrastructure in-house to do that ourselves now,” Newsome said.
That said, Workday and McKee haven’t ironed out all the kinks in their relationship. One lingering issue is what to do with the legacy data from the PeopleSoft environment. Workday will maintain historical data going back as far as law and other regulations require, but McKee wants to maintain even older data.
“We don’t know what we’ll do with the data they won’t take,” he said.
Newsome had a few words of advice for companies thinking of moving to a Web-based environment:
“One of the things we did was a thorough search of the technical aspects and its security, because you’ve got to be very comfortable if you’re going into a SAAS environment.”