Workday and the mid-market - then
Workday only came into being in 2005 but it starting selling into the mid-market as early as 2008. Those initial sales were heavily driven via their long-term partner, OneSource Virtual (OSV). OSV enjoyed a very tight and economically enriching relationship over the years. OSV acted like a reseller of Workday’s HCM solutions and provided a number of other capabilities for these customers.
One of the most important of these add-on capabilities was OSV’s management of third party integrations for mid-market HCM Workday customers. OSV helped mid-market firms get out the maintenance of application software via Workday’s multi-tenancy and get away from maintaining numerous integrations with benefit provider, health insurance, retirement plan providers and many other HR interfaces.
For many years, if Workday received an in-bound marketing lead for a company with 1000 employees or employee equivalents or less, then they’d flip the lead over to OSV. OSV often wrote the deal on its own contract paper and signed many of these customers to their integration maintenance and other offerings.
While OSV focused on the mid-market, Workday concentrated on the large enterprise customer market. It created a dedicated sales force, sales processes, etc. for this market segment. Workday also created implementation methods for these projects and cultivated an ecosystem of partners to help with these implementations. Those enterprise partners often included a mix of very large systems integrators and niche HCM implementation or strategy firms.
Over time, many of the large integrators have acquired these niche Workday implementation firms. We’ve seen Mercer acquire Jeitosa and CPSG. Aon/Hewitt got Kloud. Deloitte got Aggressor. IBM got Meteorix. DayNine went to Accenture. You get the picture. The ecosystem got hot and integrators wanted/needed larger, all-cloud, all-Workday practices. But through all of this, the major integrators were mostly focused on the larger enterprise clients.
Workday and the mid-market - Now
There’s a very different economic driver that makes mid-market solutions attractive to enterprise software vendors. Mid-market firms tend to buy a lot more related software applications from a single vendor whenever possible. They do so as the application integrations within these large suites are less troublesome to maintain than collections of best of breed apps constituting what we call in the vernacular 'The Dog’s Breakfast.'
Workday and other vendors know this and they know that in-fill sales are often very common and very low cost affairs in these accounts. This is a highly desirable market segment as long as a vendor is prepared to radically change how it sells and supports these customers.
Workday’s been busy developing a number of new tools and capabilities to enable more partners to sell and deliver Workday Financial and HCM solutions to mid-market firms. This isn’t a sudden change but rather an evolving shift that’s been coming since 2012. In the intervening years, Workday has been adding mid-market capability in North America and, lately, to EMEA.
As Workday expands its mid-market capabilities, geographies and solutions, its partners will be targeting many of the same prospective customers as Intacct, NetSuite, Ultimate and many other enterprise vendors. The new market segmentation for Workday’s mid-market solutions is in the 500-3,500 employee count level.
Workday has also created new sales processes for engaging with these prospects. They’ve simplified their contracts and worked to make contract negotiations take less time than the implementation.
Workday’s also unwinding some of the OSV contracts and moving these customers to Workday’s paper.
Other integrators are also being courted by Workday to sell and deliver Workday’s Finance and HR solutions to the mid-market.
A Workday executive told us that some integrators actually refused to sell the fixed price mid-market solutions. This is really telling as it points to a rigidity in business practices by old-school integrators and a lack of progress in their ‘cloud’ thinking. Some integrators will resist as they don’t want to have their services be exactly the same as a competitor’s. This lack of differentiation makes their offering a commodity and one that is best filled by the lowest cost firm in that space.
What Workday wants its mid-market channel partners to do is follow a fairly consistent set of rules. First, there will be one consistent way of delivering Workday. Second, these partners should sell a specific offering from the four they can offer (Financials, HCM, HCM with Payroll or the full Financial/HCM/Payroll Suite. Customers will have the ability to add pre-approved add-on modules. The implementers will agree to deliver a fixed price, fixed timeline solution.
To help these implementation partners, Workday conducted a launch event replete with a number of product, implementation and other sessions to help firms prepare for a different way of selling and delivering Workday software.
Integrators that want to make it big in this market have to be great in a number of disciplines but originating leads is one that I believe will be an immediate and critical need. The development of vertical and horizontal extensions is a close second. Acquisition of needed talent is the third. Let’s look at these more closely.
Few software companies need partners that are camped out at their doorstep begging for leads. Vendors want partners that are uncovering and cultivating net-new prospects. The best partners create thought leadership materials, speak at industry events, cultivate raw leads into viable sales prospects, etc. Creating one’s own lead pipeline is critical, especially when one integrator can look an awfully lot like another.
The brand and differentiation of an implementer is often tied to the quality and volume of the thought leadership its people (not its PR firm) can create and its marketing team can exploit.
This week, Workday opened up its platform and, as such, will make it easier for third parties (e.g., implementers) to create vertical extensions, new integrations, new applications, etc. that work directly with Workday’s applications.
The best mid-market partners will exploit this heavily. Most mid-market software buyers want/need solutions that are tailored for their industry. Even the horizontal functions like HR and Finance need pre-built integrations and additional functionality that could come from an implementer’s pre-vetted solutions and integrations. Prospective software buyers will want solution providers that can deliver more of the functionality that they need/want. Generic implementers can’t deliver much.
Talent acquisition may be especially difficult for these implementers. Some of the best and brightest talent out there may not want to work for a small-ish implementer as they might find the opportunity for upward advancement or top salaries to be elusive.
Family owned firms can be really hamstrung if they aren’t willing to promote people into top roles and share the wealth. Re-treads, people with older ERP on-premises skills, may be candidates for this work but they’ll need re-training that they or others might not pay for. And new colleague graduates may not find this the career they want, especially if they’ve seen their parents impacted by the labor-arbitrage tech cuts that occurred years ago. Where will this talent come from?
Customers should like the new Workday direction as client after client I speak with wants:
- Known total implementation expense
- Rapid and certain implementation
- No surprises
- Highly competent implementation teams
- Small price tags
- Easy to understand contract terms
What these customers don’t want are huge price tags for these projects. While mid-market customers often possess champagne tastes and beer budgets, successful software vendors find ways to deliver lots of capability for them at very affordable price points. The tradeoff is that customers may not get the same level of pre-sales attention that large enterprise buyers do. They might not get every bell and whistle they need either but the cost/benefit tradeoff is considerably improved.
As to this last point, I’ve recently seen some rather large implementation proposals from old-school implementers that are pitching their services to Workday prospects. Their numbers are not viable in the mid-market marketplace. For this reason alone, Workday has to change how and what implementers sell and deliver in the mid-market if the vendor is to be successful here.
Let’s see how well they can harness that herd of cats…
Colleagues have long been wondering where the mid-market pure play cloud vendors for systems of record are going to come from. When you look at the market, there really has not been that much movement of note in the last 10 years. Phil and I have observed a clear 'trickle up' market where very small businesses almost never touch on premises systems and where the emergence of a new class of vendor, especially in the finance space, has shaken the incumbents.
However, in HR, it seems that most sub-500 person businesses agree there is little point in going digital. I think that perception will be displaced as changes in the composition of labor markets mean that 500 FTEs could easily translate into 2,000 or more revolving names on an annualized basis. Equally, there really hasn't been that much of note for businesses that fall into Workday's mid-market 500-3,500 person segment. That makes what Workday is saying today especially pertinent.
Given my long history with Workday, it was worth being reminded by Workday that its roots are in the mid-market but that it got propelled into the big leagues fairly early once the market saw Workday as viable for organizations with upwards of 100,000 employees. Brian has revisited that history and I have nothing to add.
The presentation we saw demonstrated a company that has thoroughly thought through how it should go to market and differentiate for this under served segment. The business model, fixed price, fixed scope, fixed term implementations are exactly right for this price conscious market which, if carefully positioned, will allow Workday to cast off its high end, high price perception among otherwise interested buyers.
One example comes in the form of contract verbiage which Workday has condensed from its large enterprise tome and which, according to Workday, requires no legal 'red lining.' Another comes in the menu style offering. This is very different to the enterprise offering where there is a single SKU with prices to match. It makes the selection process much easier for a mid-market business to both understand and consume, while minimizing implementation risk.
We are already seeing Workday's efforts bear fruit in some of the case studies that have been offered to us and we look forward to seeing more of the same.
There's always a caveat and this is no exception. Past efforts by other vendors to achieve this type of separation between upper and mid-market have always proven organizationally problematic. Workday insists this offering is supported by a dedicated team. I have no doubt of that but what will be needed is a very strong ring fence around this unit and very clear lines drawn so that the elephant hunter in the big leagues don't swamp their mid-market colleagues at the margins.
What's more, Workday leadership will need to give equal measure to the successes of this group when meeting analysts. Marketing will be tricky but there are plenty of ways in which Workday can protect its large enterprise brand while still addressing the under served mid-market. Will we see for example a version of Rising tailored to this segment?
For EMEA, I don't believe Workday will see the same partner problems that Brian anticipates in the U.S. In EMEA, I have seen a greater willingness among practitioners to move over to fixed price style deals. In that sense, I find that the U.S. lags. In Workday's case, the effective upgrade switch will likely be more compelling because what we tend to see in European cases are businesses that have already stretched an SME solution to its limits. That means the initial deal size will likely be smaller but it is possible that the volume will be greater once the market gets used to a premium player with a credible solution. It also means fast time to value. That counts in this market where owner/managers have little patience for delays.
Overall, I am impressed, once again, with the thoughtfulness and professionalism with which Workday is attacking this long standing problem. Now let's see it works out on the execution front.