Workday co-CEOs predict ‘re-acceleration’ in moving finance to the cloud and greater C-suite focus on employee engagement in the Vaccine Economy

Profile picture for user slauchlan By Stuart Lauchlan February 26, 2021
Summary:
Workday's co-CEOs Chano Fernandez and Aneel Bhusri look to the future after a solid set of full year numbers.

Workday
(Bhusri and Fernandez)

Workday couldn’t get a break from Wall Street yesterday, despite handing in strong Q4 and full year numbers that surpassed analyst expectations. For Q4, the firm reduced its net loss to $71 million on revenue from $146.1 million for the same period last year, on $1.13 billion revenues, up 15.9% year-on-year, with subscription revenue for the quarter topping the billion dollar mark for the first time. Meanwhile total revenue for the year was $4.32 billion, up 19% from a year ago, with a loss $248.6 million, down from $502.2 million.

But investors sent the share price down seven percent following the release of the numbers, possibly spooked by Workday’s commitment to invest $270 million in the current quarter on “strategic priorities” related to expansion, including data center and other infrastructure spend. While that’s clearly highly pragmatic to meet the firm’s long term growth ambitions, but runs into short term mindsets on Wall Street. 

New HCM customers during Q4 included Nike, ABB, Anthem, Cognizant Worldwide, Cox Enterprises, Ferrovial Corporacion, First Rank Bank and Laboratory Corporation of America, while the ranks of Financials customers were swelled by Minnesota State Colleges and universities, Sentry Insurance, the University of Maryland, College Park, St. Jude Children's Research Hospital and Vanderbilt University Medical Center and a Fortune 500 win at Franklin Templeton. 

That said, there is still some pipeline impact in industry sectors that were particularly impacted by COVID, said co-CEO Chano Fernandez, but the headwinds are lessening:

It has been a challenging few months of the pandemic, but there is significant cause for optimism. We had very strong growth through the year as companies increasingly realize that HR and finance are the true backbone of their digital transformation. This realization is leading to significant pipeline improvement. 

Accelerating

The generic tech industry theme of accelerated digital transformation among customers has inevitably been seen at Workday, but co-CEO Aneel Bhusri picked out an HCM-specific ‘go faster’ trend that’s emerged from the COVID crisis in the shape of greater focus on employee engagement: 

With so many companies dealing with remote workers, getting a sense of how employees are feeling about the organization, their manager and their work became paramount. While Workday had been focused on employee engagement for several years and had introduced capabilities, such as pulse surveys, we realized we had to offer more capabilities to our customers.

That realization led to last month’s announcement of the intention to acquire Peakon to create what the announcement release called “a continuous listening platform, including real-time visibility into employee experience, sentiment, and productivity, to help drive employee engagement and improve organizational performance”. Bhusri explained what made the planned merger attractive: 

If you look at all the magic quadrants and analyst reports, they're the leader. They're the best. And we looked at what we were doing and said, ‘We can get there, but not at a time that matters because the market is happening now’…it's become a super high priority item for every CEO, CHRO to understand employee sentiment. The other thing I'd add is, [Peakon is] a very cool machine learning first application. They count on that machine learning to drive them to better insights and that's the way that we want to go as well. 

He added:

By bringing our product offerings together, Peakon will allow Workday to greatly enhance our capabilities across several key areas, including understanding the voice of the employee, providing more robust capability in agile performance management and becoming an engine to further our VIBE [Diversity & Inclusion] solutions as the most comprehensive on the market. 

[Editor’s note - more on VIBE can be found here.]

Moving forward

Looking ahead to the emerging Vaccine Economy and the prospect of some form of ‘new normal’ taking shape, Fernandez  and Bhusri expect to see the Financials business experience a re-acceleration, with the latter observing: 

The HR world was already, pre-pandemic, full into the mode of ‘cloud first’ and almost every function in HR was moving to the cloud as [quickly] as they could.  Finance was not at that same place. And so during the pandemic, we saw companies that were moving to finance in the cloud; we saw other people saying, ‘Hey, let's just wait until we get out of the pandemic and then we want to move forward’. The most optimistic thing that I learned over the last 12 months around finances, the customers that were using legacy finance systems - were challenged to run their business and said, ‘We need to move to a modern finance system’. And if you look at all the Gartner data, that means that finance is going to be a pretty hot area over the next two to three years. 

He added: 

[Gartner] let us know that core accounting or core finance inquiries were down 14%. Core planning inquiries were up, I think, close to 30%. And as the pandemic eases, what they also said was that while many of the core accounting projects were going to be delayed, the ones that were in '23 and '24 and '25 were getting sucked forward, because people realized that they needed to start on that digital transformation journey for Financials. So while it's been a tough time for Financials during the pandemic, I actually think from here on now it's going to get accelerated. 

This acceleration has been a long time coming, he concluded:

We actually saw companies that were struggling with their legacy finance systems during the pandemic, just actually accelerate their requirements to go to a cloud-based solution. It’s a very lowly-penetrated market right now. So we just have a lot of upside. I know I've been the Pied Piper - I’ve been talking about finance for probably a decade at this point - but I really think that finance transformation is upon us.

My take

A solid set of numbers that didn’t deserve Wall Street’s reaction yesterday. Looking forward into 2021, on the HCM side, the Peakon gambit is an interesting and pragmatic move, tapping into what Bhusri rightly pitches as a sweet spot for executive attention at present. As for the acceleration of finance into the cloud at long last, this could well be a welcome side-effect of the wider faster transformation impetus seen during the COVID crisis. If so, that’s one long-overdue silver lining that can be ticked off.