Is spend management an add-on to finance or a separate category? Workday is putting that question to the test with its acquisition of up-and-coming source-to-pay vendor Scout RFP, announced this week. It plants Workday on the same turf as Coupa — whose CEO told diginomica today he welcomes the move — as well as broadening its competitive front against ERP giants SAP and Oracle.
Workday has agreed to pay $540 million in an all-cash transaction to acquire Scout RFP. It expects to complete the deal before the close of its current financial year at the end of January. Through Workday Ventures, it has been an investor in the company since late 2018.
Boosting Workday's source-to-pay appeal
As its name suggests, Scout RFP aims to streamline the process of sourcing suppliers, traditionally initiated by issuing a 'request for proposal' (RFP). Founded five years ago, the San Francisco-based SaaS company has grown fast thanks to the engaging user experience of its automated sourcing and auction platform. It has over 240 customers globally and claims to manage more than $38.5 billion in project spend.
The product already offers close integration with Workday's existing procurement solution. Workday Procurement has itself been growing fast, with more than 650 customers signed up, over half of whom are live. Workday says it does not intend to re-platform Scout RFP but will converge the data model, security model and user experience with its own products over time.
According to Michael Lamoureux, lead analyst in sourcing technology at independent sourcing specialist website Spend Matters, the acquisition is set to boost Workday's appeal in the rapidly expanding source-to-pay (S2P) market:
ScoutRFP opens up more of the extremely fast growing S2P space to Workday (which some value at $50 billion as a total addressable market), and Workday benefits from a product known more for its usability and adoption than just about any other sourcing platform on the global market.
Applying machine learning to procurement
It seems likely that Workday will also be eager to apply its machine learning capabilities to more of the source-to-pay process. At its recent Workday Rising conference. Barbara Larson, General Manager, Workday Financial Management, showed off how it is moving two procurement processes "from labour intensive to frictionless," explaining:
Starting with one of the more manual process flows, procure-to-pay — when accounts payable receives an invoice, machine learning will upload and scan the invoice, and based on past patterns, automatically route it to the most qualified person. They no longer need to manually input and route the invoices. The entire workflow gets faster, saving time and reducing cost.
Then there's contract to cash, where accounts receivable manually matches payments. Instead of having to maintain complex rules to process payments, machine learning will recommend the invoices to match. And when there isn't enough detail, the machine presents the most likely match. Over time, the machine gets smarter and matching becomes more accurate, reducing the amount of manual work.
Integrating these and other automated source-to-pay processes into the core Workday Financials product will no doubt be an important selling point for both products.
New competition for Coupa
The acquisition creates a significant new competitor for cloud spend management vendor Coupa, but its CEO Rob Bernshteyn, who is London for its annual EMEA customer event, told me today that he welcomes Workday's entry into the market. He believes it brings more focus on the spend management sector and Coupa's own product offering:
In general, I think it's a very good thing to see more enthusiasm, more engagement, in this broader, large addressable market ...
There'll be more people — in that case and many other cases — thinking through how to address the problems around business spend management. We're trying to galvanise more focus on this area, because there's so much opportunity.
Anyone who wondered if Workday had lost its appetite for acquisitions after spending $1.5 billion on Adaptive Insights last year has their answer. Dropping a cool half-billion on spend management sends a clear signal, but perhaps this should not surprise given the growth of the existing procurement offering and the attention it was given at Rising.
I've highlighted the focus on automating spend processes at Rising because my sense is that part of the thinking behind this acquisition comes out of Workday CEO Aneel Bhusri's belief that enterprises must harness the power of machine learning to survive. Sourcing and procurement is an area where there's huge scope for applying machine learning — as Coupa identified several years ago. Couple that with an obvious synergy between procurement and finance, and you can see a big opportunity opening up for Workday.
I get the feeling though that Coupa's CEO relishes the challenge from Workday. It spurs Coupa to continue to differentiate itself with a far more comprehensive offering for enterprises that see spend management not just as an automation opportunity but also as a strategic play. I'll have more on that in the next few days out of Coupa's EMEA event, including an interview with Bernshteyn, some news and customer stories.