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Procurement Rising? 5 Scenarios Explored

usscmc by usscmc
November 9, 2019
Procurement Rising? 5 Scenarios Explored
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Procurement is taking on increased importance for Workday’s growth. In a recent Seeking Alpha column highlighting some of the takeaways from Workday’s financial analyst day at its Workday Rising customer conference, the author notes that Workday suggested it will have four drivers of sustained growth in the quarters and years to come: international expansion, financials, old customers — and, drumroll please, procurement!

Breaking News:

First Take Analysis: Workday’s Acquisition of Scout RFP (Part 1: Scout Background, Strengths/Weaknesses, Deal Rationale)

Workday to acquire Scout RFP for $540 million in cash

According to the column, the focus on procurement appears in part driven out of the success of Coupa, which validates the “the considerable potential in this market.” Further, according to Workday, “procurement would serve to expand focus, with the potential to sell the product on a standalone basis in the future. Workday shared that more than 650 WDAY customers used procurement and highlighted that the attach rates for procurement is 85% for the core financials segment.”

Of course that says nothing for the breadth, depth and capability of what Workday is building for customers at this stage in the area (right now, things look somewhat bare bones). Cynically, we could argue that Workday Procurement is still two-steps removed from the mainstage. After all, the product line appears to fold into the supply chain product line, which does not even get a mention as one of the Product Strategy and Vision Keynotes at Workday Rising.

Workday Procurement image from the company website

Procurement also takes a backseat role at other cloud-based ERP vendors as well — with the exception of Oracle Cloud and to some extent SAP S/4HANA (we don’t include SAP because that’s a separate ecosystem of various platforms and apps from SAP Ariba, SAP Fieldglass, SAP Concur, and the SAP Ariba Network). Other ERP vendors like Netsuite, Infor, Microsoft and others are similar in terms of their very basic functionality beyond just dressed-up versions of ERP purchasing modules geared toward transactional purchasing and materials management.

But without really knowing what’s under the hood aside from short product demonstrations, it’s our guess that what Workday is building — and has ambitions to sell as a standalone in the competitive source-to-pay market — will fall into one of five scenarios.

  1. Workday procurement could be a modern day version of PeopleSoft SRM (which would not entirely surprise us given Workday’s product management DNA roots in that firm). If the solution goes down that path, as an extension to financials, it will likely be competitive in only a small segment of the procurement market among generally unsophisticated organizations. (As an aside, we’d like Oracle itself to get even more Peoplesoft SRM functionality into Oracle Cloud Procurement.)
  2. Workday Procurement could actually be competitive in the market on its own two procurement legs in a not-so-dissimilar manner to how Oracle has built an excellent procure-to-pay capability with Cloud (Fusion) with all the benefits of native integration into financials (not to mention other areas such as supply chain, contracts and even HR, where Oracle has a few unique capabilities) that SAP will lack until it decides to rebuild SAP Ariba and SAP Fieldglass on S/4HANA. But this took Oracle many years to build, and it put some of its best product procurement resources from all the other lines on the initiative — a team that already knew procurement inside and out.
  3. Workday Procurement could take the “Scout” approach, which would not be surprising given the firm’s venture arm has actually invested in Scout. This approach would prioritize best-in-class usability and the adoption of solution fundamentals by all users over best-in-class feature function capability. But for Workday, pulling off a Scout-like foray will be a challenge for procure-to-pay, contract management and other applications that are more complicated to build than core sourcing given all the moving parts involved.
  4. Workday could adopt an approach that leverages its strength in human capital management (HCM) — where it got its start — to focus on the contingent workforce as a means to get to broader source-to-pay. This is where Workday could truly build a moat for itself by integrating HCM into procurement, service management (customer services, IT services, etc.), and contract management to address services procurement and contingent workforce management. This has been an opportunity for Workday since its inception, and continues to be an ignored strategic opportunity.
  5. Finally, we could wager a guess that the elements of scenarios 2 to 4 will all factor into the strategy.

Or, of course, Workday could also move down an M&A path for procurement. But we don’t think that the acquisition strategy necessarily fits with what the single data model/platform approach that could give Workday an advantage as it extends financials into procurement — at least as its core “move” into the sector for transactional (P2P) procurement. Even large snakes can choke if they swallow other animals that are too large. Luckily, there are lots of digestible players in the market where the people and IP can be picked up to accelerate the growth along the way.

Will Workday be competitive in procurement, offering products capable of standing on their own? We look forward to answering this question on Spend Matters in the months to come.

But right now, we would encourage Workday financials customers to evaluate the broader source-to-pay and services procurement landscape and evaluate Workday on the merits of what it currently has available. Betting on a roadmap is a surefire strategy with ERPs for procurement technology headaches.

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