Workday's fiscal second quarter results highlighted the company's momentum, larger deals and the ability to scale ahead of its Workday 23 release in the weeks ahead.
Mike Stankey, chief operating officer at Workday, is in the middle of all of those moving parts. Stankey has been taking a more customer facing role to free up CEO Aneel Bhusri to focus more on product innovation and strategy.
Workday reported second quarter revenue of $186.8 million, up 74 percent from a year ago. The sales were well ahead of expectations of $177.4 million. The company reported a second quarter loss of 38 cents a share, or 11 cents non-GAAP. Wall Street expected a non-GAAP loss of 14 cents a share.
Meanwhile, Workday upped its outlook for the third quarter and fiscal year.
I caught up with Stankey in New York to talk shop. Here are some of the highlights from my conversation with Stankey.
Traction for Workday Financials. Stankey said the rollout and implementation of Workday Financials is going according to plan. Financials are a different category relative to human resources software because they are more industry specific and local. Stankey said Workday is focusing on breadth and scalability of Workday Financials and "working with larger and larger customers." "We're moving up the food chain," said Stankey, who noted that Workday recently added insurance company Unum as a financials customer. That addition is notable because Unum is the first Fortune 500 customer for Workday Financials.
Implementations for Financials. As expected, most Financials customers are also using Workday for Human Capital Management (HCM) too. "A handful of customers have gone Financials and then moved into HR," said Stankey. Workday has two separate teams for Financials and HR, but both categories have similar implementation teams. For people-based industries — financial services, software and technology — HR and financials increasingly go together because real business improvement requires both functions to work well.
Stankey argued that HR and financials will go together in most industries — even ones who have primarily focused on the supply chain. "People are 45 percent of the costs with manufacturing companies and they have spent nothing on optimizing," said Stankey. "Large companies don't know whether they should hire staff or contract on a consolidated basis."
Challenges for Financials. Stankey said the biggest hurdle for Workday Financials revolves around scalability and the ability to handle more transactions. "We built Financials for the largest organizations," said Stankey. "It won't be long until scalability questions won't be a problem." Workday Financials is akin to the company's HCM development. As Workday landed customers such as Flextronics and Hewlett-Packard (and reportedly McDonalds) questions about scalability went away. In Financials, Workday's scalability questions will fall away as it lands larger customers.
The scalability question was raised by me when I asked Stankey about a two-tier Financials strategy. NetSuite has popularized two-tier ERP where customers keep their existing suites, but use NetSuite abroad and in subsidiaries. Stankey was adamant that Workday's plan was to run all of financials at large customers. "There's no two tier for us. We're trying to do the entire company and make the accounting org work better with HR," said Stankey.
How will Workday Financials compete with Oracle and SAP? Stankey realizes that it is tough to uproot financial packages that have been in place for years. "With Oracle and SAP, the biggest hurdle for us is that they work. We need to get someone who appreciates that we can do it better," said Stankey, who added Workday needs to reach visionary leaders looking to go to the next level of performance. On both HR and Financials, Workday views the customer lists of SAP and Oracle as potential new customers.
The enterprise cloud transition. Enterprises get the selling points of the cloud today. Stankey said he used to have to spend a lot more time on data privacy and system availability, but now has to convince them on whether the rate of innovation is manageable. "We do two updates a year and deliver the functionality turned off," said Stankey.
Some skeptical customers, however, are "byproducts of 30 years of the software industry past." These prospects question implementations that take four to nine months and wonder whether they can really run the business better. Stankey said Workday allows its current customers to tell the story and walk through implementations. "Our 97 percent customer satisfaction rate is real," said Stankey.
Biggest implementation hurdles. Stankey said data migration remains the biggest implementation challenge for Workday and its customers. The ease of data migration is dependent on the quality of data and number of sources. "Our tools are getting better, but not world class yet," said Stankey. Big data techniques are starting to help Workday suck in about 80 percent of a customer's data from various sources.
Workday has standard connectors to universal data, but plans to use the concept of data lakes in more implementation. A data lakes pulls in data from multiple sources. Workday would then use that lake to pull in data, process it and put back in the lake. "Data lakes are going to be important to us and customers as big data strategies become the controlling infrastructure," said Stankey.
Hiring. "A manager's primary responsibility is to hire well," said Stankey. "Who hires well and who hires poorly? There has to be a core system of record with a batting average because the cost of a bad hire is extraordinarily high." Stankey should know since Workday has more than 3,100 employees now. As for Workday's own hiring, professional ability is the primary screen and the second one is cultural fit. "We refuse to hire people that will represent the bad apple in our barrel," said Stankey.
For the first 500 Workday hires, Stankey and co-founders Dave Duffield and Bhusri would interview candidates for cultural fit. Once that approach didn't scale, Workday with two vice presidents to interview for cultural fit. If Workday makes a bad hire, the marching orders is to fix it. "There's no shame in making a bad hire. The shame is not fixing it," said Stankey. To determine cultural fit, Workday looks for humility and lack of selfishness. "You can hear that in an interview," said Stankey. Sense of humor, optimism and how a person operates under duress are also key telling points.
The cloud landscape. Stankey — and Workday's fundamental premise — is that monolithic applications and the model behind them will give way to a series of clouds. Let's say five clouds will form. Salesforce obviously has the marketing and salesforce automation drill down. Stankey acknowledged that Workday would love to lay claim to an admin claim. A collaboration cloud is likely as well as one for industry operational systems. And there will be an IT cloud that will cover governance, infrastructure and platform. As I'm floating the premise by Stankey it became clear there were a few gaping holes in the cloud landscape. Consider the following clouds and players:
- IT cloud: Microsoft, Google, IBM and Amazon Web Services.
- Collaboration cloud: Microsoft and Google. Maybe others, but you need the productivity tools and doc management too.
- Marketing and sales: Salesforce, Oracle, SAP and a bevy of others.
- Admin cloud: Workday, NetSuite, Oracle, SAP.
- Operational systems cloud: Guidewire in insurance, Athena in health and Rootstock in manufacturing.
That latter category is going to be the land of specialists by industry because the broader platforms won't have the expertise or time to make a cloud offering work. Stankey, who used to work at venture capitalist Greylock, noted that one vendor doesn't have the chops to build every operational system for multiple industries. In other words, there's some money to be made in those hills. Meanwhile, teams are defecting from large ERP players to build these operational cloud companies. Stankey doesn't think the cloud will allow suites to always win.