Workday 2022: A Supplier Briefing

Workday has claimed the top spot in the cloud HCM market, well in front of SAP and Oracle. With a sprawling installed base, the company must continually force renewal increases and new products on customers to keep revenue growing. This constant pressure to “buy more” from Workday has led to customers to routinely buy too much from the vendor. In fact, based on the 100+ Workday deals we reviewed in 2021, some 52% of our clients reported that they over-purchased.

The Sales Playbook

This supplier’s licenses are based on the Full-Service Equivalency (FSE) pricing model. FSE is a custom metric created by Workday to categorize and calculate the total number of workers that require licensing and understanding FSEs is critical to determining your costs. Here’s an illustration that shows how Workday breaks down a customer’s workforce to apply its FSEs:

In the third column above, you can see that each category of worker is weighted by Workday, according to how much they are estimated to use the solution. The number of workers is then multiplied by the percentage, which yields the number of “Total FSE Workers” in the last column. Workday often completes this step without input from the customer. The problem when this happens is that there is no way to validate that Workday’s “Worker Category” accurately reflects your organization. Furthermore, it’s likely that you have workers that don’t need all the modules in the bundle – or any at all.

To mitigate this problem, we counsel clients to obtain a full list of worker categories from the vendor and confirm that FSE usage is aligned per module. Also, we recommend that clients take a very conservative approach when estimating their FSE demand to avoid overpaying down the road. Remember that it’s easier to grow your demand than to reduce it.

Contract Risk

The three primary areas of risk in a Workday agreement are (1) renewal uplifts, (2) platform bundling, and (3) the supplier’s “one-size” model. With regard to price increases at renewal, Workday’s are among the highest in the industry, and the following graphic summarizes how a customer’s spend can expand across a three-year deal.

As this example shows, the vendor combines a fixed annual “innovation” uplift here of 3% with a consumer price index (CPI) hike of 6.8%/year, which when compounded through the term, results in a 32%+ rate increase. The CPI has not been as high as 6.8% in many years, but because it is subject to change, we strongly recommend that clients negotiate a much lower cap on renewal price increases or eliminate the CPI from the equation. Replacing the Workday solution is an untenable option for the vast majority of customers, so these are the only ways to mitigate the risk of steep uplifts at renewal time.

The next risk area is the supplier’s platform bundling, customized for the buyer, which makes it difficult to understand individual module pricing as well as pricing for add-on purchases. Without transparency, Workday can charge customers whatever they want for needed individual module add-ons, because the pricing was never broken out per module. This presents cost risk in future purchases. The next graphic shows what happened to a customer whose custom bundle included three modules, and after one year, the customer needed 2,000 more units of just two modules (the HCM and Payroll, and not the Time Tracking).

As you can see, the was a $90K difference in the unbundled add-on price. For this reason, we urge clients to insist on price transparency whenever forced to buy bundles.

Thirdly, the supplier may apply a single Enterprise FSE count for all products purchased, which ends up inflating license counts. We call this the “one-size” model, because it foists an entire bundle of different modules on all FSEs in the organization, whether they need them or not. However, for a renewal, a customer has the benefit of being able to examine usage in their environment and see how (and if) certain modules are being utilized. Here’s an example that illustrates this situation.

Once you determine the actual FSE usage per module, you can push back on Workday’s proposal and make sure that it more accurately reflects your needs.

Spend Modeling & Other Best Practices

To prevent over-purchasing with Workday, we recommend that clients take the time to clearly understand how their FSE has been calculated, make sure that the FSEs align with your business needs, and always use a conservative forecast. We urge caution here because so many clients report that they over-committed to unneeded modules upfront with this vendor, and then struggle to “right-size” their purchases later. Remember: SaaS suppliers never want you to buy less. So, it is essential to get transparency into Workday’s FSE calculations and map them against our benchmarks.

Next, clients are advised to achieve price holds to protect themselves for when (1) their business achieve certain levels of growth, or (2) they need fewer FSEs, or (3) there’s a change in control at your organization, and/or (4) its time to renew. Clients who are buying with Workday for the first time are advised to evaluate the many different deal options and financial models that are available to them prior to signing a deal. Workday is a large platform that takes considerable time to implement; its wise to consider ramping your subscription fees to reflect the integration timetable.

In addition, we offer the following checklist for achieving best outcomes with Workday:

  • Align with HR (Workday’s target buyer) to develop messaging to the supplier sales team.

  • Figure out what motivates your sales reps to provide the best concessions; leverage growth, key fiscal dates, key products, and/or early renewals to your advantage.

  • Avoid mid-term purchases of new products when there’s no buyer leverage; it’s better to open up the contract and renew early.

  • Create viable deal options to Workday to avoid vendor complacency. There are several alternatives to HCM and add-on purchases that can be harnessed as competitive threats; this tactic often yields concessions from a sales rep intent on winning/renewing your business

The chart above provides a snapshot of industry competitors to Workday offerings. To help clients with their Workday negotiations, we offer the following services:

Because Workday implementation is so complex and expensive and many deal makers lack the in-house resources to manage the process, we devised this set of services to support them. To learn more about optimizing your Workday engagements, download the webinar on which this blog is based, or contact one of our Workday experts.

- Meghan Smith is a Senior Analyst, and Chris Powers is a Managing Partner at Accenture.