Workday IPO Reflects Investor Confidence in Cloud Computing for Business - The CIO Report - WSJ

Brendan McDermid/Reuters

Workday, a company that offers online human resources software, saw its stock soar in early trading Friday after its initial public offering, as shares opened up 72% from the initial public offering price of $28 per share. The stock’s performance is a vote of confidence for a business model investors have been slow to embrace, but that era of good feelings will persist only to the extent that CIOs demonstrate the same level of confidence going forward.

While companies are turning increasingly to cloud vendors for a number of applications, human resources start to get a little close to what are considered mission critical systems CIOs have been loath to move off premise. In this sense, Workday is a big test for both CIOs and the cloud software industry as a whole.

Workday is benefitting from large corporate customers that need speed and flexibility as well as savings that result from not buying and managing the servers and other physical infrastructure needed to run the software.

Flextronics was one of Workday’s first and largest customers. In 2007, when Flextronics CIO David Smoley began considering Workday’s application, however, he was in a pickle.
The company had just acquired electronics manufacturer Solectron, which outsourced its HR systems to Convergys and he needed to streamline the 40 or so other human resources systems the company used globally to support its approximately 200,000 employees. 

Smoley realized he could save tens of millions of dollars, and buy himself some budgetary wiggle room, just by rationalizing all those systems.   Flextronics has razor-thin operating margins of about 3% and Smoley typically pays for new IT projects through savings he is able to generate with them. Frustrated by the high maintenance fees the company paid large software vendors like SAP, and impressed by the pay-as-you-go business model and product road map presented by Workday co-founders Dave Duffield and Aneel Bhusri – both former PeopleSoft executives — he got the blessing of Flextronics CEO Mike McNamara to take a risk on the startup. The company standardized on Workday globally and, along with other shifts, saved $100 million in three years. 

The timing worked because of the Solectron acquisition. And while human resource systems are important, they’re not as mission critical to Flextronics as, say, the company’s manufacturing systems. For Smoley and Flextronics, moving to Workday was a risk, but a calculated one.
Rachael King  WSJ