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Workday Financial Management (which belongs in the broader ERP software category) appears to be gaining traction in the market, having matured sufficiently to be attractive to a large audience of buyers. It was built from the ground up as a cloud application. While that gives it the advantage of a fresh approach to structuring its data and process models for the cloud, the product has had to catch up to its rivals in functionality. The company’s ERP offering has matured considerably over the past three years and now is better positioned to grow its installed base. Workday recently added Aon, the insurance and professional services company, to its customer list (becoming its largest customer to date) and reported that its annual contract value (ACV – the annualized aggregate revenue value of all subscription contracts as of the end of a quarter) has doubled since the second quarter of this year, albeit from a low base. This is an important milestone because for years the company’s growth has come from the human capital management (HCM) portion of the business, not financials. Workday has around 160 customers for its financials (more than 90 of which are live) compared to more than 1,000 customers for HCM.

The latest release of Financial Management, Workday 25, enhances its analytics and dashboards, including an audit dashboard with 14 prebuilt reports that can, for example, flag issues in separation of duties. The company’s Composite Reporting, introduced last year, enables users to automate the assembly of highly configurable reports that can combine operational and financial data to provide a more complete picture of a company’s performance without having to use a separate business intelligence system. These multidimensional reports also enable users to drill down and around to underlying information – the why behind the what. The ability to quickly get to authoritative numbers that describe the underlying causes of issues and opportunities does away with delays in people “getting back to you with that information” and enables faster response to changing conditions. These reports can be viewed on mobile devices to enable more interactive dialogues about a company’s condition and performance.

Workday 25 also adds an inventory module to address the need of many services companies to manage their indirect inventories (materials that are not incorporated in final products such as computers or facilities maintenance items) on an end-to-end basis (which speeds their completion and ensures data integrity). It also has improved its global configuration engine to make the product more useful to entities around the world (including subsidiaries operating in jurisdictions in a range of countries). And now the mobile expenses app finally includes direct posting from captured receipts rather than requiring manual entry.

Reflecting the maturing of its Financial Management offering, management will assign all of its salespeople quotas for this product in the upcoming fiscal year. Achieving a large, sustainable presence in the ERP segment is essential to Workday’s long-term success. Longer-term prospects for the financial software are best understood in the context of the evolving ERP software market and the company’s strategy of positioning its offerings as easier to own and use than others.

The outlook for the multitenant software-as-a-service (SaaS) ERP market – which will impact Workday – is simultaneously encouraging and vr_Office_of_Finance_20_finance_prefers_on-premiseschallenging. Revenue and user growth in the ERP segment of enterprise software (both in the cloud and on-premises) is coming almost exclusively from cloud adoption, mostly in a multitenant format. At the same time, however, our Office of Finance benchmark research finds that nearly half (46%) of participants still say their company prefers to deploy its ERP systems on-premises. (By analogy, on-premises ERP may be a dinosaur, but we’re only at the start of the Cretaceous period and extinction is a long way off.) That insistence apart, the percentage of on-premises ERP has been declining and likely will continue to decline over the next five years. One reason is that resistance to the cloud for security reasons in this category is waning. An increasing number of companies are realizing that their on-premises servers are likely to be more vulnerable than those operated by a cloud ERP provider. For many companies, a cloud deployment can provide higher quality of service than on-premises (because of better hardware and the greater competence in maintaining the software compared to one’s internal IT staff), and its total cost of ownership can be lower.

However, anyone looking for a replay of the rapid-growth, 1990s-era ERP client/server applications market will be disappointed. Multitenant cloud software doesn’t have the substantial advantages that vr_Office_of_Finance_01_ERP_replacementclient/server had over the mainframe applications of that era nor the Y2K rationale for immediate replacement. Demand for financial management systems in midsize and larger corporations is almost always driven by the need to replace an existing one. Our research also shows that replacement has slowed over the past decade. Companies are changing ERP less frequently than a decade earlier, on average every 6.4 years as opposed to 5.1 years in 2005.

Another significant challenge for multitenant SaaS ERP vendors like Workday is that their market potential is actually constrained by a key benefit of multitenancy. Because buyers configure the features and capabilities rather than customizing the core code base, implementations can be done faster and cost less. Note, though, that ERP deployments by large, complex organizations are still difficult. For example, Aon expects to spend 14 to 15 months implementing Workday Financial Management. A related benefit is that since all customers are running the same code base, when the software vendor issues new releases or modifications to the software, those changes are quickly made to the code that everyone is running, either immediately or after a grace period. This requires far less work for the customer than on-premises versions and patches. Moreover, the changes are implemented accurately and securely. The trade-off, however, is that the core software cannot be customized. If the cloud software offering cannot be configured to meet the customer’s feature, functionality and process requirements, and if a potential customer cannot adapt its operations to these limitations, it isn’t a feasible solution. Unlike with on-premises software, there is no option to customize multitenant SaaS offerings to the needs of a single customer unless the vendor is willing to make changes to its code base within timing acceptable to the customer. So Workday and other cloud software vendors are finding it necessary to target specific types of businesses in order to focus development efforts on specific business needs. In this company’s case, for Financial Management these verticals are chiefly financial services, business services, software and Internet services, higher education, government and nonprofits.

On the other hand, some software categories lend themselves to a multitenant SaaS environment because the needs of most companies are easily accommodated through configuration. Sales automation, travel and entertainment and human capital management are in this category and consequently have benefited from rapid adoption.

Not so with ERP, which is less amenable to the SaaS multitenant model because of the inherent complexity of the business processes the systems manage and the difficulty in creating SaaS offerings that are sufficiently configurable – as I’ve written previously. This is one important reason why on-premises remains an attractive option; even though sales in this segment are not growing, they are still a large percentage of the market. ERP systems must be able to handle the specific needs of users, which can differ considerably from one industry to another and even between specific microverticals. A large company’s ERP requirements might span multiple business units in multiple industries in multiple locations and jurisdictions. Many manufacturing and product-centric businesses have found multitenant offerings impractical because their requirements cannot be met by available software. Workday is not targeting these types of companies.

As resistance to cloud-based ERP wanes, Workday will benefit as ERP software buyers evolve from a nearly complete focus on features and functions to a more nuanced set of requirements that include ease of use, reliability and security. The maturing of the category and advancing technology are behind this shift. Total cost of ownership and the ability to meet business requirements are becoming gating factors (packages that don’t fit the basic needs don’t make it to the short list), but increasingly vendors will have to differentiate their ERP software based on the user experience and – for cloud services – the ability to minimize disruptions and eliminate vulnerabilities to disasters and hackers. From the start, Workday’s product strategy has been to provide customers with a user experience that addresses many of the issues that business users have had to date with ERP systems. Its focus on providing a practical, pleasing and productive working environment gives it an edge in successfully addressing the needs of companies that do not have complex operating requirements. For example, Composite Reporting makes it easier (compared to many on-premises systems) for companies to get actionable information out of the software by combining analytical capabilities with transaction management. Technology limitations made this extremely difficult until recently and forced companies to invest in and maintain business intelligence and reporting systems. (This capability is not unique to Workday and is likely to become a baseline requirement for ERP systems within the next several years.) Another objective is to simplify the process of creating dashboards and reports in order to provide individuals with the information they need and to do so with the shortest possible time lag. Having a rich set of employee data in the same data structure as the financials, companies that are in people-centric businesses can find it easier to create performance metrics to improve management effectiveness.

Workday’s Planning application (due for release in 2016) also illustrates its approach to using technology to provide a better user experience. Does the world need another planning application? At first glance, not really. The category at the enterprise level is decades old. Perhaps because of that, our 2015 Business Planning Value Index confirms that the category is a commodity. Although there are differences among the packages offered by vendors that can drive preference, all that we evaluated rated highly in handling this task. Their plusses and minuses netted out to a tight range of scores. Moreover, at this stage in its evolution Planning lacks many refinements that are useful for companies operating in dynamic business environments. But unlike other planning applications, Workday Planning is not designed to address complex planning requirements in dynamic business conditions. It is designed to address the needs of organizations that must manage to fixed budgets. This group includes higher education (especially universities with limited commercial or for-profit activities), government and nonprofits – key targeted vertical industries for Workday. Unlike business enterprises that operate (largely) from a common pot, departments and other units are allocated specific amounts at the start of the fiscal year and are not permitted to exceed that amount. Properly configured, Workday Planning can alert department heads, controllers and others when there is a risk that a limit will be exceeded at the point where a purchase order is entered into the system and before it’s approved. In some cases, predictive analytics can be used to generate alerts if it looks as if specific funds accounts are in danger of being overspent. In these types of organizations, the focus on simplicity of use and native integration with the general ledger should help attract buyers since it is often the best way to ensure high participation and compliance.

Very soon “the cloud” will cease to be a point of discussion. It’s likely that within a decade software as a service will be the favored means of consuming ERP functionality, either in a multitenant or a hosted single-tenant format. Shortly, software vendors, industry analysts and journalists will have to focus on the more substantive qualities of specific business applications. In this era, total cost of ownership, system performance and security will be pass/fail gating factors in selection. For vendors offering multitenant services, the ability to configure their offering to suit the operating needs of the company (highly objective) and the user experience (highly subjective) will be the key determinants driving preference. Workday has succeeded in creating a brand image that emphasizes a useful, simpler user experience. Its strength in HCM provides an advantage in selling Financial Management into these companies. However, it also will be facing stiff competition from other vendors (especially Infor and Oracle) in its targeted verticals. Financial Management has advanced significantly over the past several years. To achieve a significant position in the ERP market, it will be necessary to sustain a rapid pace of product development to expand its scope of configurability and keep pace with a rapidly evolving set of user experience norms.

Companies that find they need to replace their ERP system should assess whether the available multitenant offerings can address their requirements. To do this, they need to sort out requirements that are essential to running their business from those that can be adapted to the capabilities of the individual offerings. I recommend that organizations on Workday’s list of targeted verticals investigate whether its Financial Management application will fit their needs.


Robert Kugel – SVP Research

In our benchmark research at least half of participants that use spreadsheets to support a business process routinely say that these tools make it difficult for them to do their job. Yet spreadsheets continue to dominate in a range of business functions and processes. For example, our recent next-generation business planning research finds that this is the most common software used for performing 11 of the most common types of planning. At the heart of the problem is a disconnect between what spreadsheets vr_NGBP_09_spreadsheets_dominant_in_planning_softwarewere originally designed to do and how they are actually used today in corporations. Desktop spreadsheets were intended to be a personal productivity tool used, for example, for prototyping models, creating ad hoc reports and performing one-off analyses using simple models and storing small amounts of data. They were not built for collaborative, repetitive enterprise-wide tasks, and this is the root cause of most of the issues that organizations encounter when they use them in such business processes. Software vendors and IT departments have been trying – mainly in vain – to get users to switch from spreadsheets to a variety of dedicated applications. They’ve failed to make much of a dent because, although these applications have substantial advantages over spreadsheets when used in repetitive collaborative enterprise tasks, these advantages are mainly realized after the model, process or report is put to use in the “production” phase (to borrow an IT term). To date most dedicated applications have been far more difficult than spreadsheets for the average business user to use in the design and test phases. To convince people to switch to their dedicated application, a vendor must offer an alternative that lets users model, create reports, collect data and create dedicated data stores as easily as they can do it in a desktop spreadsheet. Spreadsheets are seductive for most business users because, even with a minimum amount of training and experience, it’s possible to create a useful model, do analysis and create reports. Individuals can immediately translate what they know about their business or how to present their ideas into a form and format that makes sense to them. They can update and modify it whenever they wish, and the change will occur instantly. For these business users ease of use and control trump putting up with the issues that routinely occur when spreadsheets are used in collaborative enterprise processes. Moreover, it’s hard to persuade “spreadsheet jockeys” who have strong command of spreadsheet features and functions that they should start over and learn how to use a new application. Those who have spent their careers working with spreadsheets often find it difficult to work with formal applications because those applications work in ways that aren’t intuitive. Personally these diehards may resist because not having control over analyses and data would diminish their standing in the organization. Nevertheless, there are compelling reasons for vendors to keep trying to devise dedicated software that an average vr_ss21_spreadsheet_maintenance_is_a_burdenbusiness user would find as easy and intuitive as a desktop spreadsheet in the design, test and update phases. Such an application would eliminate the single most important obstacle that keeps organizations from switching. The disadvantages of using spreadsheets are clear and measurable. One of the most significant is that spreadsheets can waste large amounts of time when used inappropriately. After more than a few people become involved and a file is used and reused, issues begin to mount such as errors in data or formulas, broken links and inconsistencies. Changes to even moderately complex models are time-consuming. Soon, much of the time spent with the file is devoted to finding the sources of errors and discrepancies and fixing the mistakes. Our research confirms this. When it comes to important spreadsheets that people use over and over again to collaborate with colleagues, on average people spend about 12 hours per month consolidating, modifying and correcting the spreadsheets. That’s about a day and a half per month – or five to 10 percent of their time – just maintaining these spreadsheets. Business applications vendors started to address business users’ reluctance to use their software more than a decade ago when they began to use Microsoft Excel as the user interface (UI). This provides a familiar environment for those who mainly need to enter data or want to do some “sandbox” modeling and analysis. Since the software behind the UI is a program that uses some sort of database, companies avoid the issues that almost arise when spreadsheets are used in enterprise applications. There also are products that address some of the inherent issues with such as the difficulty of consolidating data from multiple individual spreadsheets as well as keeping data consistent. Visualization software, a relatively new category, greatly simplifies the process of collecting data from one or more enterprise data sources and creating reports and dashboards. As the enterprise software applications business evolves to meet the needs of a new generation of users, as I mentioned recently, it’s imperative that vendors find a way to provide users with software that is a real alternative to desktop spreadsheets. By this I mean enterprise software that provides business users with the same ability to model, create reports and work with data the way they do in a desktop spreadsheet as well as update and modify these by themselves without any IT resources. At the same time, this software has to eliminate all of the problems that are inevitable when spreadsheets are used. Only at that point will a dedicated application become a real alternative to using a spreadsheet for a key business process. Regards, Robert Kugel – SVP Research

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