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Workday’s approach to SaaS and product development offers lessons for companies modernizing their architecture and moving to cloud.

Software as a service (SaaS) user benefits include extreme flexibility, high-speed implementation, and the freedom to stop worrying about software development and maintenance. But capturing those benefits requires new work habits and mindsets to deal with a constantly evolving product. Jens Krueger, Workday’s CTO for Europe, the Middle East, and Africa, shares with McKinsey’s Dominik Hepp and Thomas Elsner his insights about “SaaS with no exceptions” and what it means for Workday’s customers. An edited version of their discussion follows.

Harnessing ‘the Power of One’

Dominik Hepp: How is Workday different from traditional software companies?

Jens Krueger: In general, Workday is organized like a traditional software developer, the main difference being that while we may look like an app company, we’re actually a tech company. Workday needs to own the technology, because it’s the core of our business and our main source of differentiation from the competition. We offer the same software experience for all our customers: we believe in one version of software, one architecture, one source of truth, one security model, one customer community, and one experience. We call this “the Power of One.”

Our focus on technology is reflected in the fact that half of our development work is on the underlying technology and our platform instead of user functionality itself. Also, Workday’s culture and foundational principles were inspired by the consumer Internet and concept of software as a service. That carries through in our being global at the core, since our solution is designed to mirror customer organizations and compete with incumbents in every market worldwide.

Making impactful technology choices

Thomas Elsner: What kind of technology choices has Workday made to achieve its goals?

Jens Krueger: We believe in “SaaS with no exceptions,” which means writing truly cloud-native software. Exceptions are the death of pure SaaS because they lead to issues with software maintenance and disrupt customer service. Software written for on-premises use cannot be transformed into cloud-native software, since that would require a complete rewrite, including the underlying architecture. Full SaaS also helps customers completely migrate to the cloud without the need for any hybrid solutions for the given domain. We realize that this is a very bold ambition for the next years to come, since a hybrid setup will be an intermediate step for most of our customers. In general, I think companies should focus on the core of their business and have SaaS for noncore areas.

Another crucial decision we’ve made is continuous delivery, which includes the distribution of updates and new functions every Friday, as well as weekly security updates. Continuous delivery for us means that we update our code regularly, package new features, and release them twice a year without additional installation effort for our customers. Customers can then decide which new-product-release functions they want to use going forward. This seamless transition to new functionality is particularly important for enterprise software, especially in the finance, planning, and human resources areas Workday serves. Adjusting and updating software without customer disruption represents the essence of software as a service.

Additionally, we based Workday on object-oriented database technology, which offers unlimited drill-down options, eliminates the need for predefined database relationships, and never loses the context of the business logic. Following our Power of One principle, we plan, execute, analyze, and extend our domain-driven SaaS application with a single piece of software, instead of connecting multiple different and separated application modules.

Finally, while we also rely on some open-source software, its enterprise-wide uses are limited for applications such as multilanguage support, while we develop our own software for all core technology.

Using customer feedback to fine-tune products and deliver value

Dominik Hepp: What is your approach to evolving your product offering?

Jens Krueger: Workday aims to drive innovation in the B2B environment, and adoption analytics help us because they provide swift feedback on how customers use the functions as we continuously deliver them. This creates far faster feedback loops compared with traditional software release cycles.

This approach extends to when certified partners implement Workday for our customers. We still always stay close to monitor customer needs, and each new product release is based on customer-experience and -usage analysis. This is more important than ever in a subscription-based market, where it is much easier to move to other providers and the burden is on us to show long-term value. This is a fundamental shift compared with the classical software model based on selling a license and, ideally, on collecting a recurring maintenance fee.

Like many cloud-based businesses and organizations providing subscription-based services, customer satisfaction is our main key performance indicator (KPI), rather than revenue. And since adding value through software leads to customer satisfaction, we proactively approach customers to understand their needs and requirements and what changes we can make to our software to deliver on them. We do this with a business-value-oriented approach, presale with account executives, and postsale with customer-success managers. Our customer-success teams, in fact, support every customer and explain new functionalities.

Customer satisfaction is our main key performance indicator (KPI), rather than revenue.

Jens Krueger

Shifting how you work for full SaaS value

Dominik Hepp: How do companies need to shift their operating model to get full value from cloud?

Jens Krueger: True cloud offers companies a number of well-documented advantages, from the freedom to stop worrying about software development and maintenance, to flexibility, to the ability to accelerate business transformation. In comparison, traditional software development typically has longer release cycles and requires labor-intensive implementation.

Flexibility in particular has increasingly become important to companies, both organizationally and culturally. Enterprise software needs to enable flexibility to prevent organizational rigidity or the creation of a shadow IT department.

True cloud also supports business transformation, but that can be achieved only with a complete system change and a transformation of work habits. Attempting to implement a software-only solution for the sake of having SaaS will not succeed. It is also clear that most enterprises will remain in a hybrid model when it comes to cloud and on-premises, as parts of the application landscape are not worth migrating due to a lack of value. Companies need to understand, for example, that continuous innovation and delivery mean the software will change over time, just as Tesla constantly updates its automotive software, or business processes evolve in the enterprise. This requires a new mindset. It is no longer about ending one project and starting something new driven by a deadline. In SaaS, there is no “done.” Our developers must be constantly innovating.

Despite these challenges, the value of a new architecture that enables efficiency and innovation—and real business transformation as a result—cannot be underestimated.

In SaaS, there is no ‘done.’ Our developers must be constantly innovating.

Jens Krueger

Advice for large-scale enterprises

Thomas Elsner: What are some strategies large-scale enterprises can apply to ensure success?

Jens Krueger: Enterprises need to stay on target and remember that software architecture is a journey, not a goal. That calls for consistency in terms of software and the operating model, sticking to the same approach and avoiding fragmentation across different releases.

For example, enterprises need to remember that the basic principles of continuous upgrade and development are relevant to physical products, too, and they should be designed to accommodate future innovation. This enables—and requires—a completely different operating model for R&D processes.

Enterprises will also need to focus on organizational agility to react quickly to market changes. To do this, they must overcome their initial resistance to the adoption of new work methods, which involves, in particular, abandoning the long-term planning and multiyear release cycles that are still second nature to most incumbent organizations. While the understanding of the value of SaaS and true cloud is growing, my conversations show that there is still significant room for incumbent organizations to capture the value.

Adapting and evolving in the time of COVID-19

Dominik Hepp: We have been experiencing COVID-19 for more than a year now. How has the business evolved since then?

Jens Krueger: Digital customer access is simply more important than ever before. The sudden surge of the home office is a global phenomenon that requires faster and more agile digital processes to accommodate new realities, such as days off for childcare and remote approval processes.

With many of our customers, the pandemic has also promoted new architecture debates, and discussions such as where to use federated SaaS, classic solutions, or microservices architecture are likely to increase in the near term.

In terms of Workday’s main business areas, we perceive that SaaS for HR is already beyond an inflection point in the United States but not yet in Europe. SaaS for finance is close to an inflection point in the United States, while Europe will take longer.

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