With Scout, Workday acquisition strategy takes shape

Workday Inc.'s acquisition of sourcing firm Scout RFP Inc. brings it further along the path to becoming a full-service ERP vendor, according to analysts.

Workday is paying $540 million for San Francisco-based Scout, the firm said this week. The deal is expected to close in Workday's fourth quarter, which ends Jan. 31. This is the second major Workday acquisition in as many years. In 2018, Workday acquired Adaptive Insights, a corporate performance management platform, for $1.55 billion.

The Workday acquisition of Scout wasn't suprising. In January, Workday became an investor in the company. But the acquisition does help analysts understand Workday's strategy, and what may be next on Workday's acquisition list.

Workday is building a comprehensive ERP suite that will "mimic the scope of an Oracle or SAP," said Andrew Bartels, an analyst at Forrester Research.

Workday initially offered cloud-based HR software to its customers when it launched in 2005. Over the years, it has been adding more ERP functionality to its platform, starting with financial software and adding a procurement system, Bartels said. Scout offers both an enterprise sourcing and procurement cloud-based system. Bartels described Scout's system as "very strong on usability," he said.

With financials and HR components, Workday has the core for a cloud-based ERP system, Bartels said. Its next step may include complementary applications, such as lifecycle management, spending analytics and supply chain risk management, he said. But Workday could move in another direction.

It may decide to challenge Salesforce in CRM by acquiring a firm such as SugarCRM, Bartels said.

Holger Mueller, vice president and principal analyst at Constellation Research, had the same read of the Scout acquisition. Workday is "on the slow path to become a full ERP suite," he said.

Workday is on the slow path to become a full ERP suite.

Rather than go the CRM route, Mueller thinks Workday's next major acquisition may be in supply chain management, which will give it a complete ERP offering.

Trevor White, an analyst at Nucleus Research, said combining finance and HR software onto one platform "leads to higher productivity" and improved ROI. Adding in Scout's sourcing software expands Workday's back-office integration and "allows organizations to leverage the productivity of having everything on a single vendor," he said.

Robert Kugel, an analyst at Ventana Research Inc., believes Scout has had solid financial footing. But for users of Scout, the Workday acquisition removes any questions.

"In case you were worried about what the long-term future of this company is going to be from a financial standpoint, worry no more," Kugel said.