kept thinking of Southwest Airlines while I was at the Workday Innovation Summit in CA last week. I had read this tribute to the legendary founder, Herb Kelleher on the flight over and it reminded me how revered he was – like Dave Duffield of Workday is in HCM circles.
Then, a walk down memory lane took me back a few decades. At business school, as part of the Corporate Strategy class, we had been assigned in groups of 3 to analyze a local company. We interviewed executives and then presented to top management about growth opportunities. I had drawn Southwest Airlines, then just a regional airline with under 5% of today’s fleet and revenues.
I remember I got an A for the course, but I am pretty sure I flunked the presentation to the airline executives. They were brutal. One of our recommendations was that they set up a separate sub to service smaller cities and acquire commuter planes for those routes. Nope – we will not diversify from Boeing 737s, was the response. We also recommended they diversify to airports in Chicago and couple of other major cities. The response was along the lines of “No, too many union and weather issues”.
They have stubbornly continued with the first principle. Since then, Southwest has become the largest and most experienced customer for successive generations of the 737 – gaining significant maintenance and training efficiencies from a homogeneous fleet. They have been more flexible about the second recommendation. Indeed, I felt vindicated when they started flying out of Chicago Midway in 1985 and have since blanketed most of the country. Southwest has become my preferred domestic airline especially since they offer me nonstop flights from my home airport to over 30 cities.
I saw the discipline again when in 2006 after a bad experience with Ryanair in Europe I sent Southwest executives a letter requesting them to expand internationally. Nope came the response – there is huge amount of growth left right here in the U.S. They have since started to fly to the Caribbean, Mexico and Central America, but the bulk of the revenues is still U.S.- centric.
What’s been fascinating to watch is how Southwest’s discipline has attracted relentless competitive attacks. There was the infamous Wright Amendment which hobbled Southwest for three decades from flying nonstop on longer routes from its home state.
In response to the success of Southwest and others like Jetblue, United tried a sub called Ted, Delta tried Song and most airlines have since moved to offering “basic economy”, highly restricted fares. In doing so, these major U.S. airlines have neglected vast chunks of global markets to the advantage of premium competitors like Emirates and Singapore Air.
Workday has shown similar discipline. Its “Power of One” strategy is like that of Southwest’s commitment to the 737. No on-premise distractions. A slow diversification in the form of AWS support. Functionally, Workday has stayed focused on finance, planning and HCM.
And along with Salesforce it has similarly drawn inordinate attention from bigger competitors like SAP, Oracle and Infor. They have been chasing after accounting, HCM and CRM markets with their own acquisitions and organic products when they would have had much more traction in verticals or world geographies. As I write in my new book, we are seeing new competitors in the form of startups and even major (buyer) corporations developing products for “white spaces” in fintech and asset intensive industries that these vendors should have been focused on. Google, now with Kurian and Enslin, will likely emerge as another threat in some verticals and regions.
Can you be too focused? With Southwest you are seeing the potential risk of being dependent on the 737. The issues with the new MAX generation of the 737 are causing short term scheduling issues, but longer term if customer perceptions about safety persist they could hurt Southwest significantly. Its slow international expansion has allowed regional, cut- rate players like AirAsia and Easyjet to grow nicely across Asia and Europe.
Workday could have similar challenges. IDC is talking about “cloud repatriation” – a bit of backlash against the economics of public clouds. Let’s face it, after 20 years of cloud apps, over a million SAP, Oracle, Microsoft, Unit4 and other on-premise customers have not migrated major chunks of their enterprise to the cloud.
During the summit this week I saw a somewhat superficial Workday focus on operational functionality and data. It talks about enterprise wide planning when it does not get invited to complex network planning, finite capacity or CPG assortment planning opportunities. I saw a narrow focus on automation when enterprises are trying out a wide array of telematics, wearables, robotics across the enterprise. Internationally, Workday has been slow to expand functionally or in local presence. It has been lucky the competition has mostly tried to engage it in areas where it is strong, rather than “surround” it with operational and regional depth. That will not last for ever.
The great news is like Southwest which has a distinctive, even quirky culture, Workday is building its own unique persona. It topped Fortune’s Future 50 list this year while also cracking the Top 5 in the magazine’s top places to work. It has been blazing a trail with a decade of analyst summits, when some competitors shrink away from them. CEO Aneel Bhusri promised even more openness and communication.
There is so much to like at Workday. I do want to see them continue to evolve and expand. Correction – their customers want to see them evolve and expand. And those million on-prem customers continue to wait for a compelling reason to migrate.
(Cross-posted @ Deal Architect)