1. How does this new generation of ERP products differ from traditional solutions?
2. What are the major external forces driving competition in the ERP industry?
Cloud computing is becoming an unrelenting force that is driving competition in the ERP industry and can no longer be ignored by legacy systems, such as Oracle and SAP. Larry Ellison, CEO of Oracle and "the most hostile guy in tech" (Vance 56), evident by hisruthless acquisition of PeopleSoft, had written off the cloud computing wave until now. Duffield, original founder of the acquired PeopleSoft, and co-founder of the cloud-based HR software company known as Workday, which now threatens to drastically change the software market coupled withEllison's view on cloud computing, has learned some valuable lessons from the aggressive business actions of Ellison. Duffield learned not to take your eye off the ball and to always keep the external environment in the forefront, especially your competitors.
Duffield has learned his lesson and is applying it to Workday byreturning the favor to Ellison. Duffield and Bhusri, co-founders of Workday, have created a cloud-based company that services the HR side of businesses and are focusingonfurther ways to implement their strategy. That strategy is to upend the HR market, which generates "about $10 billion a year in software alone" (Vance 56), and turn it into a Web-based service that is "as simple to learn as shopping on Amazon.com" (Vance 57), "replacing legacy systems in a $40 billion dollar market" (Warren 1). While SaaS solutions account for only a small percentage of revenue for ERP systems globally, Forrester Research "expects worldwide spending on Web-based ERP software to rise about 21 percent annually through 2015" (Freeman 1). HR functions will be accessible and executable from any location with an internet connection. One would only need a smartphone, or any internet accessible device to perform various HR functions, such as examining the profile of an applicant and hiring them through the click of a button or tapping ‘hire' on the screen.HR functions could be addressed anywhere -even during lunch! This eliminates the need for companies to conduct costly trainings and invest in expensive HR software as well as computerhardware that consumes valuable workspace.
Utilizing Porter's five forces, shown in Exhibit 1, integrated with an external SWOT analysis, the external environmentcan be analyzed to assess Workday's competition and their position in the market. The five forces along with the competitive advantages Workday hopes toretain, as well as pressures exerted by the competition are: 1.) Threats of new entrants -Workday is protected by barriers to entry through a high cost of capital requirements. Workday also jumped on the opportunity to be the first to market andcreated distinct differentiations in their product, in an effort to win customer loyalty by "fostering brand identification" (Pearce 106).2.) Threat of substitute products and services - The tech industry is dynamic and fast paced, with Oracle not far behind, so there is a considerable threat of future substitutes. Workday has proven that it effectively utilizes technological forecasting to gain an edge on the competition. "The key to beneficial forecasting of technological advancement lies in accurately predicting future technological capabilities and their probable impact" (Pearce 99). While it is extremely difficult to foresee such impacts in the technological field, Workday, so far, has seemed to have knocked this one out of the park.3.) Bargaining power of buyers -The leverage buyers have utilizingWorkday is most prominent "when a company goes through a dramatic change, such as a major acquisition or when a multiyear contract comes up from renewal" (Vance 58). This is due to high switching costs. Given that there are few companies that offer the package that Workday has put together, some of the power buyers have is reduced when the decision has been made to switch to the new cloud-based systems.4.)Bargaining power of suppliers -Workday has aligned itself with strategic, consulting, application, and technological partners to offer a complete ERP solution. Given the right conditions, these alliances could exert pressure on Workday.5.) Rivalry among existing competitors -Pressures that have been exerted by Workday's cloud-based HR services on traditional players, like Oracle and SAP, have forced their hand to invest in the cloud-based service industry in order to maintain their position as viable competition. Since buying out PeopleSoft, Oracle has also acquired RightNow-which sells cloud technology, and Taleo-a maker of cloud software, and is expected to acquire NetSuite-which is a cloud-computing company. SAP bought SuccessFactors in an attempt to become a player in the cloud software industry, but they already are facing stiff competition and may be falling behind.