Salesforce and Workday AI deal won't disrupt ERP market

A sensible partnership

The Salesforce and Workday partnership is not particularly surprising, and it makes sense, according to Holger Mueller, an analyst at Constellation Research. Workday is looking to add more users, and Salesforce is eager to power employee services automation with a human capital management (HCM) and ERP partner that lacks CRM functionality.

"What this means for Salesforce's CRM customers who have an SAP or Oracle ERP back end remains to be seen," Mueller said. "But a switch on the HCM side because of the Salesforce partnership for Workday is unlikely."

The partnership's biggest opportunity will be at joint customers as well as enterprises with a CRM-centric user population, he said. These are mainly the sales and service subsidiaries of automotive, high-tech and pharma companies, where the vast majority are Salesforce CRM users and have a local HCM system.

Workday is already a force in the ERP market, but it realized that developing a closer tie to Salesforce is a natural fit, as it provides stronger customer-facing functionality, said Jon Reed, analyst and co-founder at Diginomica.

"It's a smart partnership that strengthens Workday and Salesforce. But it's not quite at the level of disrupting the ERP market," Reed said.

However, Workday is already an ERP player in the services industries that it targets. Some SAP customers might give its financial application a look if they are considering their options as the SAP end-of-support deadline for legacy systems looms larger, he said.

"They have plenty of ability to push against SAP. But it's more about selling Workday Financial Management to existing Workday HR customers who may be taking a harder look at SAP before moving to S/4HANA before the [end-of-support] deadline," Reed said.

Although both SAP's and Oracle's CX applications are underestimated in comparison with Salesforce, their customers do not tend to choose the ERP system because of the CX functionality, Reed said. This partnership is not going to threaten either SAP or Oracle ERP in the same way that Workday's financial application might compete for SAP customers.

"For Workday to really put a scare into SAP and Oracle beyond that, they'd need to move beyond service industries," he said. "We've seen some signs of that in some areas like enterprise planning for manufacturing. But Workday is being careful not to get too spread out."

No ERP market shakeup

The Salesforce and Workday partnership is notable but doesn't change much in the ERP market as a whole, said Liz Herbert, an analyst at Forrester Research.

"This is because Workday and Salesforce right now are already very commonly sold in SAP accounts," Herbert said. "We'll likely see some coopetition, for example, where Workday's in an SAP account they'd like to have more, and same when Salesforce is in an SAP account. But it won't totally change the ERP dynamics."

It's a smart partnership that strengthens Workday and Salesforce. But it's not quite at the level of disrupting the ERP market.

This is mainly because although Workday is making strides as an ERP provider, it still lacks the industry-specific functionality and global reach of SAP and Oracle, she said.

"If Workday can evolve itself to be more global and more prevalent in a wider range of industries, that could be a game changer. But that would be a game changer without needing this partnership," Herbert said. "For example, no one in automotive manufacturing or mining or [that] is located in Singapore or Brazil [is going to swap SAP for Workday because of this]."

Certinia, however, is an ERP provider that might be challenged by the budding relationship between Salesforce and Workday, she said.

Formerly FinancialForce, Certinia is an ERP system that's built on the Salesforce platform and historically has been a complimentary ERP for Salesforce-centric organizations, Herbert said. Like Workday, Certinia has focused on professional services organizations. It has usually targeted smaller to midsize enterprises, while Workday has targeted larger enterprises.

"But Workday seems to be creeping down market a little. That could encroach on Certinia's territory," she said. "That could have some impact. But in the grand scheme of the ERP market, that's very minor."

The Salesforce and Workday partnership might not pose a threat to the established ERP market, but it does signal that customers will look for more data integrations as AI and generative AI applications become more established, according to the analysts.

It's not likely that there will be similar partnerships between SAP and Salesforce and Workday, Reed said. But there may be some integrations between some SAP and Salesforce customers.

"There likely will be more ability for one AI agent to hand off to another. But it's early days for that," he said. "It's more likely that SAP would pioneer something like this first with Microsoft, as that's a more obvious partnership. Workday and Salesforce were already working together and using each other's software, so that makes this partnership different."

There will probably be more partnerships like this because organizations will need to include data from many sources to get the most out of AI, Herbert said.

"It's never going to come from just one system, and if it's not done in a cooperative way, it's probably going to be cumbersome [and] also costly," she said.

Jim O'Donnell is a senior news writer for TechTarget Editorial who covers ERP and other enterprise applications.