First Take Analysis: Workday’s Acquisition of Scout RFP (Part 1: Scout Background, Strengths/Weaknesses, Deal Rationale)
Workday, a provider of finance and human resources solutions, has announced its intent to acquire Scout RFP for a cool $540 million in cash. For those with a long-time background in the industry, this might at first seem like a somewhat mind-boggling sum for a sourcing provider, bringing back memories of Ariba buying Trading Dynamics in the early B2B sourcing era.
But things are a bit different this time, as Scout is bringing rapid growth, material customer numbers (240+ customers) and material ARR growth to the table (we’ll do a back-of-the-napkin analysis of ARR and revenue contribution / multiple ranges later in this series). Moreover, it’s an innocuous way for Workday to target procurement without having to go after “the hard stuff” (another key theme we’ll explore).
So beyond the somewhat shocking number at first, the deal can begin to make sense if you peel the transaction onion. So let’s begin.
As we kick off our analysis in this Spend Matters Nexus series analyzing the transaction, we’ll focus this first brief on providing a quick overview of Scout, graphically explain where it fits in the source-to-pay landscape, explore the provider’s strengths and weaknesses, and then begin to delve into the rationale for the deal from the Workday vantage point.
Later this week, we’ll offer an analysis of the M&A and deal components of the transaction (e.g., estimated multiples), provide deeper insight into the integrations/touchpoints between Workday and Scout, and share an analysis of the impact on the competitive landscape (for competitive ERPs, source-to-pay suites and independent sourcing providers).
Jason Busch serves as Managing Director of Spend Matters Nexus, a membership, research and advisory organization serving technology acquirers (private equity, corporate development, etc.) and CEOs in the procurement and finance solutions marketplace. Nexus coverage includes contract management, B2B marketplaces/connectivity, indirect procurement, services procurement, direct procurement, commodity management, payment, trade financing, GRC/third-party management and related adjacent sectors.
What is Scout RFP?
Founded in 2013, Scout has emerged from delivering a simplistic RFP solution to offering a broader mid-market sourcing suite with auctions, supplier information management, savings tracking, simple contract tracking and simple sourcing project management — one that larger companies are now also buying because it’s so easy to use.
Scout also has easy event creation and event management, which is augmented by savings tracking with automated reporting, solid supplier information management, robust category (and category template) management, and expanding globalization capability built around support for multiple languages, as well as an integrated currency conversion table.
Recently it has added expanded supplier management, contract management and sourcing optimization/scenario analysis capabilities. These are all quite rudimentary on a comparative basis to competitive solutions, yet they’re easy to use (as one might expect).
However, the premium that Scout has sometimes looked to get from them with customers is somewhat surprising given they touch on less than 10% of the functionality that one might expect in these areas.
Here’s how Scout fits into the procurement technology landscape (based on required Spend Matters SolutionMap functional capabilities):
What are Scout’s Strengths?
Not surprisingly, one of Scout’s key strengths is its ease of use and how its customers rally behind the usability and their overall experience with the vendor.
We can group Scout’s strengths into three key areas (which we previously explored in this research brief: What Makes It Great: The Scout RFP Customer Experience (Sourcing SolutionMap Analysis).
Customer Adoption, Enablement and Overall Satisfaction
- Scout RFP’s growth and current rate of customer additions relative to peers is proof that its approach to driving customer adoption is resonating with users. Scout RFP has much to teach competitors as well as procurement organizations looking to increase the sphere and influence of sourcing activities based on its approach.
- One procurement organization notes that the “product is simple and easy to use, but broad in its offering.” Another customer, which uses Scout’s RFx, Intake and Pipeline products, suggests “all were quick to implement, rave reviews from users and provide management with the requisite insights to manage their teams.” One sourcing organization called out the “agile, nimble, flexible implementation” of Scout RFP.
- Customers suggest the importance of being cautious “of legacy sourcing tools that claim to offer deeper or more sophisticated functionality [than Scout]. Often this complexity comes at the expense of flexibility and ease of use, and can be an impediment to achieving user adoption. We have heard from a number of companies that adopted Scout after failed implementation efforts with other more mature sourcing tools.”
- The Scout experience begins with deployment. One organization calls out “the white-glove service” it received, suggesting an “excellent experience” based on an implementation that was “easy and fast.”
- Another sums up the experience succinctly: “Scout RFP rocks.”
Usability: A Best-in-Class User Experience
- Scout RFP has built a sourcing solution around how customers will interact with it — not to tick the box on exhaustive features and functions, the vast majority of which (even under best-case circumstances) will rarely if ever be used.
- One organization suggests it is this “ease of use that has enabled wide adoption” while also providing “management visibility to effectively manage RFx events, intake and pipeline, culminating in more effective utilization of resources focused on the right opportunities.”
- Scout’s usability is itself a type of “functionality” to drive outcomes. A procurement team notes that “Scout’s focus on delivering a best-in-class user experience has enabled us to quickly scale the solution and achieve high rates of user adoption. The learning curve for new users is low, and consequently, internal training and support resource requirements have been significantly less than with comparable tools.”
- Another suggests that Scout’s “modern, responsive application design and superior user experience” combined with “flexible and configurable functionality … allows the tool to support a range of sourcing processes and scenarios rather than forcing us to conform our processes to fit the tool.”
- As noted previously on Spend Matters PRO:
- “Scout RFP’s overall user experience is best-in-class. Its embedded communications and collaboration capability is as easy to use as Skype, and navigation combines traditional enterprise SaaS/cloud application type expectations with social-based tagging structures.”
- “Realizing that the key to adoption was ease of use, simplicity and lightness, Scout RFP designed a solution where it was as easy as possible to create an event, launch an event and complete an event. Minimal information is required to create an event from scratch. For example, only a few fields need to be filled in before templates (if available to support the requirement) appear, and for future reference and use, an existing event structure can be copied with a single click. Compared to other solutions, it’s also easy to define a supplier list, invite participants, collaborate with and message suppliers, collect bids and provide feedback.”
Functional Focus, Rapid Development and Summary Customer Ratings
- Like Coupa, Scout is focused on development initiatives that serve to extend its usability to needed customer requirements. One organization notes that “Scout is nimble and very responsive to customer input” suggesting “their development cycles are quick and they frequently deliver new features and functionality enhancements that are impactful.”
- Another customer reflects that Scout’s “team is very accessible, from customer support reps up to their executives, and we feel like our feedback has a direct impact on their product roadmap.”
- In conversations with the Scout team, it is clear that the organization is aware of its strengths as well as areas for improvement and is transparent to customers about its direction (the same users who are helping drive its roadmap). One procurement team notes that it “is aware of their product roadmap and completely satisfied with the direction and excited to get the new functionality.”
- Scout scored in the top tier across a range of SolutionMap’s customer rating areas, including Net promoter score (Recommend this provider), Meet the expectations, Quick deployment, ROI, TCO, Business value, Innovation and Overall customer rating (aggregate).
What are Scout’s Weaknesses?
Based on Spend Matters SolutionMap analysis from 2018 as well as recent customer discussions, Scout delivers below the functional benchmark capability as a sourcing solution. Ease-of-use aside, this is not an e-sourcing tool for power users — except those who want to focus on productivity over absolute market/event engineering and competitive outcomes.
However, it is not losing in the market because of the 60% of the functionality it is missing or only partially addressing; it is winning because of the 40% that it has included is incredibly easy to use. Still, we would be remiss as procurement technology analysts if we ignored the fact that the solution is not in the same functional league as many of its peers — even if it delivers one of the best user experiences in the market.
From a sourcing functionality perspective, Scout’s weaknesses include:
- Overall configurability
- RFX/auction (i.e., offers basic capability, but functional support is below the benchmark average overall)
- Sourcing optimization
- Risk management
- Reporting (e.g., canned reports, no extensive report builder)
- Direct materials / bill of material (BoM) support
- Project management (basic timelines/workflow only — limited advanced capabilities)
- Benchmarks / scorecards
- Cost modeling (including should-cost modeling)
- Supplier onboarding / supplier information management (functional depth is limited; standard workflows only, restricted profiles compared to peers, etc.)
While this Spend Matters Nexus brief is not authored for the benefit of procurement organizations as its central audience, we encourage organizations going through a sourcing technology selection to contact us to better understand how Scout compares with peers on a granular basis — and why it might be a strong fit even though at first glance it is functionally behind its peers in many areas.
Simply put: Sometimes you can’t beat usability and adoption!
Why Would Workday Buy Scout?
There are numerous reasons that we believe Workday made the move to purchase Scout:
- Sourcing represents a somewhat ingenious first step into the world of selling standalone procurement solutions. Granted, for Workday, sourcing is not the ultimate procurement prize. But it’s a valuable interim move. In other words, it’s a warm-up and one that innocuously brings it into the sector, and provides a logical upsell to its 700+ financials customers (a number that is growing in the strong double digits every quarter).
- Scout is the sourcing devil that Workday knows. While not perfect — far from it functionally — Scout is familiar ground to Workday. The provider already knows Scout as much as any technology partner it works with. This will greatly de-risk any failure to realize the expected commercial and product synergies from the transaction. Moreover, the two have shared one central shared value: Workday, like Scout, has a relentless focus on customer satisfaction (see below).
- As noted, Scout also has a long roster of customers that have become almost fanatically excited over how easy it is to use (e.g., based on the qualitative scoring / rating capabilities of suppliers and bid responses in sourcing events). Workday, like Scout, values usability and adoption of features as a driver of customer retention and upsell/cross-sell, useful proxies for overall customer satisfaction
- Scout RFP has proven that can be a successful entry point into organizations with other procurement systems and/or those that have been less successful with the adoption of alternative sourcing technologies. In other words, it is likely to give Workday many “at bats” even in current or potential financials accounts that already have different sourcing and/or broader procurement technologies.
- Workday has extensive practical, field and customer experience working with Scout and has more than kicked the integration tires, a topic we will explore in greater detail in the next research brief in this series. In other words, they are entering into the transaction with a clear understanding of the integration path ahead to bring different solution lines together.
We’ll conclude this quick take research brief by double-clicking on the first bullet item above. Specifically, Scout is an acquisition that can be almost entirely decoupled — aside from some basic supplier master and related integrations — into broader financials and transactional procurement systems.
Granted, for Workday to build a billion-dollar business line in procurement, it must get into transactional procurement, ideally layering on broader contract management and services procurement technology as well. Or, as we recently noted, “Workday could adopt an approach that leverages its strength in human capital management (HCM) — where it got its start — to focus on the contingent workforce as a means to get to broader source-to-pay. This is where Workday could truly build a moat for itself by integrating HCM into procurement, service management (customer services, IT services, etc.), and contract management to address services procurement and contingent workforce management. This has been an opportunity for Workday since its inception, and continues to be an ignored strategic opportunity.”
But expanding on procure-to-pay or enabling this broader vision will likely be best accomplished from building out capability internally, just as Oracle has with Cloud / Fusion. It may take time, but the native integration with Workday Financials and HCM for E-Procurement and Invoice-to-Pay will avoid the same type of integration headaches that SAP Ariba has faced sitting on top of ECC and S/4HANA until it is fully rebuilt as a native business application on the core ERP platform.
In the meantime, Scout will help Workday customers (and Workday) get some quick early wins from better sourcing — which in turn may help fund future investment in the more invasive, embedded transactional procurement capabilities that Workday is most likely to continue to develop internally.
Stay tuned as our analysis continues. Up next:
- Integrations/touchpoints between Workday and Scout
- Transaction competitive landscape analysis (ERP)
- Transaction competitive landscape analysis (source-to-pay suites)
- Transaction competitive landscape analysis (best-of-breed sourcing vendors)
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