Today, Workday announced that VNDLY, a Workday company, will now be known as Workday VNDLY, an extended workforce and vendor management system (VMS) that’s part of Workday’s suite of products.

In this blog, I cover:

• Why contingent workers are especially important today
• What VNDLY is and how it addresses this need
• What the VNDLY acquisition tells us about Workday and its strategy

Why contingent workers are especially important today

With the rise in volatility and uncertainty, leaders are increasingly looking to structure their organizations to be responsive to change. For example, in our study on responsive organizations, we found that 95% of high-responsivity organizations were likely to meet their business goals, compared to just 21% of low-responsivity organizations.

One approach organizations can take to be more responsive is by using contingent workers (contractors, freelancers, temporary workers, project-based workers, 1099’ers, etc.), which allows organizations to more quickly adjust the size and skills of their workforce, given business needs. The use of contingent workers is prevalent, with some large companies estimating that as many as 30% of their workers today are contingent.

The idea of using contingent workers isn’t a new concept. For example, when I was at Deloitte in 2017, we wrote about the rise of “off-balance-sheet workers,” which is yet another term for these workers.

What is new, though, is the extent of the need for these types of workers. This is being driven by a few factors:

• Market volatility. We all know the last few years have been highly volatile and uncertain, and we can reasonably expect at least some degree of this to continue. That volatility is driving varied customer needs and, thus, organizations need different skills to respond. Contingent workers can help organizations adjust quickly.
• The skills gap. As technology accelerates change, organizations require different skills from workers. Current employees can only upskill, and organizations can only hire, so fast. Therefore, accessing contingent talent from outside the existing workforce can help organizations fill the gap in the short term.
• Demographics. Today, there are 9.9 million job openings in the U.S., but only 5.8 million unemployed workers. This mismatch between available talent and job openings is projected to continue, with the BLS expecting the economy to add 8.3 million jobs but only 7.7 million workers between 2021 and 2031. The result will be organizations scrambling for talent to fill gaps.

As a result, organizations will likely increasingly turn to contingent workers to augment their existing “core” employee workforce.

Yet, there are a host of challenges in using contingent workers, such as:

• Legal and regulatory challenges: Organizations can be accused of misclassifying workers or co-employment, which can result in legal action, fines, and other challenges.
• Competitive risk. Due to the more temporary nature of their work, contingent workers may have different confidentiality requirements, potentially exposing organizations to the risk of loss of trade secrets, intellectual property, and organizational knowledge.
• Ownership and accountability. Historically, contingent labor has been managed by procurement rather than HR. As a result, it can be unclear to managers how to get access to contingent workers and how to manage them.
• Clarity around talent available. Given the different status of contingent workers, and the fact that they are usually managed in a different technology system, leaders may not understand the contingent labor force and how to access it effectively in times of need.

As a result of these challenges, many organizations use a VMS (vendor management system), potentially in combination with an MSP (managed service provider) to help them manage their contingent workforce. According to Workday, approximately 70% of organizations leveraging a VMS also use a MSP.

These systems typically are separate from human capital management (HCM) systems and are run by procurement. That said, they have many similarities to HCM systems, such as the ability to source, engage, manage, and pay contingent workers. However, the nuances around what is required to do each of those things is different. For example, with sourcing, there isn’t a direct outreach from the hiring organization, but rather a hiring manager can look at the talent available and then have the MSP reach out directly to that person. Examples of the range of capabilities offered by a VMS are shown in Figure 1 and Figure 2.

 

Figure 1: Workday VNDLY as an example of a vendor management system (1/2) | Source: Workday, 2023.

 

Figure 2: Workday VNDLY as an example of a vendor management system (2/2) | Source: Workday, 2023.

While a VMS and/or MSP can help with the first two bullets outlined in the list of challenges above, it typically does not help with the second two, around ownership and accountability and clarity around the talent available. This is why it makes sense to combine the insights of a VMS and an HCM system.

What VNDLY is and how it addresses this need

Let’s now turn to VNDLY, which is a VMS that was acquired by Workday in December 2021. Workday acquired VNDLY because its leaders believed VNDLY was a VMS with a modern tech stack and a vision to integrate more closely with HCM systems. Prior to the acquisition, VNDLY was a Workday Access Partner and had more than two dozen customers using VNDLY’s integration to Workday’s Human Capital Management platform. As of today, with the completion of the acquisition, the technology will now be known as Workday VNDLY.

The way the Workday leaders describe the two platforms is as Workday being the single system of truth for employees, and VNDLY as being the system of record for all contractors, whether they are contracting directly with Workday or working for another employer. Workday VNDLY is directly connected into Workday’s core data foundation, enabling these insights to be displayed in both systems.

The leadership teams see the combination of Workday and VNDLY as enabling “total talent management” and being a “system of truth for all employees and non-employees.” VNDLY customers are able to source, engage, manage, and pay contingent workers within VNDLY. Further, they are able to see data about the contingent workforce comingled with data on employees.

Specifically, Mariana Santiago, Co-GM, Workday VNDLY, stated:

“Managers want everything at their fingertips. They don’t want to look at multiple systems. They just want to distribute workloads properly. The combination of these systems enables them to do this.” 

An example of what this looks like is in Figure 3.

 

Figure 3: Example of Workday VNDLY showing integrated data on contractors | Source: Workday, 2023.

My take

There’s a lot to love about the power of a VMS and HCM on a single data model and with an integrated UI. We think this offering is powerful and has the potential to accelerate organizations leveraging contingent labor more effectively and, thus, supporting business goals more quickly and efficiently.

That said, there are a few questions that come to mind for us on this topic of integrating contingent and full-time workforces:

• Will HR decide contingent workers are their responsibility? In the past, all of the challenges mentioned above meant that many HR leaders weren’t willing to take on contingent workers. To achieve the vision of “total talent management,” HR will, generally speaking, have to take on more ownership for contingent workers than they have in the past. Given everything on HR’s plate these days, it isn’t immediately clear they will be up for this additional work.
• Will managers want to be more involved in sourcing contingent talent? To find the right talent, whether it be a FTE or a contingent worker, someone has to invest the time in getting to know the skills, capabilities, behaviors, and personalities of that people (see Figure 4). If the person doing the work will only be there for a short period of time, will managers be willing to invest time in finding / understanding contingent workers, or will they just expect HR to do it for them?

While it isn’t necessary that the answers to these questions be “yes” for Workday VNDLY to sell really well for Workday (more on that below), these two questions will influence the extent to which HR and managers adopt this technology.

 

Figure 4: Example of Workday VNDLY contingent labor sourcing capabilities | Source: Workday, 2023.

What the VNDLY acquisition tells us about Workday’s strategy

As outlined above, there are some compelling reasons to have a “total talent management” system, and the VNDLY acquisition enables Workday to offer this to customers.

Interestingly, we can also glean some additional insights about Workday’s strategy moving forward from this acquisition. Here’s what this acquisition brings to mind for us:

• Inching toward ERP? VMSs are in the middle of HR, finance, and procurement. Further, they have a range of capabilities beyond HCM platforms, such as managing jobs, SOWs, etc. (see Figure 5). To date, Workday serves HR and Finance. Yet, this expansion of capabilities moves it closer to its SAP and Oracle competitors than might be immediately obvious. Therefore, even if Workday can’t convince HR leaders that contingent workers should be in their remit, that could be ok. By moving into the procurement space, the VNDLY acquisition could provide a lot more growth opportunities for Workday, which is something Workday needs, as I outlined in this blog.
• Growth engine: Speaking of growth, Workday VNDLY has a lot of room for it. At the time of acquisition, approximately 50% of VNDLY’s customers were Workday customers. Since the acquisition, VNDLY has experienced nearly 100% growth of its customers, and now has nearly 160 customers. Given that Workday has approximately 4,600 HCM customers, there is clearly still a lot of runway for VNDLY. This should support Workday’s broader goals of 20% or more growth for the next 5 years.
• IT consolidation. Workday’s new Co-CEO, Carl Eschenbach, talked at the recent Workday Innovation Summit about how we are in a time of IT consolidation. A “total talent solution” that covers both HCM and VMS fits really well into that narrative. We expect to see more of these types of offerings from Workday that consolidate IT spend.

 

Figure 5: Workday VNDLY SOW management capabilities | Source: Workday, 2023.

Wrapping up

This acquisition made a lot of sense for Workday and we foresee a significant amount of runway for Workday VNDLY. Not all of Workday’s HR customers will take on contingent workers. Even if they don’t though, it is possible their procurement colleagues will, and an integrated system should benefit the entire organization. We look forward to continuing to hear about Workday VNDLY’s success in the quarters and years to come.