Just yesterday, we presented at the People Analytics & Future of Work Global Conference, and told the audience: “In 2021, we are going to see a lot more market consolidation.” And here we are, with example number one: Workday’s announcement today of its acquisition of Peakon (a Danish employee engagement provider).
Though smart, this is an unsurprising (and not market transforming) move on Workday’s part. Why?
Let’s start by examining why we expect market consolidation.
First, there have been huge investments in HR tech over the last decade – one estimate is that investors put nearly $5 billion into the industry last year alone – and that’s resulted in a highly fragmented market of specialized players across our entire HR tech industry.
This is nowhere more prevalent than with employee engagement and experience – the single largest (36%) and fastest growing category in our people analytics tech study. And that isn’t going to change: due to COVID-19, social justice movements, remote work, etc., employee engagement and experience was by FAR the most in-demand people analytics area last year, with 63% of people analytics practitioners telling us they focused in this area in 2020 (a number we expect to see rise in 2021). Highly fragmented, lots of external investors, and quick growing = market ripe for consolidation.
Second, across the last year, we’ve recognized that we need more and higher quality data on our people. That requires that the data be easier to integrate. That can be done through an ecosystem that plays nicely with each other (similar to what Visier, Medallia, EMSI and others are doing with their “People Intelligence Alliance”) or by acquisition.
Right now, employee engagement / voice solutions are amongst the easiest to buy and implement (despite what some might tell you), as evidenced by the fact that a lot of these vendors went to a freemium model during the earlier parts of the COVID crisis and allowed potential customers to just turn the tech on themselves. However, what isn’t easy is the data integration piece: connecting engagement / experience / voice data to other data that can tell you something more meaningful.
So why did Workday acquire an employee engagement provider?
The most obvious reason is that Workday needed an employee engagement solution. As you can see in our people analytics tech 2×2, Workday has solutions in most of the other areas we cover, but it didn’t have an explicit employee engagement solution. (As an aside, to my knowledge they also don’t have an organizational network analysis solution – so you ONA providers might want to see if there’s any more Workday M&A budget available for 2021!)
But why wouldn’t Workday just build out their existing capability, instead of buying a company? A few reasons:
- High-quality engagement solutions are deceptively hard to build;
- There are a lot of really good independent engagement vendors open to being acquired (even after this acquisition!); and,
- This allows Workday to meet customers’ needs now, not in a few quarters’ time.
Further, the acquisition enables Workday to reinforce their single data model approach, as opposed to doing the ecosystem play – which we all know isn’t their main jam (though Prism allows data integration from external sources). By purchasing an engagement provider, they can ensure a single source of data truth when it comes to engagement data, which will make all the rest of their data offerings stronger.
There are lots of employee engagement vendors. Why Peakon?
Many of you may not know who Peakon is – I didn’t until about 18 months ago – but there’s a lot to like about them. First, Peakon is a high-quality platform, with engaged customers and devoted employees (similar to Workday).
Second, in addition to the engagement capabilities, Peakon brings two other offerings that will bolster the Workday toolbox: Grow (a performance solution) and Include (a diversity, equity, inclusion & belonging (DEIB) solution).
Let’s start with Grow. As we’ve written many times (such as here and here), we see performance and engagement becoming ever-more intertwined. Peakon’s solution is a primary example of how performance development and engagement can be bundled together effectively. This offering will surely bolster Workday’s performance solution, which is lacking in some of these capabilities.
Include will also strengthen Workday. This solution allows leaders to integrate DEIB analysis with the engagement offering. In some ways, these capabilities mirror Workday’s recently announced VIBE Index, which is a good thing, as there is overlap in vision. However, Peakon supplements Workday’s existing offerings in important ways:
- In-product features to safely report misconduct;
- Flagging of sensitive (including violence, criminal behavior, safety and wellbeing, etc.) comments for anonymous follow-up by HR; and,
- In-product links to micro-training on building more inclusive teams.
Finally, Peakon checks other important boxes:
- Financial: They completed a roughly $36 million Series B just under two years ago, which means they had significant funding, but not nearly as much as some of their competitors – and so were relatively affordable at the $700 million price tag. Given Peakon’s pricing, customer numbers, and growth rate, I imagine that the ROI on this investment will be very strong for Workday.
- Technical: Peakon is roughly 6 years old (depending on when you start counting) and thus has a modern tech stack and likely less tech debt.
- Cultural: There’s strong cultural and values alignment.
So, to sum it up, this is a good – but entirely predictable – buy for Workday. It doesn’t signal significant shifts in the market. It doesn’t fundamentally change things for the other engagement providers.
This deal is sound. It is smart. Well done, Workday and Peakon. We look forward to seeing how this works in practice.
Stacia is a Co-founder and Principal Analyst for RedThread Research and focuses on employee engagement/experience, leadership, DE&I, people analytics, and HR technology. A frequent speaker and writer, her work has been featured in Fortune, Forbes, The New York Times, and The Wall Street Journal as well as in numerous HR trade publications. She has been listed as a Top 100 influencer in HR Technology and in D&I. Stacia has an MBA from the University of California, Berkeley, and a master’s degree from the London School of Economics.