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Inside Workday, the California Software Company That’s Ready for the Future

October 18, 2018, 5:45 PM UTC

THINGS ARE GETTING a little crazy at the Pleasanton, Calif., headquarters of software maker Workday. It’s only the second week of October, but already employees are transforming the cubicles inside their otherwise charmless suburban office park into festive and elaborate Halloween displays.

This is a source of great pride for Aneel Bhusri, Workday’s cofounder and CEO, who humblebrags that the decorations are part of a companywide office contest. Bhusri is a straitlaced guy, but he’s been known to step into a costume himself. He and cofounder David Duffield once led an all-hands meeting in cow and monkey onesies in honor of Irish retailer Primark, a newly signed Workday customer that sells the garments. “Happy employees make for happy customers,” Bhusri says.

If Workday can give itself over to a little frivolity, that’s because its products are serious stuff. Just 13 years old, Workday makes software that runs critical operations for half of the Fortune 50 and more than 35% of the Fortune 500. It specializes in systems for human resources and accounting departments, and in its short life, it has earned a reputation for ease of use and reliability that has kept clients loyal.

For Bhusri and Duffield, the company’s chairman, Workday is a second act. The two also worked together at PeopleSoft, which made similar products an enterprise-­technology generation ago before being bought by Oracle in a bitterly contested $10.3 billion takeover. Today Workday is a leader in “cloud” software, programs sold as subscriptions and managed remotely. The company built its wares specifically for online distribution. It prides itself on outspending competitors on R&D, on having happy customers, and on rapid expansion. It isn’t profitable, but it produces half-a-billion dollars in annual cash flow and is growing like a startup. Wall Street expects revenue in the current fiscal year of $2.8 billion, a nearly 30% year-over-year growth rate.

This combination of hard and soft metrics—financial growth, heavy product investment, and a future-oriented (even fun-having) workforce—has landed Workday atop this year’s Fortune Future 50, a quantitative analysis of large publicly traded companies assessed by management consultancy BCG to have their best years ahead of them.

PETROS DERMETZIS, Workday’s chief product officer, has a PopSockets grip on his phone with an illustration of Theódoros Kolokotrónis, a famously helmeted Greek general who defeated the Ottoman army to win Greece’s independence in the 19th century. “I try to copy him,” says Dermetzis, who was raised in Greece by a Greek father and an English mother, married a Spaniard, and has worked in locales as diverse as Japan, Spain, and Atlanta. He’s been associated with Duffield and Bhusri for 23 years, since before PeopleSoft bought his startup.

Like other software companies, Workday touts itself as a one-stop shop for corporate users. Its first product was for HR departments. Where Workday separates itself from the pack is in its weekly online updates, twice-yearly major product re-dos (both unusually frequent for enterprise software), and near-zero downtime. Dermetzis calls this ability to serve customers “unheard-of” and boasts that “Salesforce is the only company that comes close.” (Salesforce, for what it’s worth, was the top Future 50 company last year.)

Workday claims its company’s whole tech-oriented ethos is future-looking. “Companies are running their operations by looking in the rearview mirror with stale data,” says Dermetzis, a wiry and voluble man who gesticulates impressively while he talks. “These are technological crimes that society has accepted.” With Workday’s speedily updated programs, Dermetzis says, customers always have a clear real-time view of their operations, starting with how their people are performing but extending to their financial performance and other nuts-and-bolts areas.

CEO Aneel Bhusri launched Workday after selling PeopleSoft, a company with a very similar core business.Courtesy of Workday
Courtesy of Workday

Bhusri, the CEO, attributes Workday’s technological success to the company’s “tinkering mentality.” When Apple released the iPad in 2010, for example, Workday turned loose a small team of recent college graduates to create an iPad version of their product. “Our people are well versed in ­Hadoop and Spark,” he says, name-­checking two programming tools popular with DIY problem-solvers.

Workday knows its limitations too—and it’s willing to stretch itself financially to address them. In 2016, the company released a financial planning product for businesses. It didn’t catch on. So this June, to fill that hole in its lineup, Workday paid $1.55 billion to buy Adaptive Insights, a younger company that was about to go public.

The acquisition, Workday’s largest, could be costly in non-financial ways too. Veteran enterprise-software analyst Patrick ­Walravens of JMP Securities praises Workday for strong leadership, a large market opportunity, and an “enviable competitive position.” Still, he expects Workday will have challenges integrating Adaptive’s product into its own, “while at the same time satisfying the needs of Adaptive’s 4,000 customers, the vast majority of which run” on systems sold by Workday competitors Oracle and Microsoft.

To maintain momentum to hurdle such obstacles, Workday counts on motivating employees, who in turn are incentivized to please customers. One of the three metrics that determine the size of an annual, all-employee stock grant is hitting 95% customer satisfaction. (The other two involve revenue growth and product milestones.)

One way Workday satisfies customers is by spending lavishly to develop products. Its annual R&D expenditure, at 31% of revenues, bests peers Salesforce and Adobe by that measure. “We are going after a bigger market than they are,” explains Robynne Sisco, the company’s co-president and chief financial officer. “And our products are more complicated.”

Sisco did stints at GE, Ford, Visa, Oracle, Verisign, and VMWare before joining Workday in 2012. Today she plays a lead role in pushing Workday’s newest line, its offering for running a company’s financial management systems (think accounting, reporting, and the like). She notes that Workday has about 2,300 customers, almost all of whom use its HR software. But far fewer (and only eight Fortune 500 companies) deploy its “financials” product.

Bhusri says it has been a “huge undertaking” to make this critical software “cloud ready” but notes the line is growing 50% annually. “I would like that to be higher,” he says. “But I’ll take it.” And if the right customers sign up, he won’t be shy about dressing up in costume to celebrate.

A version of this article appears in the November 1, 2018 issue of Fortune with the headline “This Workday Never Stops.”