Workday has long been heralded as a dominant player in the cloud enterprise software landscape, boasting a clientele of over 11,000 organizations, including many Fortune 500 giants. Yet beneath the surface of its seemingly unstoppable growth lies a much murkier reality. Despite impressive retention rates and steady revenue increases, the company has consistently underperformed compared to peers like ServiceNow, SAP, and Salesforce—lagging by double digits over the past three to five years. This persistent underachievement signals a fundamental flaw in strategy: growth at any cost. While investors may have initially celebrated Workday’s meteoric rise, now the cracks are evident. The law of large numbers is crushing the company’s ability to sustain double-digit growth, exposing the vulnerabilities of a business that prioritized expansion over profitability and efficiency from the outset.
What’s more troubling is its stubborn refusal—or inability—to generate significant profits. The company’s focus on capturing market share at the expense of margins has bred skepticism among investors, culminating in the evident erosion of confidence. To thrive in the increasingly competitive and mature HR and financial management software markets, Workday must fundamentally re-evaluate its approach. Continuing to chase growth blindly is a complacent delusion, especially when its core business model remains “sticky” and resilient but no longer enough to justify sky-high valuation premiums. The illusion of invincibility—that hypergrowth would inevitably lead to digital dominance—is now being punctured, calling for a clear-eyed recognition that incremental improvements are no longer sufficient.
Leadership Transition as a Catalyst for Radical Change
The appointment of Carl Eschenbach as Workday’s new CEO marks a pivotal moment—arguably the most profound in the company’s 13-year history. While Aneel Bhusri’s pioneering vision built the foundation of the firm, his relatively youthful age and founder mentality rendered him less suited to steer an organization through its mature phase. Bhusri’s decision to step back from the day-to-day operations and elevate Eschenbach reflects a rare self-awareness and a recognition that executing efficient management at scale demands different skills. This shift isn’t merely procedural; it embodies a strategic reset.
Eschenbach’s comprehensive experience—most notably his tenure as president and COO of VMware—equips him with a pragmatic, results-oriented approach. His leadership should signal an operational shift toward discipline, efficiency, and shareholder value. The recent multiyear plan announced at the financial analyst day is evidence of this new strategy. The plan’s emphasis on returning value to shareholders via a $5 billion buyback, targeted margin expansion, and a goal of generating $15 per share in free cash flow by fiscal 2028 unveils a company finally placing profits and capital efficiency at the forefront. This move signifies a recognition that aggressive growth alone cannot justify valuations without a balanced focus on cash flow and margins.
Activist Engagement and Market Realities
Some skeptics dismiss activist investors like Elliott as interveners seeking short-term gains rather than long-term alignment. However, Elliott’s extensive and disciplined approach challenges this scapegoat’s narrative. With over $76 billion in assets and a reputation built on thorough research and strategic engagement, Elliott’s stake in Workday should be viewed as a sign of conviction—particularly given the firm’s support for management’s strategic overhaul. Their significant $2 billion position suggests they see concrete value in the company’s new direction.
Elliott’s involvement may also act as a counterbalance to the issues surrounding founder control, where Bhusri’s majority voting power potentially breeds governance concerns. When a founder retains such influence, markets often price a “governance discount,” doubting whether the controlling shareholder prioritizes broader shareholder interests. With Elliott’s backing and the appointment of an independent C-suite aligned with shareholder value, this dynamic could shift. If Eschenbach and his team deliver tangible results—profitability, margin expansion, and strategic M&A—then the governance discount could dissipate, unlocking further value.
Strategic Focus on AI and M&A as Growth Levers
Artificial intelligence is not merely a buzzword at Workday; it is poised to redefine its future. The company has already recorded remarkable growth—doubling net revenue from AI solutions year over year—indicating an increasingly central role for automation and intelligent workflows. Its recent acquisitions of Sana, Paradox, and Flowise demonstrate an active, strategic push into AI and automation, which could revolutionize the HR and financial management sectors.
However, the challenge remains: can AI-driven innovations translate into sustainable revenue and profit streams? The answer hinges on execution and integration. While these acquisitions add new capabilities, true strategic clarity involves leveraging AI to streamline internal operations, reduce costs, and enhance product differentiation. Should Workday manage this transformation effectively, it could pivot from a growth-focused enterprise to a profit-driven powerhouse, aligning investor expectations with operational realities.
Workday stands at a crossroads. Its previous growth-at-all-costs mentality has served its early-stage ambitions but now stands as a barrier to sustainable success. The company’s leadership is finally acknowledging this by embracing a new strategic framework rooted in profit, capital efficiency, and disciplined growth. With a seasoned CEO at the helm, activist backing to reinforce governance and strategic initiatives, and a focus on AI-driven differentiation, the next phase is precarious yet promising.
Yet, the road ahead is fraught with risk. The firm must overcome entrenched complacency, realign its internal incentives, and deliver tangible results that can satisfy the market’s demand for profitability alongside growth. If successful, Workday could emerge not just as a survivor but as a model of renewal in the enterprise software landscape. Failure to adapt, meanwhile, risks further erosion of confidence—a peril that could leave even its most loyal shareholders questioning whether the company’s best days are behind it.