On-demand software startup Workday has clinched its biggest deal yet -- and the largest known in the software industry -- to provide an electronics company with a human-capital management software service for 200,000 employees. It's the strongest proof yet that large companies have started to embrace the software-as-a-service delivery model.

Flextronics, which designs and manufacturers parts for automotive, cell phone, and computer companies and grossed $28 billion in sales last year, selected Workday HCM to replace some 80 human-resources systems being used by the company in 30 countries, said Flextronics CIO David Smoley. The decision, he said, involved a "direct comparison with all the alternative, on-premise [software] vendors," which likely includes SAP and Oracle. Workday, based near San Francisco, was started three years ago by PeopleSoft founder David Duffield to deliver on-demand ERP.

Among Workday's appealing features, Smoley said, are pre-developed interfaces that will let Flextronics link up its HCM service with providers of employee benefits. Workday's object-oriented platform also has appeal.

"What we've seen with object databases is it gives you an incredible amount of flexibility in how you access and manipulate data, which translates into a much more powerful ability to create interfaces with less technical people, and update and modify as necessary," he said. He likes that Workday will "create and maintain interfaces [with benefits providers or other partners] so that customers don't have to."

Both Smoley and Manjit Singh, CIO of Chiquita, said HCM (another term for human resources) is perfect for SaaS. Chiquita signed on for Workday HCM for 26,000 employees last fall.

"HR should be simple," Smoley said. "When you look at the usability of Workday, it's a natural compared with traditional vendors that make it incredibly complex to implement and make changes."

"Besides the need for simplicity around human capital [software], there's also the question of where do companies want to invest time and resources," Singh said, who was with Smoley at a Workday event in San Francisco on Tuesday. "Frankly, HCM isn't considered an area of innovation and growth for companies. You're looking for lower cost of ownership and a [faster] time element, and that makes HCM SaaS much more attractive."

While few large companies use SaaS for the king of ERP apps -- financials, or "general ledger" -- Singh thinks it's only a matter of time before that changes. "With general ledger, I think it's more of a perception around risk factors," he said. "CFOs say, 'I want to control that information, and the best way to do that is within my own four walls.'

"The interesting thing is a lot of companies have outsourced their data centers," he continued. "So let's look at the definition of what four walls are. There is no such thing as a corporate, four-wall environment." Once that's realized, he said, the risk of financials delivered via SaaS won't be seen as "that much greater if you've done outsourced data centers."

Both CIOs would not discuss the financial details of their contracts with Workday, but they did say the contracts offered cost savings and faster implementation than comparable on-premises software offerings.

Workday plans to have more than 40 customers online by October. While most existing customers are using HCM, it's making a big push with its newer financial, procurement, and payroll software services, via beefed-up sales and marketing efforts in the second half of this year. It has gone live with five customers with at least 5,000 employees on Workday HCM.