CEO Bill McDermott points to a new era for ServiceNow

I've spoken to Bill McDermott a number of times since he took on the role of ServiceNow CEO in October 2019, shortly after he left the top job at SAP. Over the course of those conversations, there have been certain constants in terms of McDermott's ambitions for the vendor: making the world of work, work better for people; ServiceNow as a platform-of-platforms; experience is everything; capitalizing on the workflow revolution in the enterprise. 

We've had some other updates along the way, most notably his target of tripling ServiceNow's revenues to $15 billion over the next five years, and of course the company's role in providing solutions during the COVID-19 pandemic. 

However, after speaking with McDermott again this week, it's clear to me that we should be thinking about the next few years as a new era for ServiceNow. 

How so? Well, to date ServiceNow's compelling proposition has been its ability to plug into existing systems of record and make work flow more easily across an organization, modernizing ageing systems with a new engagement layer that spoke across silos. 

This platform-of-platforms approach still stands, of course. McDermott recognizes the benefit of touching all areas of the enterprises, without the need to rip and replace outdated ERP, CRM or HR systems. 

However, what's now changed is that McDermott has signalled that ServiceNow is going to go deeper. Using its partnership with Celonis and it's recent acquisition of Gekkobrain, ServiceNow wants to help companies either modernize their systems of records through process mining, or help them upgrade highly customized systems to more modern architectures. 

McDermott also spoke about the company's future ambitions to focus more on modernizing middle and back office processes for applications, such as CRM systems, so that the conversation moves beyond that of the engagement layer. I've got my view on why this is a priority now, but more on that later. 

The digital control center 

As noted above, ServiceNow recently announced a partnership and investment in Celonis, which largely focuses on process mining to improve ERP systems. Shortly after that it announced the acquisition of Denmark-based Gekkobrain, which specialises in helping companies upgrade their heavily customized ERP systems. ServiceNow doesn't take acquisitions likely, so it was clear to me that these two announcements back to back hinted at a new plan for ServiceNow. 

Commenting on what the deals mean, McDermott says: 

We are the platform-of-platforms, but we are more and more, by the customer's own request, getting involved in modernizing these 20th century architectures. 

The partnership with Celonis I think is evidence of that. We do process mining within the ServiceNow system, we do RPA, ML, AIOps. But Celonis has done process mining outside of the ServiceNow domain, particularly in the ERP systems. 

So if they take an X-ray of what's broken in a business process and immediately action that on the Now platform, it's a win-win. And with Gekkobrain in the mix, it's just yet another confirming piece of evidence we're more and more involved in these ERP conversations and becoming the control tower for digital transformation in the enterprise.

I asked McDermott if customers modernize their systems of record whether this has value for ServiceNow down the line. McDermott argues that this is about bringing value to customers (and the competition) to get the most out of their investments. He says: 

Whether it's on an old architecture or a new architecture, to me, matters more for the market participants than it does for ServiceNow. Because either way, ServiceNow is going to give the consumer a great experience. 

And I've always said - and I still do - nobody has to lose for us to win. We're very friendly to all the players in the ecosystem. And seriously, if they work with us, it just makes their technology better. It makes them more relevant. 

And if they're providing a rough user experience, well, then let's do something about that. And with ServiceNow, as you know, you can do something about that in minutes, days or weeks, not years and years.

Business architecture is IT architecture 

This idea of ServiceNow becoming a ‘digital control center' for the enterprise extends beyond modernizing ERP systems, however. McDermott spoke at length and in depth about how buyers are using the Now platform to connect all parts of the enterprise, as complexity has reached a critical point, following years of ad-hoc purchasing as new technologies have emerged. 

McDermott explains this as: 

The IT architecture has now become the business architecture. In the Y2K era the CIO was the control centre for digital innovation in every business. They were doing best of breed system of record innovation, whether it was CRM, HCM, or ERP. Then what happened was you had first generation SaaS, where these first generation SaaS participants came to market, and they started giving point solutions to every opportunity that they could, in the cloud. 

And what ended up happening is there became a tremendous glut of all this complexity. And finally, the business executives that took control away from the IT department, got to the point where they were saying: I can't control the sprawl anymore, let's hit the pause button and see what's going on here. 

When they hit the pause button, and they saw what was going on there, they also realized they were going for multi-cloud hyperscalers, which was actually adding to the complexity. This is because no one hyper scaler, no matter how good they are, has all the capabilities. So now you have got hyper scaler, first generation SaaS, 20th century architectures, point solutions.

And then it became really formidable to say: we need a platform approach. But not a platform approach that just satisfies IT, but actually fuzes IT and the business. This is your IT meets business architecture. And that's where ServiceNow - whether it realized it or not at the time - has a big opportunity. 

You can see where this is going…

McDermott is pitching ServiceNow as the answer to this complexity. Being an engagement layer isn't enough, as the complexity is still there - just hidden. As such, from where I'm sitting, McDermott recognizes that it has an opportunity to be the vendor that guides enterprises to simplicity, if it can go deep into process. 

Why would it do this? Usually complexity = money, right? Well, that's not always entirely true in the cloud and if ServiceNow can be the system that goes deep into systems of record and deep into process across the enterprise, helping to modernize them, it soon becomes indispensable to the entire enterprise buyer. 

McDermott says that ServiceNow is going to start talking more about fixing these middle and back office processes. He says: 

We in the CRM world have spoken of the engagement layer for 25 years. I'm not suggesting the engagement layer is unimportant. Of course it's important. But what we have not done in enterprise CRM systems is dealt with the operations and the back office that connects to the engagement.  You can have a great engagement experience - but you can also key something in and you haven't heard from anybody in three days, because those business processes are not connected. 

Or, you buy something and you have a bad experience and it's not immediately remediated with people that understand what the problem is at a root cause level, who can either proactively be in front of you quickly, or remotely diagnose, preventatively maintain, or fix on the fly. These are all nuances that have come to full form. What I think our competitive advantage is, is what we do in the middle office, operations and the backbone IT, which is uniquely our competitive advantage. And we're going to be telling that story. 

I strongly believe that these business processes are truly broken in companies and instead of trying to throw more technology at the problem, sometimes you have to diagnose what the problem is in the first place. We're going to lean into that and I don't see why every single company wouldn't want to do that. 

Talk is cheap

With COP26 taking place in Glasgow this week and next, it would have been remiss of me not to ask McDermott about ServiceNow's ambitions as it relates to the climate crisis and the role of the technology industry in shifting the needle towards progressive change. 

McDermott seems passionate about the topic, pointing to the commitment ServiceNow has made to reaching net zero greenhouse gas emissions by 2030, two decades ahead of the Paris Agreement. He says that ServiceNow will probably achieve this sooner than 2030, but certainly no later.

He also says that ServiceNow is donating $1 million over the next two years to non-profits that are addressing climate change and decarbonisation. He adds: 

We really believe very strongly in the idea of the ecosystem effect that has to take place to keep our planet healthy and the citizens of the world prospering. So that's one thing I think every executive should pay attention to. 

But it's the ‘ESG in a box' solution that ServiceNow recently announced, which really excites McDermott. The solution provides companies with tools that help them manage their ESG commitments, including: ESG management and reporting; ESG project and portfolio management, helping build and maintain a company's ESG roadmap; and integrated risk management. 

Explaining the thinking behind it, McDermott says: 

It's a once in a generation opportunity. Not just digital transformation, but also really doing the right thing on a sustainability level, having a more sustainable world. And I do believe we have to think about the virtuous nature and the virtuous cycle of this. 

I want to be an exemplar in the way we run our company on diversity, inclusion, belonging, compliance, governance, netzero. But at the same time, I think our purpose in the world is to help other companies make the world a little bit more sustainable. I really want to help the world work. 

About nine months ago, I was the one who said we're going to have ESG in a box and we're going to deliver it to the market. The proof is in the pudding. Lots of companies are signing up for it. This morning I was on the phone with the largest systems integrator in the world, they're building a billion dollar practice around it. 

We have to galvanise a movement. Talk is cheap, you've got to do the work. And the work starts with technology and innovation, there's no other way out.

My take

I think this is a critical step for ServiceNow. Whilst it has had great traction in the enterprise to date, and has seen a boost during the pandemic - in order to scale at the magnitude McDermott hopes to, it needs to go deeper into the enterprise. 

Its plans to go deep into process and help modernize systems of record could create a level of stickiness with buyers that goes beyond what it has now. Not only this, but by operating the engagement layer *and* being the system that modernizes *and* then being the ‘control center' for all of this across the enterprise - well, you can see how valuable that could be. 

But this is early days and McDermott is just beginning to turn the wheels on this new era. As ever, we will be looking to customers for proof points on how this plays out over the coming months and years. 

And of course, McDermott wanting to lead the charge on modernizing ERP systems, and wanting to help ERP vendors do so - given his previous role - well, that may raise a smile or two in the industry…