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CEO Bill McDermott’s next play will see ServiceNow go after ERP modernization

Derek du Preez Profile picture for user ddpreez May 11, 2022
ServiceNow has traditionally mostly steered clear of enterprise resource planning, but the company sees opportunity in replicating the success it has had in HR/HCM in the ERP space.

An image of ServiceNow CEO Bill McDermott on stage at the Knowledge event in The Hague
(Image sourced via ServiceNow)

Last time I spoke with ServiceNow’s Bill McDermott, I wrote that the CEO was pointing to a ‘new era’ for the company. That conversation took place shortly after ServiceNow had inked a partnership deal with process mining vendor Celonis, and it was clear ServiceNow was looking at opportunities to dive deeper into systems of record. 

ServiceNow has historically described itself as the ‘platform of platforms’, tapping into systems of record across the enterprise, and enabling workflow automation to get things done more effectively. An engagement layer, if you will. 

This is still true today, of course. But having met with McDermott today at ServiceNow’s annual Knowledge event, in The Hague, it’s become much clearer as to what his ambitions are for the company - and those ambitions certainly involve going much deeper into ERP environments. 

McDermott has said that his end goal is to make ServiceNow the defining enterprise software company of the 21st Century - to be the true enterprise platform standard. Today he added a variation on this theme and said that ServiceNow is fully going after the ‘end to end enterprise environment’. 

With that in mind, to ignore the scope of ERP (and supply chain) would be foolish. And let’s not forget McDermott’s former role as CEO of SAP, one of the largest ERP vendors in the world….

So, what does all this result in? Well, ServiceNow believes that there is a tonne of addressable market value in helping organizations modernize their ERP systems, without having to consolidate, upgrade or rip them out. 

McDermott believes that with the help of the recent Celonis integration, and with ServiceNow’s recent Gekkobrain acquisition, ServiceNow can add a significant amount of value to customers’ ERP and supply chain systems, saving them a tonne of heavy lifting when faced with the choice of ‘how’ they modernize those environments. 

During our discussion today, McDermott said: 

When it comes to ERP, customers out there that don't necessarily want to, or don't think it's necessarily a good idea, to drain all of their capital on one dimension of their IT budget. When you start modernizing those systems, that took you multiple years to put in - or you start consolidating multiple instances of those…and I both know that's a lot. And that even if you're on to the right idea, it takes a long time. And it takes a lot of money. 

So I'm dealing with a lot of customers today that are saying, what's broken about my process? As opposed to: why am I upgrading the past? Again, what's broken in my processes now? How can we fix that? And how quickly can we start today servicing the business, getting my people going, creating a new relationship with my customer? They want to go now. 

Giving customers a choice

At diginomica we have, in recent months, highlighted how there is opportunity in better automation for ERP environments - as opposed to upgrades, or ripping out and replacing existing systems. It seems that ServiceNow too sees opportunity in this area and is looking to replicate the success it has seen in improving the work done by HCM/HR leaders, in the space of ERP. 

McDermott said that it is still early days with the Celonis partnership, but that this month the companies will have achieved technical integration between the two. That being said, he added that there have already been some commercial wins with customers that recognize the complementary gains to be had (a German airline was mentioned, in particular). 

Even though it is early still, McDermott wasn’t shy about why the relationship matters to ServiceNow. He explained: 

Our game plan with them is to focus on the non-ServiceNow environments, especially the ERP environments where we can X-ray those broken business processes and resolve those issues with a modern hyper automation layer that is now technically integrated and ready for business. 

The reason I say that is that we already have process mining capabilities on ServiceNow-related tasks. For ServiceNow customers that want process mining capabilities on ServiceNow related tasks, they have that today. 

What we're trying to do is expand the perimeter for environments where we know the world needs us. And we know by teaming up, we can do things very fast. For example, do I modernize the former system of record technology or don't I? Well, maybe I do, but maybe not today, because I have other pressing needs. And now, we [can give customers] choice.

The most interesting thing is the tale of two cities; where one customer does it the way they've always done it, and one customer does things differently. Because technically, they can. 

You can see why this is interesting, I’m sure. McDermott went on to say that for customers that want to consolidate ERP instances, or modernize through upgrades, that is their choice. But he suggested that perhaps there’s a simpler option, with ServiceNow pivoting towards ERP processes. He added: 

The path there is going to be a lot like the one if they don't do that. The paths look a lot alike! 

And sometimes if you look at the before and after of that, the new versus former, the kind of ERP role and how ServiceNow plays in that, it looks a lot alike. So whether you go for modernizing the ERP or you don't, the role we play looks a lot alike. 

And on why customers might take a route that involves ServiceNow, McDermott pointed to speed as a driver. He said: 

The thing that I find interesting, and a lot of people don't notice, is that we're modernizing supply chains already. If you think about the global, versus regional, versus local - there's a lot of dislocations in the supply chains in the global economy. But nobody's going to have the time to rip out an ERP and put in a new ERP to deal with a new supply chain. 

They have got to do it on the fly in 30 days. We're doing that. And a lot of people don't know that. 

Interestingly, shortly after my conversation with McDermott I spoke with ServiceNow CIO Chris Bedi, where he also highlighted an opportunity for ServiceNow to improve ERP environments beyond what’s currently being offered. Bedi said: 

If you think about what ServiceNow has done in HR-land, or employee experience, I think the market has spoken. HCM is great, but you still need something for employee experience, where HCM is the system of record and ServiceNow is the system of engagement. 

And then if you look at ERP-land, there is lots of white space and grey space where things are still happening manually. ERP systems, they’re great accounting systems, they’re not great workflow systems. And that’s where I could easily see a similar story playing out. 

My take

McDermott has extensive experience in the area of ERP and he knows that the people that work in and operate those environments often have a very manually-driven, not-so-great experience. ServiceNow needed the process mining smarts for ERP to make a play for those systems, and with the Celonis partnership it can now do just that. Equally, if we are talking about ‘making work flow’ across the enterprise - everything from IT, to CRM, to HR - it’s a missed opportunity to ignore ERP. ERP is the engine that drives an organization. 

But also, if we think about ServiceNow’s revenue targets ($15 billion by 2026, three times its current revenue), it’s worth noting McDermott also told me: 

If you take the TAM of the ERP market, some would say it’s in the region of $450 billion, whatever it is, it’s additive to our $200 billion TAM. So now you’re in a much bigger ocean. Not that both oceans aren’t big enough, they certainly are.

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