If you take a look at ServiceNow’s recent earnings, it’s clear that the vendor is weathering the macroeconomic headwinds better than some of its peers in the B2B software market. But the company isn’t complacent, with CEO Bill McDermott expanding the company’s offering with greater frequency and eyeing a $16 billion run rate in the next three years or so.
However, with rapid growth and market expansion comes choice. And so it’s important at this juncture to understand how ServiceNow is thinking about its choices over the next three to five years, particularly whilst buyers are faced with increasing inflation, supply chain disruption and labor pressures. In other words, buyers are too faced with lots of choices (read: complexity) and will be seeking partners that can offer reassuring guidance about how to navigate it all.
Someone that has been professionally close to McDermott for a decade or so, first at SAP and now at ServiceNow, is Nick Tzitzon. Tzitzon has advised McDermott for a number of years and is currently ServiceNow’s Chief Strategy and Corporate Affairs Officer - so is well placed to speak to the company’s opportunities, challenges and direction.
I got the chance to sit down with Tzitzon at ServiceNow’s World Forum in London to get a better understanding of his thinking, covering everything from pursuing ERP modernization to thinking through how ServiceNow can better be there for its customers.
Tzitzon’s key takeaway for buyers is that during this period of economic uncertainty they should focus on the fundamentals of business, before thinking about technology. That may sound obvious to some, but too often we hear of organizations that believe that a huge ‘digital transformation’ project will solve their woes and protect them from the storm. Rather, Tzitzon suggests companies should likely be thinking about two key points. He says:
The tech industry loves to overcomplicate things. I love to redirect conversations to: what’s really going to make a difference for your business? If you were doing this better, what would that be? And how would that improve the prospects for your business success?
If you strip the conversation to a basic starting point, that is purely business - forget the tech, forget the enabling aspects of it - you start to see that it comes to one or two topics.
How do you keep the customers that you fought and invested so hard to get? That’s ultimately a customer service proposition. Or at a moment where labour shortage and the workforce crisis is ever complicated, how do you engage and make the people you have more productive? Those are the levers. Most of the conversations make their way to those two conversations pretty quickly.
Tzitzon says that most of the Wall Street conversation at the moment in the enterprise technology sector, however, centers around ‘elongated sales cycles’. This is true - if you cast a quick eye over many of the recent earnings coverage on diginomica, the phrase pops up a lot. But whilst some might jump to the conclusion that this means buyers are putting projects on pause, or that budgets are being frozen, Tzitzon has a different take.
He argues that this isn’t because buyers are paralyzed by choice, or frozen in fear, but rather that they are making more thoughtful decisions around their investments. Tzitzon explains:
The translation to that business-wise is that people say: ‘If I’m going to invest here, what else can we realistically accomplish if we’re committed to that investment?’. And then, how do we build this in so that we have a single plan that addresses those three things, instead of saying we’re going to address this one thing and come back to it three months from now.
People are actively saying ‘I don’t have the time, so let’s be thoughtful about how we plan and about where we invest and who we invest with’. I think it’s people wanting to be sure that they’re doing the things that make the most sense and that stand the greatest chance to help their business.
A path to modernization
We at diginomica have covered ServiceNow’s strategy extensively. The vendor 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. Its popularity with buyers comes from its ability to act as a ‘digital control tower’, or an engagement layer, whereby organizations can use automation to get their work done more effectively.
Tzitzon says that ServiceNow’s success has broadly come down to two key things. Firstly, meeting customers where they are; meaning that it allows organizations to modernize in the public cloud, upon the multiple investments that they have already made, without having to rip and replace systems that essentially work. Secondly, Tzitzon points to the speed at which customers can derive value from the Now platform.
In recent months, CEO Bill McDermott has been talking about the opportunity for ServiceNow across ERP environments. McDermott’s pitch is that ServiceNow, in partnership with process mining vendor Celonis, can modernize and automate these environments without the same level of disruption or investment that would be required by replacing them and moving them to the cloud.
ERP isn’t an area that the company has typically talked about much prior to this year, but given both McDermott and Tzitzon’s background, it’s perhaps not too surprising. That being said, Tzitzon says that it’s a conversation that was started by customers. He explains:
Customers started it to be honest. I think almost every conversation about ERP is about how customers are committed to modernizing and upgrading their ERP landscapes. But they don’t necessarily want to take what’s in one bucket and move it piece for piece into the next bucket. They want to think, what does this system do for us? And there’s no doubting that ERP systems are industrial grade strength, they do all kinds of things that other systems aren’t likely to do.
But there’s also no question that over time, we attached more to core ERP in the form of peripheral applications and customizations that were never intended by the people who designed those systems. So, customers are saying: if you can help us out of that, and simplify for us, make it easier for us to migrate to public cloud, and make it easier for us to modernize and take the chosen path for us, that makes sense.
I ask Tztizon if ServiceNow has a position on whether ultimately getting those customers’ ERP environments to the cloud is essential, and he says:
I think that the end goal should be whatever the customer wants to do. The one thing I will say is that the ERP vendors made strong systems, they don’t break. So I don’t believe it’s our position to tell any customer what they should or shouldn’t do with the systems that they’ve invested in.
What I will say, if they want the optionality to move to cloud, certainly doing workflows on ServiceNow, using ServiceNow to declutter the core, that will make that migration easier. If they decide they don’t have the focus, the time, or the resources to migrate right now, and they want to create a more engaging experience around their core ERP in certain areas, ServiceNow can help with that.
It’s common knowledge that ERP migrations and upgrades are approached with extreme caution. Firstly, they are essentially the engine of any organization and as such are inherently complicated. Secondly, for an executive to sponsor such a project - which could have dire consequences if it went wrong - there’s a career risk involved. And thirdly, these systems (although not perfect) don’t typically break and do the job required. Where’s the investment incentive versus something that’s more customer-facing? These factors play well into ServiceNow’s pitch.
But despite ServiceNow’s growth, there is always room for improvement. And as already noted, the company’s current executive team isn’t partial to complacency. As such, I ask Tztizon where he believes ServiceNow could better support its customers as the company expands into more areas of workflow automation.
Firstly, he points to buyers needing support in getting hold of more ServiceNow platform skills. ServiceNow already has its NextGen skills programme, but McDermott recently announced a new RiseUp project too that aims to skill one million workers worldwide in the Now platform. That will take time, but it’s clearly front of mind for the vendor.
Secondly, Tzitzon says that ServiceNow needs to better communicate the company’s roadmaps. He explains:
I tell our people this all the time. The person who is most likely to be a ServiceNow platform owner in the IT service and operations management area is not typically the person in the company that has the current permission to go and action in areas such as employee experience, customer service, DevOps, security, low code apps, etc.
What those platform owners want from us is: tell me the steps I need take. Which aspects of the portfolio do I consume in which order? Which stakeholder relationships do I build internally in my company so that we can standardize in ServiceNow? And I think that’s an inherently reasonable ask from our customers. We’ve not done enough to make that easy.
And if ServiceNow achieves its ambition of $16 billion revenue by 2026, that’s a significant amount of growth in a short period of time (more than doubling where its current ARR is at). Tzitzon is also very focused on protecting what he believes is an important company culture, as well as continuing to offer opportunities for employees and partners. But more importantly, Tzitzon believes ServiceNow needs to get back to basics too and articulate that its value could have far-reaching consequences for a business. He concludes:
The audacious version [of where I’d like to see us in the next couple of years] - is that workflow automation and the broad technical terms we’ve used to describe what ServiceNow does, have always clouded our far more basic and fundamental value proposition; which is: what assets do you have and what tasks do you want to improve?
That conversation could open ServiceNow to doing all kinds of things. I’m waiting for the moments where more of those lightbulbs go off. If we’re going to open the floodgates and standardize for these things, why don’t we just open the floodgates and fundamentally rethink how this business operates and do it on ServiceNow? I hope at some point we’re talking about those situations.
ServiceNow’s problem (if you can call it that) - and the problem of workflow - is that it requires imagination from those using the platform to rethink the opportunity with a new set of tools available to them. If you could do this work differently to create a different experience for your employees and customers, what would that look like? Forget about the processes and systems you’ve had in place for a number of years, if you could do it differently, how would you? That’s hard for some people.
Most of that is just convincing them that they’re allowed to think differently about their problems and showcasing examples of what the world of work could look like. I heard some excellent examples at World Forum from customers that are doing exactly that, which will help. And this is an education process on ServiceNow’s part - but with a commitment to it (which Tzitzon seems to understand) there could be ample opportunity for the vendor.