The next stage of the ServiceNow rocket – Enterprise Irregulars

I spent a couple of days at Knowledge 18, ServiceNow’s user conference. It was good to get a deeper dive into the product and meet the executives re-shaping the company. Couple of positive areas and couple of potentially problematic areas I picked up.

ServiceNow is a “blue-collar” company whose platform first found a niche in the bowels of IT shops. Its case management tools allowed companies to build knowledge bases of problems and resolutions, and encourage users to self-serve solutions and use its community to share tips and tricks. Its workflow engine allowed for more efficient, seamless routing of tasks and approvals. Its growing set of virtual agents allowed human agents to move up-market away from routine Tier 1 tasks. Importantly, all this was in the cloud when competition was still on-premise and clumsy. Co-founder Fred Luddy has been quoted as saying “The IT industry deserves a tool that just works. We’re going to give it to them.”

ServiceNow built a loyal following which rewarded it with explosive growth. Annual revenues skyrocketed from $13m in 2007 to $ 244m in 2o12 and from there $ 1.93bn five years later

Customers then introduced the tool to other parts of the enterprise beyond IT, particularly in customer service and HCM (in HCM, the big adoptions have been in shared service settings and in onboarding steps across a wide range of benefits, security and other applications- so as a connective tissue across disparate books of record).

Internally, ServiceNow has also deployed its technology for its financial close process. The good news was this customer extension beyond IT was organic, with little selling needed from ServiceNow. Now the Customer Service and HCM buying centers are being proactively targeted though the bread and butter still comes from the IT organization. Also, during the time I was there, I heard mostly positive talk about Salesforce and Workday – at least for now ServiceNow wants to be an orchestration and user engagement play, not a book of record.

John Donahoe joined as CEO last year, to shepherd the company through the next phase, hopefully as explosive, of growth. He came after transitioning eBay and PayPal through the deep recession, the move to mobile platforms and shielded it from activist investor Carl Icahn’s distractions. A former Bain consultant with this consumer tech experience I found he had a refreshing pov on the next stage for ServiceNow. Not all my analyst colleagues approved, but I quite liked the non-product emphasis in a keynote and in a presentation to analysts. He talked about “purpose” for the company, the executive talent he has been bringing in (ServiceNow had an engineering culture and does not appear to have invested much in structure around people and organization), the branding investment he has been making to allow ServiceNow to expand beyond the IT sweet spot, Customer Success metrics (like some in graph he presented below) and the fact that as with Pierre Omidyar at eBay, he believes founders continue to add value much later in a tech company’s evolution. Luddy is now Chairman and was quite prominent at the conference.

Which brings me to two things that caused pause. For a $ 2 bn vendor, the expo hall was awfully large, filled mostly by system integrators. The analyst area was at the back of the hall, so the noise and the foot traffic in the hall was unmistakable. I spoke to a few of these partners and they fall into two camps. One is the blue-collar, ITSM-type implementer. The other is the slick “digital transformation” spouting consultant. ServiceNow needs to be evolved beyond the first, but needs infrastructure to manage the hype and scope of the latter.

If anything, ServiceNow is itself using their jargon like digital transformation and “future of work”. Here’s my pov – internal process digitization is to small ‘d”. Big D and truly impactful transformation comes from smart products, significantly rethought business models, channels, industrial assets and logistics. At least with its current footprint, ServiceNow only facilitates small “d”. Its alignment with the CIO actually may hurt in some companies where IT is considered tactical, slow and back office focused. About future of work, I kept thinking about all the man/machine combinations I heard and wrote about in Silicon Collar. I don’t see ServiceNow helping BP with its robotic crawlers and inspection drones, or KPMG as it rethinks audits and impact of cognitive computing, or plants investing in Industrie 4.0 technologies and many of the other use cases I profiled. The Bureau of Labor Statistics tracks 800+ occupations. I doubt ServiceNow touches more than 50 in its current reach.

That is actually a major opportunity. Most cloud vendors have shortchanged vertical processes as I have written here and many other places. By extending its platform into vertical processes and through some targeted acquisitions, ServiceNow could open up coverage of a lot of white space. For now, horizontal processes offer plenty of runway.

(Cross-posted @ Deal Architect)


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