ServiceNow Strategic Positioning | In Practise

ServiceNow Strategic Positioning

Former VP at DXC Technology and Cognizant

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Executive Bio

Former VP at DXC Technology and Cognizant

The executive has 30 years experience in IT Consulting and has worked for a variety of the largest players such as Cognizant, HCL, IBM, and DXC. He started his career at Patni Computer System where he scaled the financial services division for 13 years before the company was sold to Capgemini. He has deep experience in the financial services vertical and has led 10+ multi-million ServiceNow negotiations and implementations.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

I am interested in talking about ServiceNow. Maybe I will start with my background so you can understand the level of conversation we would like to have. I have been an investor for 20 years. The first 10 years I was a tech analyst, so I am very familiar with the history of software. I have been covering hardware and software from 2000 to 2010 as a tech analyst, then became more of a generalist for the past 10 years, but still very plugged into the trends in software and understanding the changes in architecture. ServiceNow is a business I came across a year and a half ago and I have been doing work to understand the business. I have an opinion about it which I will hold off on until we have our conversation, then we can circle back on my opinion and experience and what is interesting about it. Could you tell me a bit about your background?

I have been in global IT services, end to end, starting with consulting, strategy, applications, infrastructure and operations with some of the leading global tier 1 players. I started my career with Wipro, then Cap Gemini where I headed the financial services. The industry verticalized 15 years ago so I have been focused since then on financial services, banking, insurance and capital markets. I was leading the financial services practice, about $750 million, for one of the Indian heritage major set sail tech, then went to IBM as a senior partner, the VP part of their financial services leadership where I focused on insurance and integrated financial services. That was a big portfolio of around $1 billion.

I then did a small stint with Cognizant as the head of their strategic deals in financial services, when I was head hunted by Heidrick & Struggles to head DXEs largest vertical which is insurance, around $1.2 billion. Of course DXE is a broken company and I know that is not the subject of this call. I am currently helping a tier 2 IT services player, around $1 billion. I have worked for very large companies and partnered with the hyper scalers such as ServiceNow, Salesforce and Adobe. The CTO founder chairman asked me to help grow their financial services.

Have you been doing this for a total of 20 years?

Almost 30 plus years.

You have seen a lot.

I have seen most of these cycles, in fact I have this proud privilege of being the first international services guy from Wipro when I came to Europe in the late 80s. I started my career around 1989, and was in between France and Switzerland for five to six years, then came to the US at the end of 1993 and have been here ever since.

Let us begin with ServiceNow, which is the focus of this call, in terms of the diligence I am trying to do. I would love to have you provide any background historical color or bring any of the companies you think would be interesting to discuss as we talk about ServiceNow. My understanding of ServiceNow, after going through marketing materials and doing research and bringing my own experience into it, is that they basically created a cloud-based enterprise bus. From my experience in the early 2000s, integration of packaged software vendors was hard, but at the time there were companies like TIBCO webMethods who made those connections. They were point to point solutions between software packages that enterprises were implementing. They were silo packages so these connectors were used to get them to talk and to try to create a more integrated view of the enterprise. The marketing speak at the time was all about trying to create an end-to-end service. It was also more vision than reality.

Part of the issue was that if you change or upgrade one package, it would break the connectors, so it was not scalable and was expensive to maintain. That remained a niche type market, but it looks like the game has changed in the approach that ServiceNow have taken, which is to make it more scalable and less expensive so that it breaks less. That was the big problem back then; these connectors would break due to changes to the individual packages they were connecting. But because they are now running this integration service in the cloud, when you update the API connections between one set of software packages, you get to roll out that change to all your customers. As a result, you end up with a true enterprise class integrated bus between different software packages, be they on premise or on cloud, as long as they are supported by both software package and the SaaS service and ServiceNow. Am I correct in the way I am thinking about this?

No I would think very differently. It is interesting you started with ESB or webMethods, MSMQ and IBM, which was more of a messaging system. In fact, it started with the capital markets. 10 terminals would open with different information coming in, and the story goes that a gentleman said he could integrate everything for the ticker or security. There is an element of bus in ServiceNow to the extent that it is digitizing workflow. The way they describe themselves – and we will soon come to why it is so hot and why the valuation is atrocious – is they digitize any and every workflow. If they are digitized, they are still dependent on human errors or incorrect process, not automated. Even if they are automated, the automation is not automated, like the good old days with batch scripts, so automate the automation. I agree with you that they started with IT service management.

As the application, yes.

That competed with the legacy from BMC Remedy, CA Associates and IBM who were basically doing IT tickets. They have very quickly used that as a foot in the door, which is a fantastic strategy and expanded into IT areas such as operations and asset management and IT business management which includes budget and spend. Their focus is still on workflow relevant in an ITSM which can easily be extended into employee on boarding.

Their bread and butter remains ITSM, ITAM and ITBM, and where your analogy holds good partly – I do not fully agree with it – they are extending to employee onboarding. When an employee joins, many processes are triggered, such as equipment, legal, training, forms and reference checks, which can flow and have people who are responsible for it. If they do not do something they will nudge them. They have taken a concept called ESM, which is enterprise service management. They track their revenue into four buckets. One is the IT element we talked about. Another is the customer, where a similar concept is around customer engagement, everything we need to interact and meet the customer journey. They are slowly getting to a CRM, and we can talk about how big players like Salesforce and ServiceNow are overlapping. Employee is a big one which they refer to as E2E. We talked about on boarding, but there are many other E2E use cases because they are redefining work. So much happens inside an organization, even outside the customer and other stakeholders. The new bucket they are pitching is called Creator, particularly after Bill McDermott took over. He is a great sales guy and we can get to your view on the company, how much is hype and how much is mute.

In the good old days you had your JCLs and automatic scripts, now you can use the ServiceNow widget and other tools which automate the automation. Their revenue stack is $6 billion today and projected to double by 2025 at 25% growth. They track it in four areas with the ultimate goal of making any workflow more efficient and customer and employee centric.

They have a 30/30/40 formula, whereby if 100 people are doing a job with a budget of $100,000, 30 are in your high-end headquarters in Chicago, New York or London; 30 are anywhere like in Bangalore or the Philippines, and they do the back end and help the tool. The other 40 are the automation or AI piece, which is really getting in the kicker. Their focus is to become the enterprise service management, and one can argue they have no strict competition. We can talk about Jira or Atlassian but when you add in AI, nobody is doing this. Their subscription SaaS model has an 86% gross margin, taken directly from BMC, CA and IBM.

Are you saying no one else is doing the SaaS model?

Yes; not only SaaS, but they brought out automation and workflow, the integration part you spoke about in the opening, analytics and productivity dashboards for management. That was not easy for a BMC Remedy engineer who had to be extensively trained, whereas with ServiceNow that is a simply drag and drop. Today everything is a low code no code approach. Along the way they have bought companies and are eating into the other centers such as the robotic process automation, which is a separate sector. UiPath and Blue Prism and ServiceNow are heavily getting into that space with their acquisition of Intellibot.

That is a big German unicorn and was Bill McDermott's contribution. One of the other things they are doing well is integrating with task ERPs, and SAP is a big partner. That is where they will start challenging Workday, Oracle and others. Bill McDermott came from SAP and is partnering with them to introduce the workflow element, which it does not focus on. They focus on system of record, reports, compliance and GRC, your basic accounting, finance and HR. ServiceNow focuses on the workflow element to ensure it flows correctly, is automated and efficient; less with more. Those are the things they have started doing.

Since Covid, they have changed the software to ensure all workflows are in place to onboard people back to the building. Part of that challenge is how to industry verticalize, because if you do employee onboarding, you can onboard a broker or an MG insurance. There has to be a slight change in the semantics and process, because there are differences between employee and broker/agent onboarding. It is not very different from an internal software building perspective; it is an e-packaging issue with the right semantics and forms.

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