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ServiceNow’s Bill McDermott: Partners ‘Absolutely Essential’ To $15B Growth Plans

ServiceNow President and CEO Bill McDermott is bullish on the channel as the company puts the pieces in place to become a Software-as-a-Service powerhouse. Here’s how he plans to get there.

When COVID-19 started spreading across the U.S. in early 2020, the National Interagency Fire Center received a FEMA request for 500,000 face masks. Within five days, the request was fulfilled, saving lives and prompting San Diego-based solution provider Cask to convert its business to focus exclusively on ServiceNow.

Two years prior, Cask, together with ServiceNow, proposed replacing the NIFC’s existing system, the Resource Ordering and Status System (ROSS), with a modern supply chain platform to manage and dispatch firefighters and related resources across a state or across the country.

The joint Cask and ServiceNow solution, called the Interagency Resource Ordering Capability (IROC), is a platform-agnostic, web-based system that supports ordering, tracking and managing resources in real time in response to wildland fires and other emergencies.

The IROC implementation, based primarily on ServiceNow’s Creator Workflow, cost $16 million and took two years to deploy, said Cask President Mark Larsen. IROC provides a complete supply chain system that ROSS—which cost $350 million and took 20 years to build—could not.

IROC, which went live right after the fire season in 2019, is not only helping agencies fight fires but providing a supply chain that’s saving lives, Larsen said.

“This is the thing that made me say, ‘This is awesome, [ServiceNow] is what I want to focus on,’” Larsen said. “This is not just supporting a business. This is about helping support the mission. IT tends to focus on optimization and cost take-out. This is about saving lives. I’ve done a lot over the years, but you don’t realize what’s important until it really touches people and changes people’s lives. Then you know what amazing is. And that’s the point where I said this is what I want to do.”

Larsen’s excitement over ServiceNow is shared by channel partners working with the company in myriad industries and markets. Those partners in turn have helped vault ServiceNow into the upper echelons of the Software-as-a-Service business.

ServiceNow President and CEO Bill McDermott said channel partners are “absolutely essential” to the growth of the Santa Clara, Calif.-based company as it strives to become a $15 billion SaaS powerhouse.

“We have 10 of the world’s largest [solution providers as partners] now. Almost all 10 of them already have at least a billion-dollar ServiceNow aspiration. And some of them have up to a $5 billion aspiration with ServiceNow,” McDermott said in an interview with CRN. “We try to form partnerships that really help CEOs out there solve big problems.”

For many customers, one of the big problems ServiceNow and its channel partners are helping solve is how to get more out of IT investments they have already made.

“Customers feel that they have invested billions in their IT and their applications, but what they’re disillusioned by is only 25 percent of them have gotten positive ROI on those investments,” McDermott said. “And as they think about ServiceNow and the ecosystem thinks about ServiceNow, we’re the company that enables all of those previous investments to be automated, where the customer can now wring the value out of those platforms that they bargained for and yet they can have one automation platform that spans the enterprise at a consumer-grade level on mobile that gives people incredible services.”

Getting more value out of the business practices they’ve already built up is an equally enticing proposition for the channel, he said.

“The partner network is saying, ‘Hey, I am going to make the customer happy. I can still keep all the great practices I have with all the other companies that I developed in the 20th century, but I can bring a new step function of productivity, a new form factor of consumer great experiences with all of my customers without harming any of the prior relationships.’ And that’s what ServiceNow enables,” he said. “You know, 20 percent of productivity in every enterprise goes down the drain with swivel chair losses and people toggling between application sets on computers, smartphones and devices. With ServiceNow, all that goes away. All that turns into instant activity and instant action.”

ServiceNow helps businesses take care of the “messy middle” of moving workloads to a common digital platform, said Asish Ramchandran, global chief commercial officer for the ServiceNow business at New York-based Deloitte.

“Before ServiceNow, a business might send a query to its ERP system and get a response, but that may require touching ERP, the sales system and the intelligence systems,” Ramchandran told CRN. “Now with ServiceNow, you can access the information from all systems via a single platform. That has been a game-changer. Businesses can now use ServiceNow’s enterprise platform as a system of action across multiple technologies.”

Ramchandran cited a big ServiceNow project Deloitte did for a client early in the COVID-19 pandemic to build an employee on-boarding system using a single link to remotely get new hires quickly up and running with equipment, training and connectivity.

“We implemented it in only two or three months,” he said. “It’s the future of work. It’s not you going to work. It’s the work coming to you. And really, it’s no longer the future. It’s being done now.”

Meanwhile, Accenture, which has been working with ServiceNow for over a decade, jointly invested with the vendor 18 months ago in setting up a new ServiceNow Business Group, said Dave Kanter, senior managing director and lead for the group.

The Dublin, Ireland-based global systems integrator, which in addition to partnering with ServiceNow is one of the company’s largest customers with 674,000 employees worldwide on the platform, uses its experience to push its ServiceNow business to higher levels, Kanter told CRN.

“[That experience] allows us to talk with our clients about how we can help large-scale organizations like Global 2000 companies as well as governments around the world transform work at scale on the ServiceNow platform,” he said.

It’s not just the world’s largest global systems integrators that see the value in teaming with ServiceNow. The company now counts over 2,000 channel partners large and small among its ranks.

About 25 percent of new customer logos come from partners, primarily regional systems integrators and those solution providers who are focused on innovation, said David Parsons, ServiceNow’s senior vice president of global alliances and partner ecosystem.

“Those partners are doing much more innovation because they can move with greater speed and agility than the big guys,” Parsons told CRN. “And they tend to lead the way in terms of innovation and thought leadership. These are all massive force multipliers on our path to $15 billion.”

As an example, Parsons cited Thirdera, a Boulder, Colo.-based ServiceNow Elite partner that brought the company a deal with German SD-WAN-as-a-Service provider Ngena.

Thirdera, which is focused exclusively on the ServiceNow ecosystem, learned through its international contacts that Ngena was challenged in providing Cisco-based SD-WAN-as-a-Service to SMB customers with no up-front charge, said Thirdera CEO Jason Wojahn.

“Providing that service to tens of thousands of endpoints is a challenge,” Wojahn said. “It’s logistically complex. So we brought ServiceNow’s Telecommunications Service Management to Ngena, and Ngena’s Zero Touch deployment into ServiceNow to streamline the order process and simplify order orchestration and other automation. We also brought in ServiceNow tools for assurance and metrics to bring a lot of transparency to the process from when a customer says, ‘I want an SD-WAN’ until fulfillment.”

The complete solution was then brought to ServiceNow, which can take it to other customers, Wojahn said. “And we’re the only one accredited on it,” he said. “No other partner is.”

The Value Of Selling Services

ServiceNow was founded in 2004 to automate all of a company’s disparate workflows and processes onto a single platform—the Now platform—and make businesses more responsive to change.

Compare this with the traditional way enterprises manage their processes. Businesses typically have myriad systems, each with its own processes in silos that are individually managed with little or no communications between them. Examples include human resources, incident or change management, sales, AIops, performance management, resource management, software and hardware management, and DevOps.

This automation has become a big business for ServiceNow. For the company’s fiscal year 2021, which ended Dec. 31, ServiceNow reported revenue of $5.90 billion, up 30 percent versus 2020. That included subscription revenue of $5.57 billion, up 30 percent over last year, and professional services and other revenue of $323 million, up 39 percent.

Under ServiceNow’s co-sell, co-deliver model of working with channel partners, the company sells most license subscriptions directly to businesses or in conjunction with the sales force of its partners, with a small portion sold by channel partners who source their own deals. ServiceNow said channel partners influence about 90 percent of sales.

On the other hand, ServiceNow relies heavily on channel partners to deliver services. That channel reliance shows in the company’s financials, where in fiscal year 2021 ServiceNow said professional services and other revenue accounted for a mere 5.5 percent of the company’s total revenue. ServiceNow was unable to estimate the total value of its partners’ ServiceNow professional services business.

ServiceNow’s co-sell and co-deliver approach encourages channel partners to work closely with the vendor for customers, said Lara Caimi, ServiceNow’s chief customer and partner officer.

That approach is outlined by the company’s ServiceNow Assure co-delivery methodology, under which about 10 percent of the total services revenue from a particular customer goes to ServiceNow to insert its resources at critical points and help guide the project, provide best practices, and offer insight and coaching, Caimi told CRN.

“So we have a little bit of skin in the game which, by the way, customers have been asking for, which raises the bar for partners,” she said.

Another aspect of ServiceNow’s co-sell/co-deliver approach is that the company needs its channel partners to be chock-full of technical talent.

“We have to be attracting and keeping the best talent,” McDermott said, noting that ServiceNow hired more than 10,000 people during the COVID-19 pandemic. “But also we need our partners to be an extension of our talent pool because they do 90 percent of the implementations out there, and they have to drive customer satisfaction and innovation and scale. So we’re going to have to do lots of training, lots of skill development, lots of recruiting, and lots of work with our customers to make sure that they are 100 percent satisfied and referenceable and scalable at all times.”

The combination of growth opportunity and a technical talent shortage has led to solution providers that have built thriving ServiceNow practices being acquired at a blistering pace.

For example, San Diego-based solution provider NewRocket has made four acquisitions in the ServiceNow space since it was formed last year specifically to build a ServiceNow-focused business, the most recent being India-based Service Stack Technologies.

NewRocket CEO Matt Stoyka told CRN that channel M&A in the ServiceNow space is real. “We all just believe in the vision of what ServiceNow presents to clients, and we can all get behind it,” he said.

Stoyka also said the M&A will continue to come in waves as the ecosystem matures. “This is still a high-growth ecosystem,” he said. “It takes time for partners to pop up and grow. So there’s a limited number of partners where acquisitions would make sense.”

Helping Partners Uncover Opportunities

Erica Volini, senior vice president of ServiceNow’s partner goto-market operations and former head of Deloitte’s ServiceNow business, said ServiceNow wants to make its resale program easier for partners big and small to work with customers from the starting conversation to the implementation to ensure customer satisfaction.

To that end, ServiceNow is looking at implementing an end-toend deal registration program to help them see the opportunities, Volini said. “We need to reduce the friction and help partners be in a position to help us from day one,” she said.

ServiceNow is also now designing programs to improve partner incentives and is examining the issue of compensation-neutral channel programs, Volini said.

“This is still in motion,” she said. “But we’re looking at how to educate and arm our field to engage with partners. That is my North Star.”

While some partners told CRN they are interested in taking a bigger piece of the ServiceNow license resale pie, the majority of those contacted said ServiceNow’s direct sales focus is not an issue.

CDW, for instance, both sells ServiceNow licenses and works on deals brought by the vendor’s sales reps, said Tim Ancona, vice president of the Vernon Hills, Ill.-based solution provider. “It’s a model that works as we build out the ServiceNow brand,” Ancona said.

ServiceNow touches every part of CDW’s business, Ancona said. “When we deploy it, it’s not just ServiceNow, but it ties in to every part of what CDW deploys to customers,” he said.

Accenture works closely with the ServiceNow direct sales reps in Global 2000 customers where the two organizations have what Kanter termed a “wonderful” overlap that really does not create any channel conflict. He also said it is up to the client which organization sells the licenses.

“We have regular governance meetings between our CEO Julie Sweet and Bill McDermott and our teams,” he said. “We set joint objectives each year around where we want to grow. ServiceNow has targets each year around their net-new ACV [actual cash value] and their ACV growth. We set targets for services growth, and track and measure those on a regular basis throughout the year. So there’s no conflict.”

License sales is not a significant issue for NewRocket despite ServiceNow being the primary driver of its business, said Stoyka.

“We’ve built our business with a focus on services,” he said. “The good news about the ecosystem is that, with ServiceNow’s growth, there’s a large ocean to work in. So we will compete with the global systems integrators and also partner with them. Or if there are multiple workflows being implemented in a client, we may be working in tandem with other partners. It’s important to work with clients’ needs.”

Services is key to winning with ServiceNow, said Stephen Ayoub, president and co-founder of Chicago-based solution provider Ahead. “We made a significant investment in a best-of-breed ServiceNow consulting and implementation practice, understanding that our investment will pay off in services which we perform,” Ayoub told CRN.

ServiceNow’s co-sell, co-delivery approach works for channel partners, Caimi said. For instance, she said, ServiceNow is designated as a top-five strategic partner at about six of the top 10 global systems integrators, putting it at the same level as much larger SaaS companies such as Microsoft, Oracle, SAP and Salesforce.

“We’re like the little underdog in that list, but it’s really incredible that that’s where partners are placing us in the level of strategic investment that we’re getting,” she said.

Home-Grown Innovation

While M&A activity in the ServiceNow channel is growing, ServiceNow itself has funneled its resources into R&D rather than growth through acquisitions, aside from a few where the real target was talent, not revenue, McDermott said.

“Organic growth is working here because we’re putting so much into R&D and the expertise of our proud engineering heritage,” McDermott said. “I can’t find a company that I could buy that wouldn’t be dilutive to either my revenue or my margin story, so why would I buy any of them? That’s the real issue.”

The company rolls out two major releases each year, each named for a city. The first of 2022, dubbed San Diego, came out in March and focused heavily on robotic process automation (RPA) capabilities and featured a significantly enhanced graphical user interface for improved productivity. The next release, expected later this year, will be named Tokyo.

“Remember one thing about ServiceNow: It’s like a Tesla. Because as we constantly bring cloud-based innovation, customers can consume the innovation without any disruption,” McDermott said. “Our invisible upgrades do not require our customers to go through an upgrade cycle or shut down their operations. ... It’s an instant-on implementation upgrade, completely invisible. We’re the only one in the enterprise that can do it.”

ServiceNow’s San Diego release also featured new innovation focused on technology providers for specific industries, said Dave Wright, ServiceNow’s chief innovation officer.

“With San Diego, we want to focus on productivity, automation and innovation,” Wright said.

ServiceNow’s technology, and its value to customers, has changed over the years based in large part on how customers and partners have used it, he said.

“When we saw people start to understand service management, we built new workflow products on our platform,” Wright said. “Most recently, these include industry-focused workflow products for finance, for example. And as we go into industry workflows, we see partners working in those verticals, which was an opportunity for us and partners to expand the product.”

Another aspect of ServiceNow’s innovation means that partner opportunities don’t end at deployment, Volini said.

“One of the beauties of ServiceNow is its configurable platform that allows partners to come in and build their own value,” she said. “Smaller partners can come in, find a niche and build on our platform. We cover every part of the enterprise and need partners to do so either by going deep or going broad.”

ServiceNow and its partners are in the right place to take advantage of a global once-in-an-era re-platforming of global business onto the cloud on a compressed timeline, said Accenture’s Kanter.

C-level executives are seeing multiple levels of change happening at the same time, which are causing them to rethink their business models and the cloud, he said.

“Accenture research shows that seven out of 10 of our clients are making major investments in customer service and operations,” he said. “For the last two years, to get help on an issue, you couldn’t go physically to a place. You needed to start digital by default. And then we have this massive workforce reset going on. [This requires] our clients to seek ways to handle all of these fronts at the same time. And we see ServiceNow as core to the business architecture and the technology architecture to solve that equation.”

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