ServiceNow, Inc. (NOW) Earnings Call Transcript & Summary

Hello, everyone. My name is Cara Herrick, and I lead the GBS Product and Solutions Marketing at ServiceNow. So glad to be with all of you. I am particularly excited for the conversation today because we're going to explore topics that's fairly buzzy in our industry right now. I thought a lot about it as a GBS practitioner, and I suspect you're all wrestling with it to some degree or another as well. And that is service experience. So today, we're going to dig into a report authored by Deborah Kops based on interviews with GBS leaders that looks at service experience in a slightly different way. Not as a happiness meter. I think we see some organizations really translating experience with CSAT or NPS. But as a new operational excellence framework and one that position service experience as a driver of tangible value for the enterprise, which is why we are here, right. And with that, I'd like to welcome Deborah Kops to the conversation by way of introduction, Deborah brings decades of experience, both as a practitioner and now as a GBS adviser. She led the Conference Board's GBS counsel for 10 years, she served on the shared services and outsourcing networks global advisory board. And last year, she won Deloitte's Lifetime Achievement Award for her contributions to shared services. Deborah also serves as co-founder and principal of Sourcing Change, which is dedicated to shared services outsourcing strategy and talent placement.

So Deborah, given your history and context within the GBS space, what sparked your curiosity relative to this topic, kind of why this report and why now? I would love to start there.

I think service experience for GBS is the next frontier. If you look at what GBS and shared services organizations and -- for sake of simplicity today, I'm going to lump the 2 together. I know not all GBS's are multifunctional, they may be a single-functional shared service, that's absolutely fine. But if you think about how organizations deliver value to the enterprise, they really only have 3 levers: efficiency, effectiveness, and experience. And we spent the last 15 years focusing on how much juice we can get out of the squeeze, how do we make our delivery -- or service delivery more efficient but we haven't really focused on experience. I think now is the time to focus on experience. And I think there are a number of reasons for that, which basically create a perfect storm for GBS practitioners.

And I wonder something, you and I have talked a bit about. I wonder if that sort of sole focus on efficiency, really tapping the levers of outsourcing and offshoring, have really come at the expense of, right, the sort of experience, investment in GBS as a brand. I wonder if you could unpack that a little bit. How do you -- what do you see is the connection between GBS brand experience?

I don't think there's any white space between the two of them to be very honest. Experience is brand, brand is experience. And if we think about what we've been focusing on the last couple of years, it's been taking cost out. There's nothing wrong with taking cost out. In fact, practitioners are starting to realize, if they focus on experience, that takes an additional layer of cost out because we changed the way our stakeholders and our customers work with us. We are able to streamline. We are able to take humans out of the loop. So experience is a cost play as well. But think about it this way. When we think about the brands, the consumer brands we like to engage with. We do that because they deliver a great experience to us. We feel good. We feel heard, we feel valued. Well, the same thing is true when we deliver a great experience to the enterprises that we serve. And frankly, for the last 15 years, that's not been high on the list of priorities for GBS organizations. It's soft stuff. But really it isn't.

[ It's kind of seen as ] a trade-off, right? It's because you see experience and efficiency are cost takeout as an either/or. I think what's so compelling about this report...

It's an and, it's an and.

Right. So how you look at service experience as a new lever to do what we've always done, which is really true to scrutinize costs, scrutinize the way that we're delivering services to deliver efficiency and value back to the org.

And it's also looking at the interface between our customers. What do we want them to do? How do we want them to behave? We designed our GBS organization in great, pardon, a vacuum. Well, we've listened to the voice of the customers, it's been episodic. When we use service experience as a north star for designing our delivery models or tweaking our delivery models. We think about it a little bit differently. And we're actually able to look at new opportunities to create more value, whether it's straight through processing, whether it's a better customer experience, but we still are able to take out cost. Let me give you an example. One of the things I've been looking at is the types of experience that GBS organizations are responsible for delivering to their customers. And at the bottom of the period, but not unimportant, is a frictionless transaction. That's about 60% of what GBS organizations do. That is ripe for the rethinking of experience. That's where so much of GBS brand goes wrong because, frankly, we can't deliver the minimum. We forget how to make our customers feel valued. We forget that our customers are happy when they're in control. They get what they want when they should have it.

And we're not putting the burden of our complexity right on the shoulders of our users [indiscernible].

That's right. We're really focusing. I know it's [ stripe ] we all use it. The moments that matter. We're designing for the customers. And historically, we haven't. We designed for the value to the enterprise, not the value to the GBS customer.

I think that's wise. So of course, right, we'd encourage everyone to read the full report. It's robust. There's a ton of rich insight to draw from. But, Deborah, I wonder for the benefit of those listening in, what are a few of the insights that you'd pull out for us today?

Well, one of the things I mentioned is that there's a perfect storm right now for experience. And let me qualify why GBS organizations need to look at experience. Unlike finance or accounting or IT or procurement, the functions that we help deliver as GBS practitioners, we're a model. We're not hardwired into the enterprise. The good news is we're agile. As needs change, as we need to add more scope. We can actually constantly redefine our offering. That's the good news. But the bad news is that we are -- since we are not hardwired into the organization. We have to be very, very, very concerned about the experience we give to our customers. I've seen GBS organization, shared services organizations disintegrate because the experience wasn't very good. It's kind of, if my dashboard is so green, why am I seeing red, well, I'm not feeling good. And if we don't feel good about finance, it's okay because it's rules based, it's regulated. We're not going to tweak finance. But GBS is about constantly relating to the customer in a very different way. So I think the imperative is there. What we have going for us right now, to be honest, is that most transformations are successful when there's a perfect storm. And we have a perfect storm. We have the impact of COVID. COVID has changed the relationship of employees and vendors to the enterprises that they engage with. And it's really freed us up to think about how we interact in new and different ways. We can't keep getting 5% to 7% cost savings year-on-year using the same tricks of data mining or putting in a new finance app, we have to look for new ways to create value. And let's face it, value is still equated with cost in the main. It stables stakes, but it is something that we constantly have to deliver. So experience is the next frontier. Also, our organizations are -- the enterprises we serve are undergoing, many of them are undergoing digital transformations. So we've got the big DT to hold on to. It lets us -- it gives us permission, it gives us a platform to say, digital experience is critical in GBS delivery. And last but not least, we now have the technology to make new ways of working together, serving our business, the businesses we are designed to serve in new and different ways. So a perfect storm, a great time to be at GBS organization and a great time to tackle the conundrum of experience.

Something I think that's so important that you touched on, experience is not just a pretty wrapper around the work that we do, right? It's really how do we think about infusing excellence, cost of discipline through our entire operating model from that kind of point of entry, that pretty portal all the way through to engaging and reaching into the different lines of businesses and that's -- level of collaboration and coordination that this work demands of us. I think that's so important. I think the trapping right, is that we only see it as a pretty portal or happiness meter as we were describing before so.

Also the first time, if you think about it, the focus on experience gives us the platform to actually say, the customer is at the heart of everything we do because [ GBS-es ] don't do that.

Yes. Yes, and I think as we see the scope of GBS expand, like you said not all GBS -- GBS is a multi function, but we, as an organization, touch employees, touch to our users more often than almost any other departments. And so acknowledging that we have this differential impact on experience whether we claim that and take responsibility for that or not, I think it's really important and it's something maybe that we're seeing a bit of a shift around taking that responsibility perhaps more seriously. Deborah, was there anything that surprised you, right, in the course of this -- in the course of this work or this research? Again, you know you have this incredible context and history in the industry. Like you said, there's some level of sort of cyclical nature to some of these conversations. But what surprised you -- what additional curiosities did this uncover?

One of the things I've seen is sometimes the inability to create or to focus on service experience as a transformation tool. The enemy is within. Not all GBS practitioners, not all GBS teams, management teams get it. They fight against it. They think this is about cold, hard dollars doing things the way we've always done using the same levers, a lower cost location, basically pinning an outsourced provider to the wall on cost, changing service level agreements but educating -- I'm still surprised that not all GBS leadership, and I'm using that broadly are on the bandwagon. The other thing that I'm surprised at is, if you think about it, service experience is a transformation tool. It changes the interface between the service and the customer. It is truly transformational because when you ask the customer to do things in new and different ways, you ask the customer to interact in new and different ways, it truly becomes transformative. And we -- in our organization design for experience, we say, I'm going to ride out, I'm going to get a manager. And what does that manager responsible for? Well, maybe designing a portal, fussing about the UX, dealing with software implementation, dealing with an SI. That's not what experiences is. Experience starts with, defining the relationship and engagement for all GBS services with the stakeholders and the customers that it serves. And so it is a top table initiative. It is part of the transformation, an initiative. It's not a functional, let's move the -- let's clean up a portal or let's move the dial from X to Y. I'm surprised that the lack of investment and the lack of importance that GBS leaders place on the talent that they need to change the way they work with their customers. This is their brand. And having a junior staff is not going to move the dial for them. So that's been a surprise. On the positive side, I think there's a much better appreciation probably in the last 18 months about how hard this is, the resources that are required to truly implement GBS experience, the fact that GBS in its fullest form is about finance, HR, procurement, IT, labs, marketing, whatever. And the interaction with the customer has to be consistent, it has to be holistic. There has to be [ one ] way of working. And I think GBS' organization starting to understand how hard that is and having a plan, understanding how to sell it in, is becoming important. So those sorts of dialogue is now happening, whereas a year ago, it really didn't. So that's a nice surprise.

Talk -- Maybe let's dig in a little bit more deeply for those, again, you spoke with GBS leaders, at varying points in their maturity path, but all of whom have a perspective on this topic or thinking strategically about the topic. How are those organizations? Resourcing, staffing, investing in service experience to the ends that we've been describing today?

I don't think they're doing it enough. I mean, if you look at the typical budgeting process in a GBS organization. It's basically sliding the cost that you incurred last year looking at [ COLA ] or transformation cost, transition costs and putting together a new budget. Unfortunately, a lot of service experience either is what's left over or it's seen as a special initiative. And if you look at most of the GBS organizations we talked to in our study, they actually had to elevate the change in service experience to a special initiative. It wasn't part of the business-as-usual budget. And that means that the sale is very complicated. You have to sale to -- sell to a number of functions. And most importantly, you have to sell to the CFO, who doesn't want to hear this is about the soft stuff. He wants to see tangible benefits. Especially now when business conditions are such that -- we don't know if we're going to have a recession, we don't know what geopolitics are going to do to our business. So being able to make a strong business case is very critical.

CFO, as a critical stakeholder yes, you also have talked about, in the course of our conversation today, the criticality in GBS not just operating within GBS silo but reaching into, right other departmental stakeholder groups. What other leaders or personas would you suggest? GBS leaders must have a strong relationship with in order to do this well.

Certainly the CFO, but service experience is created -- good service experience is created for GBS when there's a coalition of the willing. So it's not only working with the consumer of GBS service, the business, but it's also working with the functions. I mean the stakeholder map is very complicated. And then if we truly want to realize the value of end-to-end service delivery, it means getting functions to talk to each other. So the stakeholder engagement, the stakeholder management is not for the faint of heart. Every ounce, every skill that a GBS leadership team has been able to hone has got to be put in play here.

Yes, I think that's so wise. And this idea that GBS is really the space but so often, we're having to reach into functional departments or COEs to partner in order to deliver a service or manage an escalation or whatever it may be and that level of engagement, coordination and [ buy in ] and like you said, certainly, 1 in 10 perspective becomes even more critical. I think that's spot on. So let's -- let me shift now to audience Q&A. And surprisingly I'm seeing -- lots of questions flow in. There's a ton of interest on this topic. Maybe start here Deborah, where do GBS leaders get sideways on this topic? Or the key mistakes that you see being made ? You've touched on a couple of those already, but what goes wrong here?

Underfunding, underestimation about how complicated this is...

And do we -- In terms of underfunding where would you see specifically? Underfunding happening.

Funding, I mean, GBS organizations that are working in -- that serve enterprises that are -- have a mission to become digital, to be honest with you, we have a [ leg up ] because they can hitch their wagon, so to speak, to a change in the enterprise. The organizations that are looking at reimagining, the operation. For example, 1 of our -- the companies we looked at was able to hold on to an initiative, which was reimagine the enabling functions. So being able to hitch a star onto something, hold on to something really creates a little bit momentum for an organization. But funding is important, but having the right approach. Sometimes a micro approach going to simple the use cases that build -- that show value quickly and build and build and build is the right thing for certain enterprises. There are also enterprises that can set out a vision and have enough of a cultural -- are wired culturally enough to say, I can align with that vision. So being able to -- success is also going to depend on reading your culture right, reading the way the organization changes. And looking for stuff to hold on to.

[indiscernible] where you can pull. That's right. That's right. And another question coming in, which I suspect is on the top of mind of many. We talk about tangible value. We know that CFOs don't want to see don't want to see fluff, How are GBS organizations measuring service experience or thinking about sources of value from service experience investments. What do you see in there?

Well, I think GBS organizations that are held to a CSAT or Net Promoter Score, and I mentioned earlier, I'm not a great fan, are finding that it's not enough to show value. To me, service experience -- a good service experience, the value of a service experience is exemplified in every measurement that a GBS organization measures. For example, if there are no shadow organizations, that's just a service -- that's a great indicator. That's not a lagging indicator that experience is good. If SLAs are adhered to because we know human nature is, SLAs don't work people are going to find another way to work around. That says that we've been able to equate the measurement of the service to what the customer actually wants. So to me, every measurement builds up to service experience. And when GBS organization see that the standard measurements are off, I can bet that part of it is due to the fact that customers [ aren't lying ] either with services they're getting or more importantly, how they're getting them and how they feel about that service.

That's wise. I think we'll maybe see a proliferation of shadow organization, metrics showing up on score cards perhaps.

I hope so.

I love that [ provocation ]. And this idea that really GBS brand and service experience are in some ways outcomes, right, of, again, disciplined delivery and frictionless delivery. I think you and I have spoken with clients that use a customer efforts score, which is so interesting as a way of measuring friction in the system. So Deborah, anything else you leave us with, again, if you think about this work and the research that you embarked upon to put this together?

It's worth doing. It is the next frontier as I mentioned earlier. It actually is a new way to look at GBS operations because if you put the customer and the service they receive in the center of what you do, you're going to just -- your operating model might look different. Your processes might look different, how you reach your customer might look different. So to me, as I said earlier, it is basically time for us to think about the customer when we design and operate the models, the GBS models, in whatever form they take. I think it's important that this is the next wave. I also think that smart GBS leadership teams will recognize that this is hard. That not everybody has the answers. In fact, I don't think anyone in this space has reached nirvana yet, but they're trying that this is not only doing work with our enterprises developing a coalition of the willing, but there is a coalition of the interested and passionate across GBS world that will help move the dial here. But this is a journey. It's worth investing in. It will change. And to be honest with you, it also future-proofs the GBS model. When I look at GBS organizations that are decommissioned or deflated, whatever de word you want to use, Typically, it's because the customer doesn't feel they are in control. They don't see the value. They don't feel valued. So I think service experience is an insurance policy for GBS organizations that want to grow and thrive.

Love that. So I think that's an excellent place to end. Thank you so much Deborah for your time and [indiscernible] always.

It's a pleasure.

As mentioned at the top, I'd encourage each and every one of you to access the report, read the report in full, like I said it's packed full of insights like those you've heard today. And then, of course, explore how ServiceNow can enable your GBS or shared services organization to harness the power of this new service experience, operational excellence framework that we discussed. So with that, thank you all, and I hope everyone has a wonderful rest of the day.