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

Hello, everyone, and welcome. My name is Jon Lim, and I'm a Product Marketing manager supporting strategic portfolio management here at ServiceNow. I'm super excited to be here today with an amazing panel to provide you this webinar. Today, we'll be discussing SAFe Lean Portfolio Management, along with our wonderful partners at BAE Systems, who will discuss their Agile journey with ServiceNow. Just a few important elements to be reminded of, again, from this video. The session is being recorded and will be available on demand. So don't worry if you have coworkers or friends who want to watch this later, you will be able to see this webinar again in its entirety. Again, if you have any questions during today's webinar, please submit them via the Q&A panel. If we can't answer your questions live, we will answer them after the webinar. As I said before, we're joined by an expert panel of some of the leaders in the Agile space. So I'll let them introduce themselves here, first, starting with Fred.

Hi, everyone. Fred Champlain here, Agile evangelist at ServiceNow. I joined the company about a year ago after spending many years in strategy advisory, working with customers on their digital transformations, implementing SAFe, implementing Scaled Agile as well as working in enterprise architecture.

Thanks, Fred. This is Mohamed. Hello, everyone. This is Mohamed Ali, I'm the Senior Director of PMO at BAE Systems. A quick introduction. Joined BAE 3.5 years ago and responsible for building and retaining high-performing PMO, process excellence, Lean and Agile, delivery excellence, deliver on our promises to our business customers, last but not the least, Agile transformation. Our mission within PMO, within BAE is to enable our business customers meet their ambition. We'll see the BAE's mission very soon in the next subsequent slides. Thank you.

Hi, everyone. This is Sameer Anand. Delighted to be here with this panel. I'm the Agile Transformation leader at BAE Systems, joined them about 3 years back. Before that, I've done similar work in pharmaceutical, finance and other industries. So looking forward to an interesting panel.

Awesome. Thank you, guys. So getting into the agenda for today, what we'll cover, we get into the trends in Lean Portfolio Management. We'll look at the BAE Systems' Agile journey. We'll take a forward-looking approach to what's next. And then again, at the end of our session, we will have that Q&A section. So Fred, take a slide.

Sure. Thanks, Jon. So let's look at a few of the trends that we're seeing from a Lean Portfolio Management perspective. In terms of recent data shows, there's a lot of challenges in digital transformation. This is a study that was published by McKinsey recently, where we're really seeing the expected outcomes of investment, there's quite a challenge in actually achieving those outcomes. So here you can see from a revenue perspective, while some organizations are achieving their targets or coming closer, and in fact, overachieving in some cases, those are tend still to be the exception. And so we know that we have challenges around revenue as well as cost reduction, as you can see here. So really notable that we're about 31% on revenue increase in terms of achieving the largest group here. Likewise, with cost reduction. So this is a challenge -- a very challenging area. So as we look at this, we think about, well, what are the elements of digital transformation and what does it take to be successful in transforming. So if we look at the components, certainly using Agile and adopting Agile is a key aspect of this. In fact, if you look at a study that KPMG did last year, you'll see that 91% of organizations have stated it's a strategic priority to adopt Agile. And I'll say, scale the Agile, some sort, whether it's SAFe or any type of scaling of Agile. Today, we'll be speaking in the context a little more about SAFe, but you can take these concepts and principles and apply them, of course, outside of SAFe as well. So it's really the key is if you look at the landscape today, the key is knowing what your priorities are and having those priorities in line with your strategic objectives as we'll talk about, making sure that we are making the right investments at the right time. So while it's really challenging, there's lots of opportunity. And in terms of -- if we look at how do we go about solving these challenges, we'll delve into that. But before we do that, we have a survey for you. And we'd be curious to know what is your biggest challenge in scaling Agile in your organization?

Yes. So we're looking for your participation here in the audience. On your screen, you should have the ability to select some options listed, so please do so. There is a small submit button. So just make sure once you select your option to submit it, so we can see the results after this.

So from the team, what are we thinking? How do we see this playing out? Do we have any predictions for what people will say the biggest challenge in scaling Agile is for their organizations?

Yes. It's a really interesting set of questions -- set of responses. I think these are all really good. My guess is we'll probably see more around A, B and C. Organizing on value stream is always a big challenge, aligning strategy to execution and educating leaders. So that would be my guess. We'll see how the responses show.

Yes. So again, guys, please make sure you are submitting your answers, and we will be closing this poll in a couple of seconds here. So we can see the results. Okay. We will be closing the poll now. [Voting]

So let's take a look. Interesting. So it looks like your prediction was almost spot on.

Yes. So if we look at the results here, let's kind of quick walk through these, alignment of strategy and execution always a challenge. And of course, verified here, I think that's overarching. Educating executive leaders frequently as we think about Agile transformations, that is always a challenge as well and critical to the success, as we know. Organizing around value streams, certainly. Not all organizations are thinking about value streams, although we're seeing a really big shift in that over the past year or 2 years, that's becoming much bigger as a theme. Obtaining timely funding. This is an interesting one, too. It really says of our audience here, you're getting the funding on a timely basis. It's not a biggest challenge. It might be a challenge, but it's not the one that you're thinking about. Implementing lead portfolio management as well. It takes a fair amount to get that established up and running. And it depends on where your organization is at in terms of scaling, their journey of scaling Agile. Some organizations are starting small and organically growing, and we'll talk about that in a little bit here. And then change fatigue as well. There's only so much change that you could have in an organization at a time. And fortunately, I think it's also nice to see. There are challenges, but some organizations say, "Hey, we're sailing along. Those are the very rare ones or those overachievers that we saw I think in McKinsey slide". So any other comments or thoughts from our panel here? I think the value streaming prediction was a good one. So let's move on. So as we look at Lean Portfolio Management and the trends that we're seeing, I first want to level set a little bit for those of you who might not be as familiar with SAFe. But what is it that we're looking at in terms of a Lean portfolio? What do we mean by that? Certainly, there's a lot written and we won't make this a class on Lean Portfolio Management. But just to level set, we're thinking about the region of any organization that's operating a portfolio that's really the intersection of looking at strategic themes from an enterprise or if you're a government agency, it could be equivalent to what those agency or themes are from the agency that you're looking to implement. So thinking about how we create portfolios, the visions for the portfolios typically could be a canvas. Looking at portfolio backlogs, how do we prioritize those? How do we fund those? What are the guardrails? And then, of course, when you think about value streams, both what are referred to as development value stream or application or enabler value streams, several names there, as well as in the greater context around the business or operational value streams that we think about as well. So you can see in the lower panel here, just a little bit further breakout of what does this really mean? A vision, the backlog and we think about budgets, how do we fund those and then a little bit further on those guardrails. So the trends that we're seeing, just starting at the top here, is the emphasis on flow. There's really a reemphasis in SAFe 6.0 around flow, recognizing that, that flow is the critical key to success at all levels within the SAFe model. And that's to say anywhere within your scaling organization. . We're seeing both a top-down approach for LPM implementing Agile adoption. Historically, we've seen this more organically from the bottoms-up. But now we're seeing, I think, as organizations become familiar with Agile and implementing it, there's a realization that we need to tackle this both from top-down and bottoms-up. We've also seen increased awareness that we need to have enterprise architecture at the table. Within SAFe, we know this is a core facet of SAFe. The mindset of ensuring our enablers are as -- just as much in focus is the product itself. And we see that in general, there's much more emphasis on architecture because that's where some of our biggest dependencies lie at times. Also, we're seeing hybrid portfolio structures, meaning mixes of not just Agile organized work but also work that's being implemented in some variations of traditional Waterfall. Might be a mix, but in the large organizations, typically, there's a mix of to one degree or another. We can also work with organizations, of course, that our "pure" Agile, or that's their target end state model that they have in mind. And so we're seeing quite a bit of interest and demand there as well. Collaborative funding is a key area for us to enable that and also hand-in-hand with the observation that engaging executives earlier in the process of Agile adoption is quite critical. So if we look at value and the flow of value, just a little bit of detail. This is a very busy slide. I just wanted to share a little bit from -- recently, I was at the SAFe Summit. It was in Nashville. And so quite a bit of many talks there that we're really talking about flow of value. So for example, one of the talks was you can see here, it's kind of a long title, but it says business agility applied to corporate functions, becoming a flow-based organization. So really thinking beyond the traditional realm of we think about software development is the traditional realm of Agile. Well, we see a lot of organizations extending this beyond IT, really to shared services, global business services and sometimes, call it, back-office services within the company, but also to mainstream business operations as well. So we're seeing this expansion of the Agile footprint. And of course, this is quite critical. We'll touch on this next in terms of where the historic area and realm of development intersects into business. You can see here in the lower left frame, just really, there's more innovation that's continuing around tracking flow, measuring flow and using flow as an indicator to find areas that we might need to pay attention to. So this is an example of a value flow chart, really looking iteration by iteration, or spread by spread of where we're at in terms of delivery of value. So there's a lot of thinking around this. SAFe 6.0 brought out in emphasized flow metrics, which you can see here in the upper right, flow load, flow efficiency, of course, flow distribution, and there's much written in the SAFe framework of around all of these measures. They're useful. Again, whether you're using SAFe or not, these are very useful measures. If you're just maybe scaling Kanban, for example, these are very pertinent. These are critical measures actually. And then in the lower right here, you can see areas of accelerators, barriers to leverage from the optimization, looking at queue lengths, looking at work in progress and managing that proactively, using policies to manage allocation of funds and the guardrails that we mentioned earlier and really looking at handoffs where we might have inefficient processes where we don't have good quality in those handoffs. So as we look at trends, we also see an increasing use of goals. SAFe advocates OKRs as a goal framework to align strategy and execution. So this is really the top issue that we saw in the poll that we just did. So SAFe calls out OKR specifically. In my experience, companies use a mix of OKRs that may have some internal metrics that they use that might not quite fit in OKR framework and in some cases, OKRs are paired up to feed into versions of balance scorecards, which were really a predecessor in some sense of OKRs. So here, we can see how SAFe suggests organizing your strategic themes for objectives and then aligning those 2 development value streams in terms of key results and then getting the KPIs from those development streams to really inform the key results. So there's -- actually, [ Fermond ] written, if you're in the process of adopting SAFe or implementing SAFe, this is a really good area to spend some time on. Certainly, in ServiceNow, we have a goals framework that directly can be used to implement OKRs for an enterprise. Also, on the right-hand side here, you see a hierarchy or flow down of portfolio strategic themes of objectives have been set for value streams. And then we can see that really cascading down to the ARTs as well. So within SAFe, we've got the structure of moving to a portfolio actually to a solution train, maybe organize certainly portfolios with value streams and then solution trains and then ARTs as well, Agile Release Trains. Last observation here is really thinking about how we scale beyond IT. And this is really over the horizon a little bit. It was introduced in SAFe 6.0 of new patterns for value streams in terms of ARTs that are combined and enabled with business functions as well. So maybe a classic area for this might be a marketing, might be on an ART for product, a digital product release. So we are now synchronizing with marketing, making sure that we've got the marketing campaign in line with the actual development of the product and we can ensure that we have good synchronization there. That's historically been a challenging area, for example. And in this left-hand panel here, you can see in the middle is an enterprise Kanban feeding into multiple portfolios. So if you think about scaling from an organization, we certainly today will learn from BAE of how they're moving forward and implementing a portfolio. And it's very typical that there's multiple portfolios in a large organization. And then on the right-hand side, you can see here that SAFe is also suggesting combined portfolios, where actually a business functions that are being operational functions might be the focus of a ART, for example. So really bringing together even further, if you are merging to some degree, from a technology support, digital technology support both mainstream business operations. So I think this is the future, as you think about SAFe in terms of how enables business agility, of course, that's the overarching goal of SAFe is to enable sustainable business agility. So with that, why don't we take a look at what BAE is, their journey and where they're headed in terms of their SAFe implementation.

Thanks, Fred. Appreciate it. I'm here to talk about my most favorite company, BAE Systems, happens to be my employer, too. People who do not know BAE Systems, I'll give you a quick introduction to BAE. Jon, can you go to the next slide if you don't mind? Yes, commanding breadth of capabilities, one of the largest defense and aerospace companies in the world with 90,000 people strong with $30 billion in revenue. . Now we are highly federated businesses and a highly complex organization, a highly distributed organization. They've got 50-plus offices in the U.S. with 50-plus people. So you can imagine a number of offices and the distribution of people across U.S. and the world. And just because we are in the defense and aerospace industry that highly regulated as well. We have firmware, we have hardware, we have [ refresher ], we have cybers, we have compliance, audit. You name it, every possible complexity, yes, very much an integral part of the business that we are in. As you can see here, as you see the land and sea, we are now adding space to our services in BAE Systems, acquired Ball Aerospace just a couple of weeks ago. And that is going to exponentially increase the complexity that we already have. So just to give you an idea of how complex this organization is and also take you through the journey of how we did get into Agile in the subsequent slides. And when we -- when I joined BAE in 2020, these are some of the key challenges that we are constantly hearing from our business customers, from IT folks across the organization. Business is unique. We are high business of businesses. So every business used to feel that we are so unique that it is not possible for us to have a harmonized and standardized process across the organization because they're so unique, right? So that's something that came about in every discussion that we had. We have issues that lack of visibility into what is happening to make current investment across the organization, in product investments and other IT investments across the organization. And do I have enough people? There's so much demand that is coming from business. Business is growing at an exponential rate, and there's so much demand coming. And we are constantly accepting the demand. We are a centralized shared services organization. So not even clearly understanding whether we have enough capacity to support it. And there's a notion of we are a defense organization, obviously, a highly regulated organization. So Agile is an absolute misfit. We need to know everything in advance. We need to plan everything in advance. That was the notion. These are some of the key things. And the most important of all things that we are hearing is about, I have no idea when I will get better economy . That is the anchor that we actually -- that's the key point or the greatest value proposition that we anchored to saying that we can -- with Agile, we actually can get realize on speed to value and take of the fast tested path to value realization. So that was the key anchor that we actually used as a value proposition in order to transform the organization. What are the greatest value propositions about speed to value? You can get to realize on the benefits at the fastest pace with Agile at times. Can we go to the next slide, Jon? So a quick journey into ServiceNow. Like most of you folks, we got into ServiceNow through IT service management in suite of solutions, into an efficient and responsive services to the business customers. So we put IT service management, ITSM in 2019. And some of us came in 2020. The very first thing that we did was to extend into the IT business management, the strategic portfolio management, which is evolved into strategic portfolio management now. So we implemented a centralized system for demand intake for project execution. Now initially got into Agile 2.0 for Agile Scrum in a methodology support through ServiceNow, Agile lifecycle management capability. Very soon enough after a few months, we got into scaled Agile having signed up a license for advanced licensing option. Then we came into this adaptive capacity planning, as capacity is such a key metric for us, and we're accepting too much demand without clearly and knowing whether we have the capacity to support the demand. And the last but not the least, actionable insights, truthful, trust, you can get to see your -- the status of another information real time at any -- on-demand and immediately take action on what needs to get that attention, that kind of thing. So with that in place with proactive portfolio management as our key value prop for actually implementing IT business management and slowly evolving that into strategic portfolio management. Having said, these are into a comprehensive Agile transformation plan. It needs time, it needs effort and it needs to properly orchestrate a transformation plan in place. So we came up with a 3-phase transformation plan. We started with awareness, like Fred was mentioning about as we're working through the bottom-up, we are also working through a top-down. We went to the IT executives. We gave them training on Agile methodology. We've worked through the IT team. We worked through the IT business partners, hundreds of people in the organization there given training and awareness on Agile methodology, followed by formal training. We put people into the use of our one learning portal. There are hundreds of resources on Agile, it was available to us. We have assigned Agile resources, training resources to people. We did boot camps. We conducted in-house scaled Agile training for our project teams. And then finally, we got into enablement. With regard to enablement, we documented the Agile standards of practice and Agile governance. We instituted Agile community of practice for shared learning across the organization. And last but not the least, action coaching so that we enable experiential learning. You get to see, you get to learn, you get to know and then you will get to practice. And that's how we have been -- these are the steps that we have taken through the journey. Having said, we're still working through this. It's a never ending thing, right? Improvement is -- technically, we don't have a data point of having said that, you have reached. This is it. So it's a constant work in progress. And what has it led to? Having done all this, it has actually in the process of leading us and go into Lean portfolio management and like Fred spoke about applying the Lean principles to connect strategies, execution, speed to value in a much more fast realization of the benefits of the investment that you're making, empower teams, actionable insights, truthful, and trusted insights, continuous improvement, relentlessly improving every few weeks, every few months, every program implement and every spend. Last but not the least, it has led to enhanced collaboration, DevOps, DevSecOps, compliance, finance, procurement, every possible team, yes, integrated in order to make sure that everybody is working towards a common goal is to deliver value to our business customers. Customer centricity is our goal. As I mentioned to you that we have a very strong mission in the company and protect the people who protect us. So our primary mission is to make sure that we enable our business customers to meet their mission. We are in the business of from an IT PMO point of view and the business of making our business customers smarter, more productive, more efficient and more compliant. And so we are in the business of making them meet their mission. Let's go to the next slide.

Thank you, Mohamed. So what's next for us? If you go to the next one, Jon. So as Mohamed said, we are a very diverse company, very distributed. The key thing we're focusing on is how do we make things simple on this journey? Because -- and I'll try to address a couple of questions that I see how are we different from -- how is Lean portfolio management different from additional PMO? So in a traditional PMO, it's all about projects, projects, projects, projects, projects. Here to get to strategic portfolio management, one of the things we're applying to educate is think about strategy execution. It's not just about the project. What are your goals? Whether you're at the business level, enterprise portfolio level, let's start with your goals and key objectives. What is your strategy? How are you going to execute your strategy? And do you have the resources? So step one is a simple plan to check act of plan to check adjust. Step 1 would be tell us about your business, enterprise, portfolio goals, OKR strategies. Think about it at X to Y, Z. I'm at X, I want to go to Y, by Z time frame. And then after that, think about how will I get there? What is the product road map, the prioritized strategic initiatives, O&M, continuous improvements, put it all out there. This is what's going to get us there. So I've shown some examples, also there were some questions around how do you use alignment plan or strategy plan at workspace. So these are snapshots from alignment plan or strategy planning workspace. Here is an example of -- here are the different goals that we are going to. The next one is through the strategy deployment and through scaled Agile, tells us PI by PI. What is your road map? One of the things we found people struggle with Agile is some people have perception that Agile is completely do what you want. And that's why we chose scaled Agile. It's more structured Agile. So you have to have a long-term road map. Tell us your features by PI. Tell us the list of initiatives that will get you there, your projects, demands, SAFe epics, features, et cetera? So that's your first piece. And this is where you've looked at your funding, do you have the funding for the initiatives you want? That's the plan component. Then you come back to say, do you have the resources in place? Don't just ask for resources when the demand hits. Plan ahead. Plan to check and see. This is also from resource strategy planning. You can see there are some areas where you'd say, I do not have resources 6 months out, what you do about this? Do you step back on certain initiatives? Do you go higher? Do you cross-train people? This is all proactive planning. And then on the bottom, you see, you plan more detail PI by PI. So now you have a long-term road map. Then you look at that PI. Here are the features, here the points, here are the resources. So you have your plan and do, then you check-in. So you go to your strategy planning workspace and you see how your initiatives are tracking. Are you on track cost-wise, benefit delivery-wise? Another question I saw was around earned value. So we try to focus earned value around features. It's not just about the points delivered, what are the set of features that are going to give you benefits? And are you developing those features? You can track your feature burndown. And then finally, adjust. There's no strategy that you set and it stays in place. So even though we want people to be doing strategy planning once a year, adjust it, look at it every quarter, what has changed. Does strategy increase problem solving? Are you on track to deliver your goals? If not, make your adjustments. So this is a simple plan to check at. If you go to the next slide, Jon. And then with scaled Agile, this is a simplified vision of how we're going to help them deliver it. So we started at the bottom about 3 years back. And everything we're showing is about our U.S. organization, BAE Systems and primarily focused on work that we've done. Mohamed and I since we joined about 3-odd years back, there's other initiatives out there, but we're focusing on the portion that was done in the last 3 years. So first, we start off with training. There's roughly about 250 individual sessions that we've had 2 days scaled Agile training, all different levels of product management, Scrum Master, advanced Scrum Master, et cetera. So that was the first step. Create that foundation, help people common language, help them understand what they're talking about. And then start simple. start with individual teams. We start in Agile 2.0 individual teams, Kanban teams, get them used to the basics of Agile. Then we moved into scaled Agile and the concept of Agile release trains. And this is what we've been setting up now since about a year and our Agile release trains are either focused on value streams or platform-based. And we're going now is the top of the house, which is the strategy, the prioritization, set up your road maps, cascade goals throughout. And this is where we have a conversation. I saw there was another question out there was how should we structure our portfolios? Should they be function-based, funding based, business based. So we're having those active conversations. And the focus is speed to value. So go to the next slide, please.

Yes. Thank you, Sameer and Mohamed for that insight. I think it's really good to see how you guys have just undertaken this amazing journey in just 3 years, right? You guys came in and sort of put this plan to action and to seeing sort of [indiscernible] and your thoughts behind the strategy is really great to see. So we have a second poll question here. Is your organization using OKRs, Objectives and Key Results. So we're looking at the question here. So we have our answers, again you can submit them at the bottom. And a couple of housekeeping reminders again, in access and download resources in the panel at the bottom of your screen, there's also a link to our other on-demand webinars where you can review the content on a wide variety of topics. And again, we have a survey at the end of our webinar that can be completed. We would love your feedback post-webinar. Fred, do you want to guess at what our audience is thinking about this one too, because you want to?

I think we'll have a mix. Yes, I think we'll have a mix. My money this time is around C and D, but will be interesting to see what they come back.

My money is on C, has been actually, Jon.

A lot of good work that is happening at this time, right? It's a journey, and it doesn't -- there is no very clearly defined end state because everything is evolving. So people are in the process of implementing. The way we will look at BAE Systems, even having done quite a bit of work with 500, 600 sprints and whatnot, we're still on that journey. Now there is so much more to be done than what we have achieved so far. It's exciting what's in the future.

Yes. And it is a journey, right? So probably a lot of people will be ending up in that C because when you think about it, it's a never-ending process, right? Okay. So we'll be closing out our poll questions here. So let's check, take a look at our results. [Voting]

Interesting.

Yes.

Yes, people can put in chat, what are some of the techniques, is like lead and lag metrics, be good to know what they're using.

Yes. So as we thought a lot of people are in the process of implementing, but yes, that's interesting.

Yes, I think it really speaks to, in my experience, implementing OKRs. Sometimes you need to be Agile about it. And it takes a couple of times going through it to implement it, maybe starting smaller. Some organizations actually prefer to start at the top and work their way down and iterate and learn from those iterations. So it's certainly in the process. And also, we use something else. Like I said earlier, is within the strategic portfolio of workspace with our goal framework, we really wrote that and built that in a general way. So if you aren't using OKRs, using some other metrics, there are other systems, of course, other than OKRs. Since we're thinking about SAFe today, SAFe is pretty strong in their recommendation. Although it's not an absolute, as is anything in the framework, it's possible you can have your own metric system that works perfectly fine. And I think -- thinking about lagging metrics versus leading metrics. This is an important aspect and it's really what your organization needs. And frankly, companies that implement, enterprises that implement OKRs, those changes are intended to be updated. Those aren't static. So it's an ongoing process. It's more about having a consolidated view of your goals and being able to relate that to your prioritization and to your funding, the things that we're pulling together and enabling to support Lean portfolio management. in the SPW offering.

Yes. That's a great point, Fred. So we've got a ton of questions coming in now. And I'm sure that the audience want to hear the results of this. So the first question that we see here is for the BAE team. How do you manage your funding of work given that your customers are government organizations and historically funded programs? I'm actually interested to hear about this, too.

Yes. Mohamed, do you want to go first?

Can you repeat the question, again, Jon, if you don't mind? I was not sure of the question.

Yes. How do you manage your funding of work given that your customers are government organizations and historically funded programs?

Yes, they are. It happens very early on. And what we are doing -- there is a change that is coming this year than any other year in the past, and I can talk about it a little bit. Now for the first time, we are actually applying capacity as a key indicator of how much work can actually be done. And that's one of the reasons why I spoke about adapt our capacity planning or capacity based commitment. So what we are actually doing at this time is in the shared services organization is that we are in the process of determining how much time is being spent by the IT on keeping the lights on kind of the every other activity, but not programs and projects and initiatives. So knowing that and knowing how much of work is going to be carried over to the next year from the existing program work that is currently happening managed with the PMO and then applying some reserves. They're going to come up with a set number of ours in terms of capacity, IT capacity available or any other additional work. That capacity is going to then be given to our business customers to say that, hey, look at what is the highest priority, what delivers the most value? What is true -- what are the initiatives that truly tied to your strategic goals of your business sector and then getting that highest priority and highest value generator for the organization is a list of a set of initiatives that are going to come to us. And then we are going to determine how much of capacity is truly required in order to be able to deliver that value to business customers. I say that those discussions have already been taking place now. If everything goes well in the next few weeks, we will have a road map for 2024 much in advance of starting the year and will mobilize and plan everything around these strategic initiatives. And these strategic initiatives because we're applying the guardrails, and the constraint of capacity into it as an example, they are going to be well thought through by the business instead of just coming up with every possible and think that they want to get have us work on, and they are going to truly qualify what actually produces the most value. What is truly a strategic initiative that is tied to these strategic goals kind of thing. So that is how we are intending to manage. It has been so far, it is not to say that this is very new. We have been almost going in the journey for some time, but the maturity of how we intend to manage is going to have -- is happening now for 2024.

I'll just add a couple of things. One is like Mohamed said earlier, we're a very distributed and very diverse organization. We have different sectors. So we have a combination of projects. In some cases, we have business initiatives that are working directly with external clients. And then we have shared services initiatives where either we're partnering with the sectors or we're maintaining a large shared service component and then the bigger focus on strategies and goals before we get to even projects and demands.

Yes.

Yes. yes. I think you guys gave a pretty comprehensive answer to that. Another question that came in that I think gets asked a lot is what would you say are the main differences between traditional PMO versus LPM? And I think that everyone will probably have thought on this question.

Fred, do you want to take that first?

Fred, do you want to start off?

Sure, I'd be happy to. Yes, I think in terms of LPM, really, PMOs or enterprise or ePMOs, they're really the orchestrators and at times the operators, if you will, of a Lean portfolio, certainly supporting it. There's new roles. Certainly, in SAFe, there's a set of goals around portfolio. and also value stream managers as well in terms of -- some of these roles and skill sets are much more aligned towards LPM, but the function might actually look like rather than a PMO, we've seen Agile PMOs. We've seen value realization offices. We've seen strategy realization offices. As ServiceNow, we have SRO. So much more oriented towards value delivery from a portfolio -- from a Lean portfolio. So that construct is still there. It might be lighter weight. It might be a little more decentralized as a traditional PMO shifting that in providing still some governance in the guardrails for a portfolio or a set of portfolios depending on the situation. So still very applicable, but really thinking and supporting Agile ways of working and scaling of agility, really focused on value thinking in the big prize of business agility that's really the shift that we're seeing. So the people have constructs, they certainly change in some cases organizationally, but you still have a governance construct that's supporting a Lean portfolio.

And just to add a little bit to the discussion, Fred, as we're very focused on time, on schedule and on cost kind of -- that used to have a key metric. And starting this year, at the end of last year, we slowly started to change our measurement and also manage towards value. So we started to come up with business value score card. What is the value that you've actually delivered to that business? So that is just not about time and cost, but about what is the value addition kind of thing. So it's started to kind of move the organization in the direction of thinking more about the value and less about -- and this great work that has to be done and, was it done within the time and the cost that was given? So Lean portfolio management, from my point of view is all about what is the value proposition? And how is that strategically tied to something that is strategically important to the business from our point? And that's where we are leading the organization towards.

Yes. And if I can add on also, like I think both Fred and Mohamed said, moving from delivery on time, to delivering value, to what are your goals and objectives and how can we help you deliver your strategy? So even helping them predetermined the set of initiatives that should be targeted. So just moving further up the value chain earlier.

Really just one follow-on comment there is that is the essence of business agility, right? If you think about your goals that may change, your objectives may change, and we need that flexibility in the mindset of how we operate our portfolio. And again, very heavily focused on value delivery, recognizing the definition of that value may change as we operate that portfolio.

Thanks, guys. And I think we touched on this a little bit, but this question I guess I'll let the BAE team elaborate a little bit further. But the question is, what is your approach to LPM governance? What changes do you foresee to your existing PMO?

From a change -- I will not say it is a change. I think it is more of a maturity. It's evolving from the state that we have been in. So we've been constantly moving towards better maturity in terms of providing governance at this time. Like I have mentioned, actually, Jon, is that this time we are creating guardrails and we are creating clear guidance as to what should be the criteria that should be used in order to come up with defining the road map for next year. And we are calling that as the one to endless. So that's very clear to us that here are the top 20, 30, 50 things. And these are the -- all this 50 things are absolutely tied to something strategically important to the organization either they are directly enabling a key strategy for that business or they are doing something that is going to help them in realizing on the strategy. So we are truly providing what should be the criteria that they must use and also that everything that you need can't be done, right? There are limitations and constraints, whether it's funding, or people or the ability of the organization itself. There's only so much throughput that can be achieved. So we are providing all kinds of little bit of guardrails and constraints and providing guidance to the business leadership team so that they can apply these constraints as well as the guidance to come up with absolutely qualified strategic set of initiatives, the 2 redelivers value and helps them to meet their mission.

Yes. And if I can add to that. I think it's what we've been reiterating, it's a journey, it won't happen immediately. But over time, rather than having a very, very, very large number of fragmented projects that could go to different individuals who run, you now have more Agile release trains that are focused on a set of initiatives and metrics and KPIs and helping them improve that over time. So just becoming more strategic and focusing on business outcomes and helping be a partner in delivering those rather than just the task-based project delivery.

Right. Right. And I like what you said there, Mohamed, it really is an evolution as opposed to change, right? Because it's always a constant iteration and building and learning from all the results, right? So it really creating an evolution in the process.

Right.

Yes. Let's see what else came. So another question that we have came in that was how do you plan to implement? I guess, if you plan to implement SAFe's architectural runway in your portfolio design?

Yes. So a few different examples. One is when we're setting up Agile release trains. In some cases, we're -- some of these are value stream focused, but some of them are platform-focused. So some of the infrastructure components are just so critical for us. We said, let's consider the set of enhancements needed for that platform. And that platform will have a backlog. So that's one key thing. The second thing is overall, just having enabler epics, enabler features and letting them do some spikes around technical pieces that are difficult to predict. So I think those are some of the examples we're using.

Let me add a little bit there, Jon. Just -- and those are great. And organizations that interpret architectural runway, that concept is really not new. But I think SAFe does a good job of putting emphasis on architecture and having a runway, which means understand -- have a prioritized backlog not just to road map, but understanding what your investments are, what you have currently in progress as well. And that's really part of one of the biggest challenges of scaling are dependencies and frequently, those dependencies are longer lead time dependencies relating back to architecture items or technology items or enabler items. It could be an audit function as well, for example. So perhaps there's a new capacity needed in a cloud, and there's a contract that needs to be updated and refresh for additional capacity, then we have some procurement lead time to it, for example. So these are the important things as you scale to make sure that we have this holistic view, not just the functionality that we want to deliver out to our customers, we want to make sure that we're looking at the entire solution itself, of course. So as we think about portfolio is one of the key areas and within SAFe, that's why you'll see enterprise architecture equally at the table in that triad, if you will, with business owners or your portfolio managers and then always at each layer within SAFe, you see the emphasis on architects on having a seat at the table as well. So this is a critical aspect certainly from a funding perspective as well to really have policies around allocation of funding. So it's very easy in a portfolio to see examples. I've seen them in my work where technology improvements aren't addressed. They're deprioritized in favor of functionality out to customers, which is understandable. But at some point, that will break and you'll accumulate costly technical debt. So there's a number of factors that we want to be thinking about in our -- within ServiceNow, our application portfolio management actually provides a means of having a sense of that prioritization, thinking about the traditional metrics around operating a portfolio for -- of applications of risk and also where you want to be investing versus maybe decommissioning or migrating to a new technology platform. So lots there to leverage. But at the end of the day, we're still working to find those dependencies, anticipate those dependencies and adjust our funding and priorities accordingly.

Yes. It's a great point, Fred. So next question we have here is, how does your portfolio relate to your product lines or value stream?

Yes. That's actually a hot topic of discussion internally. But portfolio, it depends how you structure the portfolio. One of the conversations we are having is should portfolios be based on delivering functions? Should they be based on business functions? Should they be based on funding strategies and models? So I think it is a critical discussion and we're actually right in the midst of having the discussion. There's pros and cons all around. But sometime next year, we'll tell you which ones in place.

We will share our experience with you.

Yes. We'll have to get you guys back on the year, tell us [indiscernible].

Key area, Jon, around this, too, is it was mentioned earlier about platform. And so just speaking a little bit to development value streams or application development or enabler value streams, whatever your preferred terminology is, there's new patterns that are emerging. For example, nested development value streams, which is really a platform. So I think there's some maturity in the industry, if you will, around thinking around some new patterns that really will help us relate to organizing portfolios on the development value streams to the applications and the business capabilities that they're supporting and of course, thinking more holistically about from a business value stream or operational value stream landscape. But what does that look like in terms of customer journeys and enabling those journeys. So I think this is an area, certainly, that's always challenging. And also, you have to keep in mind that you need to take an approach and always be adapting that approach because you may not start at the optimal starting point and just like in Agile, you want to continuously be improving, which means continuous learning, adapting and shifting that. So that's something to keep in mind as you think about what's that fit to value streams and those value streams may also be changing from a business perspective. For example, there may be a trigger where BAE acquired a unit that does work in space, right, in the space industry. So that's certainly a major trigger around business or operational value streams that clearly will impact the landscape for business capabilities and down into development value streams. So this happens very frequently where there's a merger acquisition or a divestiture that really at the top level of an organization on those strategic teams, enterprise teams, they really have a downstream impact of course. And so getting that alignment is very critical. And getting it on a timely basis is critical as well.

And I think these concepts are applicable across all industries. There's a question there, which industry are you targeting? I know personally, I've used these concepts in pharmaceutical industry, right now in defense, technology, consumer health care, finance. So I don't think these concepts apply just to one industry.

Yes, I would certainly echo that strongly. My work prior to joining ServiceNow was across multiple industries, finance. You mentioned pharmaceuticals. There's really -- in fact, in our ServiceNow, in our business units, strategic portfolio management, we're seeing across all industries almost equally in terms of activity around adopting Lean portfolios, adopting our SPM solutions and really it's almost equal across industries, including government, and that's beyond just U.S. government and federal government, which is somewhat what we're looking at here, although I think defense across the world for BAE, it really is pretty consistent across all industries.

Yes. Yes. And I think that just that fact, right, just the broad applicability of LPM is something that does make it so attractive across industries. So yes, thank you guys so much for answering those questions. I know we got a minute here left. So I think we have to move on. But just a couple last-minute slides. So we do have our Knowledge 2023 Conference. You can register for that, the digital experience that's upcoming in 2024. We've got a couple of slides here. For updates, you can scan this QR code on May 7 to 9. And again, you have the on-demand webinars. So anything that -- this webinar as well as past webinars that we had posted, you can check those out and go over those at your leisure. So rounding out at the top hour, we would say thank you to our presenters here, Sameer, Mohamed from BAE Systems and Fred Champlain here from ServiceNow. Thank you guys so much, and thank you, everybody, for your time, joining this webinar and hope you have a wonderful rest of your day.

Thank you.

Thank you.